Tesla: In-Depth Business Analysis Using Porter's Five Forces Model

This report provides a comprehensive business analysis of Tesla, the American electric vehicle and clean energy company. The analysis begins with an overview of Tesla's establishment, its dual verticals (automotive and energy), and its pioneering role in the electric vehicle market. The report highlights Tesla's innovative approach, including its lithium battery technology, direct-to-customer business model, and vertically integrated operations. A key component of the analysis involves the application of Porter's Five Forces model to assess the competitive dynamics of the automobile industry. The report examines the threat of new entrants, the bargaining power of suppliers and customers, the intensity of competitive rivalry, and the threat of substitutes. The analysis concludes by highlighting the factors that contribute to Tesla's success, such as its differentiated products and strategic positioning in the evolving electric vehicle market.

Introduction
Tesla is an American automobile company that was founded on 1st July 2003 and is based out
of Palo Alto California. It was established with the vision of manufacturing fully electric –
vehicles. It is a successful car making company after Ford which was founded more than 100
years ago. This company has 2 verticals which are automotive and energy storage and
generation. Automotive vertical involves prototyping, engineering, designing, manufacturing
and selling of electric vehicles while the other vertical involves design, manufacturing,
installation, sale or lease of batter products, solar tiles, solar panels. This division also sells
electricity generated by its solar energy systems.
Due to rising pollution and environmental compliance, electric vehicles will undoubtedly be
the leaders of future especially in a highly polluted cities like Tokyo, Beijing. There are
currently more than 20 electric vehicles manufacturers and electric hybrid vehicles were
already launched by the automobile giants like Toyota, Nissan, BMW but they uses the
gasoline. Sensing the demand and future, Tesla created the disruptive technology and uses
innovative lithium battery packs that are much more efficient and delivers high performance
as compared to the competitor’s products. Apart from it, It setups the entire ecosystem like
unique direct to customer selling business model, large number of supercharger stations as
well as ‘Gigafactory’ for manufacturing Lithium-ion cells for internal use as well to sell it to
other electric vehicles manufactures. Tesla is highly vertically integrated company that have
reduced its reliance on the suppliers (Stringham, Miller, & Clark, 2015).
Tesla roadster was the first vehicle launched in 2008 that uses lithium-ion battery. This car
was a huge sit and sold heavily. Next was Model S. It also became the best car in its category
having cutting edge technology. This car has proved that battery driven electric vehicles can
deliver the acceleration as good as petrol vehicles. Apart from performance, this car has
superior safety features, efficiency features, luxurious features, 17 inch touch screen driver

interface and thus raised the bar for the electric vehicles of the 21st century. It launched
Model X in 2015 which is designed as safest and most capable sports vehicle. After
competing in luxurious and cross over market, It then launched the Model 3 in 2016 which is
a low priced car designed to cater to the needs of high volume markets. Tesla is a successful
company fulfilling its promise of delivering clean energy affordable cars recognizing and
creating the safe future for the planet.
Porter’s 5 force model of the Automobile Industry
Threat of new entry
 Automobile is a very capital intensive industry requiring a huge infrastructure
 Existing automobile companies have already established their market, brand and
reputation making it tough for the new entrants to carve their niche in the market.
 Tesla is the 2nd successful automobile company after a gap of more than 100 years in
US. First one is Ford.
 Therefore, unless the new entrant has cutting edge technology and disruptive ideas of
delivering the cars in some innovative ways, it does not make much sense for the
company to enter in this area (Kim, 2014)
 As a result, there is little threat of entry of new player in the industry
Bargaining power of suppliers
 Most of the components are easily available and sell by large number of suppliers
 As far as batteries are concerned, there are limited number of suppliers
 For charging infrastructure also, there are limited players

 For the automobile industry, supplier’s power is low for the components but high for
the batteries and charging network. This does have much impact on the Tesla because
it is a vertically integrated company with batteries production in-house and huge
ecosystem of super charging stations (Jussani, et al., 2015)
 Overall, supplier power remains weak for an automobile industry
Competition rivalry
 There are large number of players in the industry and most of the customers remain
loyal to the brands
 Different brands compete for different consumers in different product ranges
 As far as electric cars are concerned, there is not much competition and no major
player. Also, most of the cars used gasoline.
 Although the competition rivalry is strong in automobile industry, it does not have
much impact on the Tesla as its products are differentiated. Although there are many
existing automobile players that have entered in Electric vehicles market, not much
have got the success (Jussani, et al., 2015)
 Tesla competes with Audi, Toyota, Nissan, Daimler, Ford in automobile vertical and
Vivint Solar, Sungevity and trinity solar in batter vertical but still particularly tesla
has not much impact of the competition. Having said that, as the future belongs to
electric vehicles, competition will going to be intense in the future
Bargaining power of customers

 Buyers are price sensitive and looks for comfort, mileage, performance and other
features
 Buyers are loyal to the brand but can also switch to another brand, in spite of high
switching costs, if they really find the another brand much more aligned to their needs
and expectations
 Buyers have moderate power in the automobile industry (Zhao, 2015)
Threat of substitutes
 There are hardly any alternative to cars which means there is no direct substitute
however Gasoline cars and electric cars provides a storing substitute for the regular
petrol and diesel vehicles (Jussani, et al., 2015)
 As far as Tesla is concerned, Electric vehicles driven using lithium ion battery have
huge risk of substitution by other types of existing regular cars and new hybrid plug-
in cars but once the government focus for clean energy and environmental aspects
increases, Electric vehicles bound to increase
 It remain low at an overall level for the automobile industry

References:
Jussani, A. C., Heer, A., Ibusuki, U., & de Moura Côrtes, C. (2015). Electric car and
Porter’s five Forces: Marketing Positioning in the Automotive Industry (No. 2015-36-
0486). SAE Technical Paper.
Kim, Y. H. (2014). A global analysis and market strategy in the electric vehicle battery
industry (Doctoral dissertation, Massachusetts Institute of Technology).
Stringham, E. P., Miller, J. K., & Clark, J. R. (2015). Overcoming barriers to entry in an
established industry: Tesla Motors. California Management Review, 57(4), 85-103.
Zhao, S. (2015). Analyzing the impact of political and market institutions in environmental
performance and policy (Doctoral dissertation, Indiana University).