Tesla and the Porter Forces Essay

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Project Deliverable 2: Innovation and Competitive Analysis

The CEO of Tesla, Elon Musk, has faced significant pressure from both the public and the investing world to deliver on promises of meeting production deadlines on the Model 3. The Model 3 is meant to be the electronic vehicle (EV) for the middle class—a comfortable, suave, sophisticated and technologically advanced EV that is a step and class above the types of EVs produced by other car manufacturers—like the Volt, which has none of the sheen and sophistication that Musk has vowed to bring to the green energy sector of automobile manufacturing. However, going forward, Musk should consider that other luxury brand auto makers are beginning to catch up with his vision. Porsche and Jaguar are virtually on his heels and they have none of the balance sheet problems and debt issues that Tesla is facing. The competitive environment is heating up and Tesla needs to up its strategy in order to meet the oncoming obstacles and threats that are sure to spell a problem for the company.

According to Porter’s Five Forces of Competition model, the Threat of New Entry, Buyer Power, Threat of Substitution, Supplier Power, and Competitive Rivalry are the five forces that impact a business. In the case of Tesla, these five forces can be assessed easily: new entry is an ongoing problem as all the world’s major auto manufacturers are essentially new entrants in the EV market. Buyer Power is an issue for Tesla, as the company’s Model 3 is not yet available at the MSRP of $35,000 that Musk said it would be so that the average consumer can buy an environmentally safe auto on a reasonable budget that is affordable for the average working man. Threat of substitution remains palpable as Tesla flounders with its goal of getting the affordable Model 3 to market; other manufacturers offer cheaper EVs and though they may lack style and sophistication, they make up for it in price.

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For the green consumer looking for a deal and willing to sacrifice style for cost, substitutes will win the day. Supplier Power is another issue for Musk, who recently is reported to have asked for a haircut from suppliers in order to reach profitability by the end of the year. Suppliers, however, have leverage here as they can withhold delivery until Tesla pays in full. Competitive Rivalry is also an issue, with Porsche, Jaguar, BMW, and several other auto makers all coming out with new EVs in the coming months and years to rival Tesla’s luxury brand EV status.

Tesla introduced the stylish luxury brand EV to the world with its Model X and Model S. These productions showed that it was possible to appeal to high-end consumers with technological innovations that were at the forefront of the industry while also supporting the concept of sustainability so dear to Musk’s mission and vision for the company (Hunt, 2017). The other trend that Tesla has introduced is the concept of….....

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References

Collins, D. (2016). Lean strategy. Harvard Business Review, 94(3), 63-68.

Hunt, E. (2017). Sustainability fans the flame of innovation. Baylor Business Review, 36(1), 22-22.

McGrath, R. G., van Putten, A. B., & Pierantozzi, R. (2018). Does Wall Street buy your growth story? For how long?. Strategy & Leadership, 46(2), 3-10.

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