Introduction
Porter’s Five Forces is a methodology that identifies and analyzes five competitive elements that influence every sector and helps assess the flaws and capabilities of a business. Assessment of the Five Forces is widely used to define company strategy by identifying the competitive landscape of an industry (Wang). When applied to Tesla Motors Inc., the components determine the amount of competitiveness within the automotive industry and improve the long-term profitability of a business.
Competitive Rivalry (High)
There are only a few companies working in the automobile industry. However, these companies are typically active in product innovation and marketing. Large automakers, for instance, use intensive advertising strategies. The promotion mix or 4Ps employed by Tesla partially accommodates such aggression, enhancing competitors’ adverse effects on the firm. In addition, the cheap switching costs for buyers to order automobiles from other automakers boost the competitive power.
Bargaining Power of Tesla’s Customers (Moderate)
Low switching costs limit Tesla consumers’ reluctance to purchase automobiles from other vendors. In many instances, however, the threat of substitutes is limited, reducing the bargaining power of clients against Tesla Inc. Many clients in suburban locations, for instance, have restricted access to public transportation, making automobile ownership more realistic.
Bargaining Power of Tesla’s Suppliers (Low)
In this sector, vendors enjoy a substantial advantage in negotiations. However, due to its sourcing rules, Tesla’s negotiating position with its suppliers is relatively weak. The corporation obtains its Li-ion devices from various vendors, which significantly weakens the bargaining leverage of battery manufacturers (Wang). However, the creation of the Roadster required an exclusive relationship with Lotus in terms of chassis and architecture.
The Threat of Substitutes (High)
In the automotive industry, the threat of alternatives is particularly significant. In the shape of blends and plug-in combinations, many replacements have created a substantial barrier to entry into this market. Reduced-displacement, turbocharged diesel engines with very low greenhouse gas emissions and efficient fuel use are among the most significant alternative threats.
The Threat of New Entrants (Low)
The threat of new competitors in the electric car sector is minimal. This is because participation in this sector is capital- and expertise-intensive. Few automobiles contend in this market, with the majority distributed across the sector’s many specializations (Wang). Most market participants cooperate and already have connections with Tesla Motors.
SWOT Analysis
SWOT (strengths, weaknesses, opportunities, and threats) evaluation is a criterion for understanding a firm’s competitiveness and developing its comprehensive strategy. Internal and external aspects and present and future aspects are evaluated via the SWOT framework. The purpose of a SWOT analysis is to promote a practical, fact-based, information-driven examination of the capabilities and vulnerabilities of a business, its projects, or its sector (Benzaghta et al.). The institution must maintain the accuracy of its investigation by eliminating presumptions or gray regions and concentrating on real-world settings (Benzaghta et al. 56). The paper gives a complete SWOT analysis of Tesla Motors Inc., as detailed below.
Strengths
- Tesla, Inc. is renowned for its fast rate of invention, especially with the introduction of the first purely electric racing automobile globally. This internal organizational component enables the organization to generate competitive and lucrative products.
- In keeping with Elon Musk’s business objectives, the Tesla brand is a powerful emblem of invention and sustainable energy alternatives (Mas). Such a powerful brand enhances the company’s capacity to acquire and keep new clients.
- Vertical integration and the centralization and leadership of Tesla’s corporate structure contribute to the enterprise’s internal control over manufacturing techniques. As an illustration, the corporation produces automobiles and some of its equipment.
Weaknesses
- Tesla has a restricted market presence: for instance, the corporation makes significant revenue in the USA and has a few operations in China and developing nations. This tactical component is a vulnerability that inhibits firm expansion due to the rapid economic advancement of international marketplaces.
- Tesla’s automobiles are more costly than its competitors, especially those with internal combustion engines. This prohibits the organization from expanding its market share significantly.
Opportunities
- Tesla must evaluate the potential for international sales growth. This likely stems from the rapid economic expansion in nations where the company has a small customer base. For instance, the corporation can improve its income by expanding into Asia’s automobile and sustainable energy markets (Mas).
- The institution’s efficiency can be improved through diversification. This external strategic component entails building or purchasing other businesses to lessen a company’s exposure to automotive industry hazards.
- Another potential for Tesla is to develop its supply network to support its international manufacturing and distribution growth. This external element highlights the relatively limited scope of the firm’s management compared to larger companies such as General Motors.
Threats
- Automobile manufacturers engage in fierce competition with one another. This external strategic aspect poses a challenge to Tesla, given the initiatives of other companies to produce electric automobiles.
- Currently, Tesla distributes its products directly to consumers without the participation of dealerships, which would boost pricing. However, several states, such as Virginia and Texas, restrict commercial selling of the firm’s merchandise and require such sales to be conducted through distributors (Mas).
Social Responsibility, Corporate Sustainability, and the Environment
The corporate social responsibility (CSR) policy of Tesla Inc. targets some of the primary concerns of the vehicle manufacturing technologies of the industry’s stakeholders. Tesla, Inc. meets its stakeholders’ interests with a CSR approach that emphasizes the sustainability and eco-friendliness of its automobile, energy storage, and renewable power technologies. These CSR initiatives boost the corporation’s standing in comparison to competitors such as Nissan Motor Company, Honda Motor Company, General Motors, Toyota Motor Corporation, Volkswagen, and BMW (Bavarian Motor Works) (Bo et al. 65). The sustainability policies of Tesla Motors encompass the design and production of a comprehensive electricity and distribution ecosystem. The company not only develops the innovation underlying this network but also places significant emphasis on the affordability of the environment’s constituent items.
Corporate Culture and Superior Strategy Execution
A company’s organizational culture comprises the norms and values that govern employee conduct and decision-making. Tesla’s corporate culture encourages its employees to find optimum solutions that set the company apart in the automotive and energy industries. Han insinuates that the corporation fosters innovation to drive corporate growth (575). Tesla Motors’ generic automotive approach is generic; it utilizes low-cost provision, best-cost supplier, broad diversity, focused strategy, and concentrated low-cost distributor, which are Han’s generic tactics for competitiveness (576). Tesla competes through differentiation by developing a unique car model. Model S has eco-friendly innovation, attracting rising ecologically minded consumers.
Strategic Effectiveness Analysis
Organizational Structure and Strategy
Tesla’s institutional structure is operational or U-shaped. The organizational system primarily defines the unitary-form (U-form) architecture. For instance, the organization has a technical group for design and another for marketing and customer support. This corporate structure complements the company’s differentiation-based business model. The primary aims underpinning Tesla’s expansive differentiation technique include Research and Development (R&D) to create and manufacture high-performance products and market expansion through international collaborations. The functional group of personnel is experienced in their respective manufacturing lines, creating original ideas for constructing luxury automobiles.
Corporate Cultures and Strategy
Despite its expanding international presence, Tesla Inc.’s corporate structure generates characteristics that allow strong management ownership of the company. Growth increases complication and difficulty: for instance, worldwide expansion necessitates a broader comprehensive approach to executing Tesla’s generic competitive and aggressive growth tactics effectively. The structural aspects of the organization assist in maximizing senior executives’ knowledge of these difficulties, enabling them to react appropriately. Consequently, this organizational model complements Tesla’s goal and vision statements, which stress the company’s world dominance in the automobile and power solutions industries. As such, the firm’s culture and strategy function together for the effectiveness of its operations.
Conclusion
The PESTEL research recommends Tesla Motors enhance its marketing intensity to reach a wider audience, especially in other nations. Regarding Tesla’s low global sales, this step could lessen market risk. According to the SWOT analysis, Tesla Inc. should expand into overseas markets to capitalize on the economic demand for the sustainable energy sector. Tesla’s approach of broad differentiation has permitted low-cost mass-market offerings. Its company strategy includes direct sales, owned service outlets, and accessible supercharger facilities. Tesla’s business culture encourages staff to find optimization techniques in vehicle manufacturing. However, Tesla’s strict organizational model slows organizational change. Tesla Inc. should improve the independence of international offices to counter this deficit. Decentralized corporate structures are more aggressive against local enterprises in global markets.
Works Cited
Benzaghta, Mostafa Ali, et al. “SWOT Analysis Applications: An Integrative Literature Review.” Journal of Global Business Insights, vol. 6, no. 1, 2021, pp. 55-73.
Bo, Feng., Liting Cheng, and Feng Junwen. “Study on Enterprise Value Evaluation Based on ESG: Taking Tesla Enterprise as An Example.” Canadian Social Science, vol. 18, no. 1, 2022, pp. 61-74.
Han, Joohee. “How Does Tesla Motors Achieve Competitive Advantage in the Global Automobile Industry?” Journal of Next-generation Convergence Information Services Technology, vol. 10, no. 5, 2021, pp. 573-582.
Mas, Santiago Mas. Tesla Motors. SWOT analysis and corporate strategy. GRIN Verlag, 2018.
Wang, Yunyang, Siming Qin, and Churan Zhang. “Tesla’s Supply Chain Vulnerabilities in the Chinese EV Market.” Frontiers, vol. 2, no. 4, 2021, pp. 1-11.