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Tesla Five Forces Analysis

Author: Abhijeet Pratap

Date: July 07, 2024

Porter's Five Forces Analysis of Tesla

Tesla Five Forces Analysis

Tesla is the leading name in the world of electric mobility. It is also the largest brand in the automobile industry based on market capitalization. Tesla is not an ordinary automobile company but very different from the legacy automobile manufacturers. The company is also among the leading players in the technology sector and is now also earning a name for itself in the field of AI and robotics.

Tesla's product portfolio includes the following:

Tesla Model 3: Tesla's most affordable model, offered in single motor and dual motor variants with a range of up to 568 km.

Tesla Model S: Tesla's flagship sedan, available with dual or tri-motor setups. The performance model can accelerate from 0-100 km/h in just 2.5 seconds and has a range of up to 650 km.

Tesla Model X: Tesla's all-electric SUV, featuring the distinctive "Falcon Wing" rear doors. It competes with models like the Mercedes-Benz EQC and Jaguar I-Pace.

Tesla Cybertruck: Tesla's upcoming all-electric pickup truck, boasting impressive specifications like a 0-100 km/h time of 2.9 seconds and a range of over 805 km for the top tri-motor variant.

In addition to its electric vehicles, Tesla also offers energy generation and storage products like solar panels, solar roofs, and the Powerwall home battery system, all aimed at accelerating the transition to sustainable energy.

In this five forces analysis of Tesla, we will take a look at how Porter’s five forces affect Tesla’s competitive position in the automobile sector.

Bargaining Power of Suppliers

The bargaining power of Tesla suppliers is low. Tesla has established a highly resilient supply chain whose strength was evident during the pandemic when other automakers suffered from supply chain shortages. Tesla also produces batteries inhouse which reduces its dependence on the suppliers. Some of the leading battery suppliers providing batteries to Tesla include Panasonic, LG Energy solution and the China based EV battery manufacturer CATL. Yet, Tesla does not face any significant threat of forward integration from these players.

Tesla is a well established electric vehicle brand. It is in a financially strong position and has also achieved strong and sustainable competitive advantage. These factors also work to reduce the bargaining power of suppliers apart from Tesla’s brand image and industry leading position. Overall, Tesla suppliers hold low bargaining power.

Bargaining Power of Buyers

The bargaining power of Tesla buyers is moderate. While competition in the EV sector has continued to intensify and the demand for EVs has grown worldwide over the past few years, the bargaining power of Tesla buyers is only moderate. Most of these buyers are individual customers that want technologically advanced electric vehicles. Tesla sells premium electric vehicles and caters to the higher end market mainly. However, there are several factors that have helped the company moderate the bargaining power of customers.

Tesla is a highly innovative company that makes innovative products and spends a huge sum each year on research and development. It has also maintained a strong brand image and enjoys very high popularity. The company does not spend anything on marketing and promotions but enjoys strong publicity and media coverage. All these factors have helped the company grow demand and reduce the bargaining power of customers. Overall, the bargaining power of Tesla customers is moderate.

Threat of Substitutes

The threat of substitutes for Tesla products is moderate. The threat of substitutes mainly comes from the rival brands making electric vehicles. However, as the demand for electric vehicles has grown globally, there are several brands including BMW, Audi and Volvo that are focusing on growing their fleet of electric vehicles.

As such, the threat of substitutes for Tesla has increased. Other brands like Nissan, Hyundai and Ford are also investing in expanding their fleet of electric vehicles. BYD is another well known electric vehicle brand based in China that is rapidly expanding its global footprint.

The threat of substitutes gets moderated to a large extent since Tesla has maintained a leadership position in the EV sector. It is the most well known brand of electric vehicles and its products enjoy strong demand in various corners of the globe from the US to China and Europe. The company is also investing in expanding its footprint in the European and Asian market regions. Moreover, Tesla’s autopilot technology is growing highly popular. It is an innovative brand and known for making innovative products.

The high popularity and strong brand image of Tesla also moderate the threat from substitute products.

Threat of new entrants

The threat from new players entering the market is low for Tesla. There are several high barriers to entry preventing the entry of new players in the automobile segment. In the EV segment, apart from the high capital investment, the requirement for innovation and technical knowhow prevents the entry of new players. It is mainly the old players turning towards producing electric vehicles.

There are also legal and regulatory barriers that prevent new players from entering the market. New businesses would need to invest in developing the production infrastructure, supply chain management, marketing and human resource management. Developing a strong brand image and creating a reliable and established brand will take a lot of financial investment as well as time. All these factors deter new players from entering the market. Overall, the threat from new players entering the market and grabbing market share is very low for a large and well established brand like Tesla.

Intensity of Competitive Rivalry

The intensity of competitive rivalry faced by Tesla is high. It has increased with the rapid rise of BYD as a significant player in the global EV market. According to sources, BYD is poised to overtake Tesla in the global EV market. While Tesla’s market share of the EV market is 19.9%, that of BYD is 17.7%. There is tight competition between these two players and it is expected that by the end of 2024, BYD would have overtaken Tesla in terms of overall EV sales.

However, it is not just BYD, but several other market leading brands are also producing EVs and investing in rapidly electrifying their product portfolio. Leading premium brands like BMW, Audi, Hyundai and Volvo are also investing in producing electric cars. All these factors have made the intensity of competitive rivalry among the EV makers grow. Tesla makes only premium car models. To beat the competitive pressure, it would need to introduce a few more affordable car models for the mass market.

There are a few factors that have helped Tesla reduce the competitive pressure like its market leadership, extensive supercharger network, financial strength, and strong brand image. Tesla’s focus on innovation is a critical factor currently driving its market leadership. Despite that, the intensity of competitive rivalry in the EV sector continues to grow and overall Tesla is facing strong competitive pressure.

Conclusion:

Tesla is an established brand of electric vehicles enjoying strong popularity and rapid growth over the past few years. The company is in a strong position and posed for faster growth. However, it is also facing a strong competitive threat. The company has adopted an excellent business model that rests on the power of innovation mainly. It is why Tesla is also known as a technology brand. Features like autopilot have helped the company strengthen the demand for its vehicles. Apart from the strong competitive pressure, most factors in the Porter’s five forces analysis are favorable for Tesla. It is excellent in terms of technology as well as manufacturing and supply chain management. Tesla also has a strong competitive edge over its rivals. However, the rise of China’s BYD shows that the company would need to release a few more affordable models targeted at the mass market to maintain its market share and market leadership.