Tesla Swot Analysis

Porter’s 5 Forces Analysis

For the automotive industry, electric vehicles, and Tesla

Context/Logic

H/M/L

Implications

Rivalry  

1. Are there many competing firms?

Yes. In the auto industry generally (Volkswagen, Toyota, Renault-Nissan, Hyundai-Kia, General Motors), and within the EV market segment specifically (Chevrolet, Toyota, Nissan) (Paul), (Inside EVs)

2. Are competing firms of similar size and influence?

No. Tesla’s primary competitors within the auto industry are all bigger, older, and more influential. Volkswagen topped the industry with total sales of more than 10 million cars last year (Paul). Tesla is more appropriately described as a disruptor in the industry, causing the bigger and more influential firms to adjust their business models based on Tesla’s actions.

3. Is industry growth slow?

No. Demand for electric vehicles is high, and Tesla has been unable to supply enough electric vehicles to meet consumer desires. The Chevy Volt was the first widely sold all-electric vehicle to market, but lagging sales initially indicated to other traditional ICE vehicle manufacturers that the EV market was only a niche, with limited customer demand. Tesla proved that assumption wrong when it was first to market with high-end performance vehicles that are also fully-electric. Tesla’s Model S has generated so much customer demand that many car manufacturers now believe it’s imperative to begin introducing their own EV models, as indicated by the number of firms (13) that have entered the market since 2012 (the year the Model S launched), and the various car models they’ve introduced (Inside EVs).

4. Is there a lack of product differentiation in the market?

Yes. Electric vehicles available at the low- to mid-range price point (Chevy Volt and Bolt, Nissan Leaf, BMW i3) all provide similar design, styling, and features to one another. High-end vehicle manufacturers that provide a hybrid or partial electric capability are slightly differentiated, but no company other than Tesla provides a high-end all-electric vehicle. Tesla has the most distinct, unique vehicle in the electric vehicle segment of the automotive industry. (Trefis Team, Great Speculations)

5. Has productive capacity been added in large increments?

Across the industry, productive capacity to create new cars has been increasing at a slow rate. The same is true within the EV segment as traditional ICE vehicle manufacturers enter the EV segment. Tesla has been the primary driver within the EV industry in providing large increments of production capacity by first using the Fremont facility to manufacture the Model S, and now creating the Gigafactory in Nevada to support Model 3 production, as well as building other infrastructure that supports their all-electric vehicles. (Baker)

1. H

1. H

1. L

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1. M

1. Because there are so many auto manufacture in the industry, there is high competition and potential for rivalry.

2. Compared to others in the industry, especially industry leaders, Tesla is a very small firm. This is a high threat because the bigger auto makers have the infrastructure and financial backing to begin taking up more of the EV market. Within the EV segment specifically, however, Tesla has been able to build a strong position both in terms of brand and product quality relative to others in the segment.

3. Demand for Tesla vehicles is driving growth across the EV sector. Tesla is more influential and enjoys higher brand loyalty, customer value, and excellent social perception than is typical for a company of its size. The firm is perceived as providing products that convey higher social status on customers.

4. Tesla doesn’t have many direct rivals within the EV automotive industry because no other firm is doing what Tesla does. Tesla is differentiated by luxury and performance features, combined in a fully-electric vehicle.

5. Other larger automotive companies have been slow and cautious to invest in new infrastructure, or to create vehicles that require new infrastructure support. Mercedes (Daimler) is the only company that appears to be interested in creating new battery factories in the same way Tesla already has, but construction of those facilities still hasn’t even begun. (Moon), (Korosec)

Threat of Entry

6. Economies of scale are a significant barrier to entry in the electric vehicle market. Tesla has been producing the Tesla Model S since 2012, and the Model 3 in 2016. Tesla still hasn’t achieved economies of scale with their Model 3, but the recent ramp up in production volume is a good sign that Tesla’s cost per vehicle will begin to decrease significantly.

7. Product differentiation is a high barrier for new entrants into the car market because there are so many different types and styles of vehicles across a broad range of prices. Entrants to the EV segment face significant barriers unless they’re already well-placed in the overall automotive industry. The specific EV segment is less saturated, but already populated with a broad range of models, from the Chrysler Pacifica mini-van made by Fiat Chrysler America (FCA) to the Porsche Cayenne S-E made by Volkswagen Group. BMW has introduced SUVs and sedans, Audi hybrid-electric sedans and wagons, the Fiat has the Fiat 500, and Tesla has the Model S and Model X. As more ICE manufacturers begin to introduce new electric vehicle models competition will become stronger.

8. Cost advantages independent of scale

- Proprietary tech: this is a high barrier for new entrants, as Tesla already has a significant advantage in this area.

- Know-how: Tesla is the market leader in know-how and experience in creating battery-powered fully-electric vehicles. Entrants to the market are unlikely to be able to replicate or exceed Tesla’s capacity in this category.

- Favorable access to raw materials: The market for car parts is dominated by car manufacturers leading the automotive industry; the market for batteries is significantly restricted to new entrants based on the competition that already exists between auto manufacturers to enter the EV market segment, and access to the materials for creating batteries is likewise restricted based on the scramble for natural resources (nickel, graphite, lithium, cobalt, etc.) by companies trying to create batteries to meet demand.

9. Government regulation or entry is a high barrier for new entrants based on safety and production regulations, and other industry standards that are already in place for existing car manufacturers.

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1. L

1. L

1. L

1. Barriers to entry are high because creating infrastructure to manufacture electric vehicles, and all of the supporting infrastructure for them to function conveniently, is so costly.

7. Tesla is only focused on electric vehicles, where rivals are straddling the industry between electric and gas. Tesla’s strong brand loyalty is also a high barrier that provides an additional shield against new entrants.

8. Tesla’s proprietary tech and know-how based on their production processes, software technology embedded in their vehicles, as well as their ability to transmit over-the-air updates to improve vehicle efficiency and performance, is already unmatched in the industry. This is a key strength of their business. (maybe a core competency?)

9. A new entrant to the market will have to invest significant capital into meeting standards and regulations requirements before it can introduce a vehicle that might compete with Tesla.

Threat of Substitution

10. Are good substitutions available?

a. - No. There is no other battery-powered, fully-electric car that provides the range, high-performance, and comfortability that Tesla’s cars do. (Exhibit 3)

b. - Rideshare and public transportation could pose a threat as a substitute. People choosing to forego car ownership altogether are more likely to be in Tesla’s target demographic.

11. Do substitutes have better/comparable features?

No. Tesla cars are unique in their design, styling, features, technology, and cultural appeal.

12. Do buyers have low switching costs?

No. Tesla is the only option currently available for buyers who want a stylish, comfortable vehicle that only uses batter power. Anyone who wants to buy a battery powered electric vehicle must make a choice. They can choose a small, poorly designed car with limited features that has a range that is almost comparable to a Tesla. Or they can spend significantly more to buy a luxury vehicle that provides an extremely limited range when it operates in fully-electric mode.

L

Tesla’s advantage in software and autonomous driving make it one of the few car manufacturers positioned to potentially enter the rideshare market with its own autonomous vehicles in the near future.

There weren’t many (any) substitutes for the Model S in the luxury market. Now that Tesla is entering a lower price point with the Model 3, there are potential substitutes based on price, but those models can’t match the features of the Model 3.

Threat of Suppliers

13. Is the supplier’s industry dominated by a small number of firms?

No. There are at least 25 firms in the business of creating batteries for electric vehicles globally. (Electric vehicle battery, 2018)

- Tesla is in partnership with Panasonic producing batteries at the Gigafactory in Nevada.

- Ford, Chevy, Hyundai, Volvo, and Renault are all in partnership with LG Chem.

- Ford and Honda each have a partnership with Sanyo.

- BMW and VW both partner with Samsung

- Toyota has created a joint venture to create the PrimeEarth Energy Co, to produce batteries.

- Nissan partners with NEC

- Daimler and Ford each partner with Johnson Controls

There are many firms, and they’re all competing for business with the car companies to find markets for their batteries to go into EVs.

14. Are suppliers selling unique/highly differentiated products?

No. Car parts and the batteries for EVs are all mostly made from the same materials, and in largely the same manner.

15. Are suppliers threatened by substitutes?

Yes. Both within the larger car parts manufacturing industry, and in the battery making business. Because of low differentiation from one battery maker to another, there is a risk of commoditization within the battery producer’s market.

16. Is there a threat that suppliers will vertically integrate forward into the car/EV market?

The threat is very low. Nothing is impossible, but it would be very difficult and time consuming for any supplier (even Tesla’s partner Panasonic) to enter the market with a car of their own that might be able to compete with Tesla.

17. The biggest threat to Tesla under this category, is the fact that Tesla source some of their materials from a select few suppliers, sometimes even from only one supplier.

M

Tesla’s batteries already provide significantly better performance compared to competitors, both in the short-term and over a longer battery life. They must pursue strategic actions that allow them to continue to dominate this facet of their industry.

As stated above regarding the threat of rivals, Mercedes (Daimler) is the firm that appears most likely to challenge Tesla in this area by creating new battery factories in the same way Tesla has. (Moon) (Korosec)

Threat of Customers

18. Buying power is low. Differentiation is high for Tesla. For the Model S and Model X vehicles, price sensitivity was not an issue because the target customers were affluent car purchasers interested in the latest technological advancements. With the production of the model 3, it is much cheaper and is comparable in price to most new vehicles. Thus, this target audience has more buying power because there are many more cars to choose from at this price point. Tesla’s strength is its strong differentiation. The Model 3 customers may be more price sensitive.

L

Tesla’s vertically integrated supply chain, manufacturing processes, and sales models all work together to insulate the firm from threats posed by customers seeking to become new entrants into the EV market.