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Porter’s Five Forces Analysis of Tesla, Inc

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Tesla, Inc is an American electric vehicle (EV) company that was founded in July 2003 as Tesla Motors. As well as EV, Tesla also builds clean energy storage but for the sake of this analysis we will be focusing on the key factors impacting Tesla’s EV side of the business.

Threat of New Entrants

Barriers to entry are high for any manufacturer who do not already build cars, due to the extremely high amount of investment needed for production and branding. New entrants will struggle to benefit from any economies of scale, as the costs of production is a major barrier that any new player will find difficult to overcome. In 2020 Tesla produced over 500,000 vehicles of its Model S/X and 3/Y (Tesla press release, 2021).


The production barrier becomes even harder to overcome when you consider the brand strength of Tesla over other EV companies. For a new entrant to be considered as cool, innovate or desirable to own as Tesla, would be near impossible. And the companies perception of being trendy starts from the very top, CEO Elon Musk. He’s extremely active on Twitter, where he posts memes and interacts with the public. Additionally he has a number of cameo appearances in hugely popular film and tv shows such as Iron Man 2, The Big Bang Theory and many others, which contributes to his and Tesla’s high popularity. As of September 2021, Elon Musk has 59.8 million Twitter followers, the 17th most followed Twitter account.


The threat of new entrants is low for Tesla.


Power of Suppliers

Like any manufacturing company, their reliance on having good, reliable suppliers of materials will always be important. And never has this been more apparent than during the COVID 19 pandemic where industries from car manufacturers, gaming companies and smartphone producers had to deal with the short supple of Semiconductors due to the factory closures and heightened demand for consumer electronics. In August 2021 Tesla were forced to temporarily halt part of the production line at that plant in Shanghai, China for four days due to shortages of “key chips” (Bloomberg, 2021).


With that being said, Tesla announced in their Q2 2021 Earning Call Letter that while they admitted to challenges with the global shortage, the impact on their production were mitigated by their “electrical and firmware engineering teams remain hard at work designing, developing, and validating 19 new variants of controllers in response to ongoing semiconductor shortages.” So, while they were understandably impacted by the shortage, their engineers took it upon themselves to solve the problem.


The power of suppliers should be considered a moderate threat to Tesla, having to halt production even four days would have been a big deal to Tesla, but Tesla’s power in innovation and being able to engineer their own solution will be of great comfort.

Powers of Buyers

The power of buyers/customers will continue to rise because more and more are switching over to EV.


Where customers hold the most power over Tesla, is that there are little to no barriers to switching to another vehicle. Like with any other vehicle purchase, Tesla must use their branding and innovate skills to convince customers to choose them over the many other options available from major players in the automotive industry. Additionally brand loyalty are especially prevalent with big ticket buys, so a lot of customers will stick with what they know. This can be a problem for Tesla as they won’t have built up as big a customer base compared to the other big players.


Something which Tesla does offer which is often seen as a key benefit of Tesla over other EV vehicles is their Supercharger network, which offer incredibly fast charging speeds compared to other charging networks. A major drawback to EV compared to gas powered vehicles is topping up with more juice cannot be done as quickly. Therefore customers access to fast charging is seen as a huge benefit for Tesla which they cannot get with other EV, thereby weakening the customers powers when considering other options.


The power of buyers can be considered as moderate to high for Tesla.

Threat of Substitute Products

A large number of customers considering buying EV is because of a greater concern on their environmental impact. While buying a greener vehicle is one way to address this, potential customers also have a decent number of other ways of getting round. Public transport, us an option but are a lot more restrictive in their movements and times compared to owning a private car. Of course walking or bicycles give customers the freedom to move when and where they want, but practicality of travelling medium to long distances or with any luggage does not make this a viable substitutions for many.


The most likely substitute to an EV is a hybrid, and while this does offer a better option to gas powered only vehicles, there will be a portion of customers that want to move completely away from gas therefore a hybrid vehicle will not satisfy this need.


Therefore, the threat of a substitute product for Tesla’s environmentally conscious customers would be low.

Competitive Rivalry

Tesla are in 2 extremely competitive markets, the EV market and automotive market as a whole. Focusing on electric vehicles in particular the market has exploded in the last decade.


Since Tesla’s launched their first battery powered vehicle, the Roadster, in 2008 they have seen a number of large players in the automotive industry enter the EV market, BWM (iX in 2013), Audi (e-tron in 2019) and Nissan (Leaf in 2010) are just some of the brands that entered the market. Many of the brands have also announced they will be producing only electric vehicles in the near future, Jaguar in 2025, Volvo in 2030 and Lotus in 2028 (BBC, 2021)


While competitive rivalry is high for Tesla, as more and more firms join the industry, Tesla have a significant advantage over their competitors with their extensive Supercharge network as mentioned previously.

References

Tesla Q2 2021 Earning Call Letter - https://tesla-cdn.thron.com/static/ZBOUYO_TSLA_Q2_2021_Update_DJCVNJ.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D%22q2_2021.pdf%22


Bloomberg - https://www.bloomberg.com/news/articles/2021-09-02/tesla-s-china-output-halted-for-days-last-month-on-chip-shortage?utm_source=google&utm_medium=bd&cmpId=google&sref=WJKVI5nK


Tesla Q4 2020 Vehicle Production & Deliveries - https://ir.tesla.com/press-release/tesla-q4-2020-vehicle-production-deliveries


BBC - Why electric cars will take over sooner than you think - BBChttps://www.bbc.co.uk › news › business-57253947

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