Assignment on Tesla's Business Model

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Tesla
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Introduction
Tesla's business model entails venturing the high-end market featured by customers
willing to pay a premium, after that, Tesla will push down the market rapidly to attain higher
sales volume and reduce prices for every successive Model developed (Müller-Stewens,
2018). Also, Tesla seeks to offer power-supply options that are embedded in the principle of
zero emissions. Hence, since Tesla's inception, it has adopted groundbreaking decisions that shift
away from the conventional business models. However, even with such a shift, the profits are
marginal. With such a path by Tesla and many underlying decisions in the future, it is apparent
that Tesla's business model will be a revolution in the auto industry.
Porter's five forces of Tesla
Competition-strongest
Based on the fact that Tesla runs in an environment characterized where rivalry with
other competitors is intense, competition is a threat and the primary force that lowers prices and
profitability of a company. Tesla has few rivals, such as General Motors, Honda, Ford Motor.
However, despite Tesla's competitors being few, which has minimal impact on competition, their
degree of aggression with regards to innovation and endorsing their products is a major threat to
Tesla (Dobbs, 2014). The price cuts for EVs and falling prices for the batteries has led to an
increase in the growth of EVs as competition by automakers intensify. BMW stated that it would
price its i3 for $41 350, whereas Ford will price its Focus for $ 4000. Moreover, the low
barricades for customers to buy vehicles from various producers further increase the power of
competitors.
Bargaining power by customers-strong force

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The consumers' purchasing power with regards to the market for electric vehicles is
enormous. Buyers can demand lower cost or high-quality products from manufacturers when
their ability to bargain is robust. The low exchanging costs lessen obstacles for Tesla customers
to purchase cars from different suppliers. For example, there is barely any expense for a
customer to switch from Tesla's Model 3 to Jaguar I-Pace, an electric vehicle. This compels a
solid power against the company and various players in the automobile industry.
Suppliers' bargaining power-moderate force
Musk, on many occasions, reiterated the vitality of the battery supply as the bottleneck of
Tesla. Specifically, the supply of lithium and cobalt considered to be the most vital raw materials
possess a significant risk for Tesla's operations. A considerable part of the global supply of
cobalt hails from the unstable Democratic Republic of Congo (Müller-Stewens, 2018).
Though disruptions in supply could translate to price increments, producers can substitute cobalt
with manganese. However, this is different for lithium, which is considered an indispensable
component of the battery technology by Tesla raising grave challenges to the supply chains by
Tesla. Though there is an oversupply of lithium today, this may change in the future due to the
increased share of supply channels into the growing demand for smartphones, tablets, and
computing electronics. Therefore, strong negotiating power will allow suppliers to price higher
valued or low-quality raw materials to their buyers.
The threat of substitution-moderate power
Tesla's threat of substitutes is minimal. Substitution is specifically low where buyers can
undoubtedly identify substitute products with better prices or improved quality, and when buyers
can change beginning with one product onto the next with minimal costs. Using Tesla's case, a

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customer has fewer cars to switch to, such as Porsche considered more costly and thus making
this force less risky to Tesla.
The threat of new entrants-weak force
The risk of new players into selective fuel cars fabricating the market is frail. The new
players are a force that decides how easy or how hard it is to penetrate a particular industry.
Tesla's business is a force to reckon with due to the staggering cost of brand improvement and
also the ubiquity of Elon Musk. Also, car fabricating has mind-boggling costs, which create
boundaries for new entrants.
Value chain analysis
The value chain analysis of Tesla is the analytical framework that will help in pointing
out business activities that can generate value and establish a competitive edge for Tesla over its
rivals.
Inbound logistics
Tesla's inbound logistics entail receiving and storing raw materials for manufacturing
electric cars, energy storage devices, and solar panels. Tesla utilizes a range of rare materials
such as aluminum, steel, lithium, and nickel, among others. Tesla leases three warehouses that
store the company's raw materials. Tesla does not engage with complex inbound logistics
practices as the primary source of value creation. The automaker operates on a build-to-order,
and this translates to bottlenecks in components supply could be an obstacle. Thus, Tesla must
develop long-term strategic connections with its suppliers.
Operations