International Business Strategies in a Globalizing World

INTERNATIONAL BUSINESS
STRATEGY EXAM
MAN3090
Janna Pearce
6531652

Case Study Question
“Using whatever approach you think appropriate, identify the key dynamics of the
US auto industry that Tesla will need to consider as it tries to enter into the
market. Critically review the extent to which you think Tesla is in a position to meet
the challenges of the US auto industry.”
Introduction
Tesla's objective, according to Porter, is to position itself successfully within the auto
industry to best protect against external influences, furthermore, Tesla's profitability
in the sector will ultimately be determined by the 5 external forces and PESTLE
factors. This essay determines the key dynamics of the auto industry, while critically
reviewing Tesla’s capabilities to face the challenges of the auto industry in the US.
Industry Rivalry
Competition within the auto industry is high, characterising an oligopolistic US
market. The rivalry between three US manufacturers accounts for 46% of the US
market share by volume. With the additional factor of high barriers of competitors
exiting the market, by a social incentive of protecting the 3 million jobs. Tesla,
however, faces the existing competition by a differentiation focus strategy into the
electric vehicles (EV) market where competition is moderate. By emphasising the
uniqueness of advanced technologies in its EV’s and utilising a penetration strategy
targeting a narrow, high-end market Tesla can profit from the early adopters. Musk
further outlines the long term strategy of “driving down the market” to make the
successive models for the mass market, this shifts to a differentiation strategy.
The industry is also protected by a low threat of new entrants. Challenged by
contending with brand loyalty, high investment into manufacturing capabilities,
developing a supply chain, access to capital requirements and technological
constraints. All of which could cost as much as $6 billion and take up to 6 years.
Threat of Substitutes
The changing face to mobility focus on economic and environmental factors.
Alternative modes of transport, influenced by people moving to cities and climate

change concerns, include car-sharing services, urban bikes, electric scooters.
Investors predict these alternative methods will grow. Tesla’s response to this
challenge is to increase the attractiveness of the auto industry by substituting for the
mass EV market. The auto industry is predicted to be worth $245 billion in 2021 and
stay flat in terms of sales and volume. As a result, the threat of substitutes currently
qualifies as moderate.
Bargaining Power of Buyers
With 113 million registered passenger cars and average vehicle retention of 11.6
years the power of buyers is a high force. The millennial consumer market is a new
threat to buyer power in the auto industry. With significant research and conferring,
millennials are more pragmatic in their decision making. Additionally, the lack of
brand loyalty and low switching costs present a threat to the industry. Tesla however
competes on environmental factors and exclusivity for customers, selling through
company-owned stores and securing pre-ordered sales. Although obstructed by
legal restrictions partial banning of direct sales in several states, illustrates the
destructive power Tesla have over the industry. More sustainably, however, Tesla
can compete in the demanding consumer market by offering post-sale Wi-Fi updates
and improvements as well as exclusive access to 1,300 charging stations and
11,000 superchargers addressing “range anxiety”. Furthermore, the connected car
revenue is expected to be worth $156 car revenues in 2022, therefore Tesla’s
focused position on connected services, autonomous driving and safety understand
the buyers’ needs and positions itself in accordance to earn high profits.
Bargaining Power of Suppliers
The power of suppliers is low but has the potential to be moderate. The supply chain
is complex with three tiers of suppliers, with 11,000 global supplier companies. Tier 1
suppliers have increasing power with diversified technological capabilities outside
the auto industry. Additionally, the auto industry influenced by technology and
software is predicted to capture 11% of profits in 2030. Tesla’s vertically integrated
position is advantageous by manufacturing 80% of components in house Tesla can
capture higher profit margins. Critically, however, Tesla’s AI automated factories are
challenged by standards of quality.