The automotive world has hundreds of players but power remains concentrated in the hands of a select few industrial titans; Renault-Nissan, Toyota and Volkswagen are the largest three firms who control a disproportionate amount of power in the value chain. In the traditional auto industry, consumer power is relatively high, with a large amount of choices for substitutable products. Currently, Tesla started the electric vehicle revolution and although they weren’t the first ones to invent an electric vehicle, their innovative designs and success has lead to other industry leaders to hop on and try to create their own electric car. A prime example of this is BMW with their car known as the i3 which debuted back in May 2016 after the hype on Tesla’s electric vehicle in December of 2014. When trying to understand the automotive industry or any industry, it is important to look at the market dynamics such as the drivers, restraints, opportunities, and challenges. The driver of the market currently is the increase in demand for fuel efficient, high performing, and low emission vehicles. There are rigorous government rules and regulations towards emission in relation to global warming and an overall increase in the public charging station infrastructure.
The two main factors in the restraints category are the high manufacturing costs for the tech savvy luxury car and low fuel economy and serviceability to consumers. With the prices of fuel being lower this past year, many consumers do not believe an electric car to be the game changer that it is. One of the opportunities from this revolution in the industry is the endless technological advancement. For example, the cars are computer driven with artificial intelligence that gains more knowledge and data with every drive.
Another opportunity that is available is being able to capitalize on the proactive government and their initiatives such as tax breaks and refunds to consumers with zero emission vehicles such as Tesla’s Model S. As for the challenges, there are two main issues, one is the short lived battery range for the car that is only about 270 miles per charge while regular gasoline powered cars are getting a range of around 400 miles. The second challenge is to more global in the sense that there are many restrictions on doing business in certain countries because they want to capitalize on becoming a manufacturer for Tesla instead of only collecting tax on the cars it sells.Being in such a large competitive industry, there are many environmental factors that affect Tesla.
The simplest way to analyze these factors is with the porter’s five forces which are buyer power, supplier power, threat of new entry, threat of substitution and competitive rivalry. When it comes to buyer’s power, the level of competition is low/moderate in terms of price, feasibility and design for customers. In the future, the buyer’s power might increase because of the industry shifting to create more electric vehicles and providing more choices available to the mass market. The suppliers power for tesla is very high since they are a global company who purchases more than 3,000 parts from 350 suppliers to build their technologically advanced cars. The threat of new entry is very low since it requires high capital investments, time to gain knowledge and expertise in the field, and there will be no economies of scale since they will have to start out with very low production.
The threat for substitution is pretty moderate since car industry leaders such as BMW and Toyota are already producing hybrids/alternative fuel cars. Also, technology is always growing and it is possible for someone to come up with a completely different and innovative idea in the automobile industry. Another threat for substitution is if other companies decide to build cheaper electric vehicles, since price is a big issue for the mass market.
Finally, competitive rivalry is very high since car companies have already entered the electric vehicle sector. Big brands like BMW have successfully created electric vehicles and have more customer loyalty than Tesla since it is hard to strip loyal customers from their products. In the future the rivalry is definitely going to increase because all automobile companies are trying to grab market share. Those are just a few of the forces that can have an impact on the company.