Electric Car and Tesla Motors
Building on the SCP model, Michael Porter developed the highly influential five forces model. Porter’s model identifies five key competitive forces that managers need to consider when analysing the industry environment and formulating strategy:
Porter‘s 5 competitive forces model is starting point for strategic analysis that is used for assessing the attractiveness of an industry (Johnson,et al , 2008) and discovering a desirable strategic innovation that improve the industry and company profitability (Wit and Meyer,2005)
The threats to new entrants:
The threat from new entrants is very high. Entering the electric automotive industry in 2003, Tesla itself faced the challenges of being the new entrant into the market having numerous financial troubles that required high capital investments, building the brand and distributions channels. However, for established manufacturers with considerable economic power to enter this market is relatively low due to their capabilities and governmental program support for developing electric vehicle (Shirouzu, 2011). There is a relatively low barrier to entry due to the higher demand for environmental friendly vehicles and with other outlets for available technology for lithium-ion batteries, it is a level of playing field where any company can replicate (Shirouzu,2011). This is an external threat that Tesla faces because this technology is easy to imitate by competitors.
The bargaining power of Buyers
Overall bargaining power of buyers is modest. According to Tesla Annual Report (2014), they rely on their relationship with Daimler and Toyota (Brown, 2013). The partnership is very important for Tesla, because supplying these companies constitutes the high share of their profit and thus, they cannot lose them, making their power considerably high. However, they also sell their cars to individual customers, and many government incentives give potential customers tax credit deduction (Ministry of Transportation, 2010). These
Porter‘s 5 competitive forces model is starting point for strategic analysis that is used for assessing the attractiveness of an industry (Johnson,et al , 2008) and discovering a desirable strategic innovation that improve the industry and company profitability (Wit and Meyer,2005)
The threats to new entrants:
The threat from new entrants is very high. Entering the electric automotive industry in 2003, Tesla itself faced the challenges of being the new entrant into the market having numerous financial troubles that required high capital investments, building the brand and distributions channels. However, for established manufacturers with considerable economic power to enter this market is relatively low due to their capabilities and governmental program support for developing electric vehicle (Shirouzu, 2011). There is a relatively low barrier to entry due to the higher demand for environmental friendly vehicles and with other outlets for available technology for lithium-ion batteries, it is a level of playing field where any company can replicate (Shirouzu,2011). This is an external threat that Tesla faces because this technology is easy to imitate by competitors.
The bargaining power of Buyers
Overall bargaining power of buyers is modest. According to Tesla Annual Report (2014), they rely on their relationship with Daimler and Toyota (Brown, 2013). The partnership is very important for Tesla, because supplying these companies constitutes the high share of their profit and thus, they cannot lose them, making their power considerably high. However, they also sell their cars to individual customers, and many government incentives give potential customers tax credit deduction (Ministry of Transportation, 2010). These