Competitor Assessment. The electric vehicle industry. Tesla's strategic focus lies on establishing its brand in the mass automotive market
Seminar Paper 2016 11 Pages
Summary of Analysis
Porter`s four corner Analysis
Summary of Analysis
The overall electric vehicle industry has grown significantly in the last five years. One of many reasons for that was the introduction of Tesla`s first electric vehicle in 2009 with a strong differentiation strategy. Tesla is now focused on its entry into the mass automotive market. To achieve that, the company is committed to invest heavily in its production capacity and model line-up, most recently with the introduction of Model 3.
Tesla’s competitive advantages for this strategic goal include a superior electric vehicle technology and recharging infrastructure, brand recognition, a first mover market position, and a strong network of strategic partnerships. However, since the company entered the industry in the premium sport and luxury sedan vehicle niche segment, it has a resource disadvantage in regards to know-how, large-scale manufacturing processes and model line-up when it comes to the mass automotive market. Additionally, the company is relying on an overall growth of the EV demand, technological improvements and a high number of customer referrals in the near future.
There is a large number of existing premium manufacturers in this space, several of which already enjoy major manufacturing and economies of scale advantages that will make this endeavor highly costly and risky. However, the combination of Tesla’s competitive advantages and aggressive marketing could result in the capture and sustainment of a significant percentage of market shares in the mass automotive segment.
Porter`s four corner Analysis
The following analysis of Tesla Motors Inc. will provide a comprehensive picture of the strengths and weaknesses of the company, in order to identify opportunities and threats for the company’s main competitors.
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Chart 1: Porter`s four corner analysis for Tesla Motors Inc..
Tesla Inc. currently follows a differentiation strategy to establish a superior brand recognition in the industry for its electric vehicles.The company entered the automotive industry with the introduction of a high-priced premium electric sedan (Model S) (Tesla, 2016). A look at the price point of the Model S and the number of total sales in 2015 puts the focus of the company to a clear differentiation strategy (Heisler, 2016). Tesla’s goal is to differentiate its small product line by innovative technology and a luxury design. Therefore, the recent focus of the company lied in the high end sports car and luxury vehicle sedan market (Mangram, 2012). The company uses this small niche market of high end sports cars with high margins to introduce the brand to the whole automotive industry. The luxury vehicle sedan market is targeted for a broader consumer adaption. The goal is to generate high demands for its cars, drive leads to sales teams and to build a long-term brand recognition (Tesla, 2011).
Tesla works on its scalability to be able to enter new market segments.The company invests in further expansion of its production capacity to be able to enter the mass automotive market. The goal is to leverage its brand for a mainstream vehicle adaption with its recently introduced Model 3 (Welch & Behrmann, 2016). The focus of Model 3 will also lie on a differentiation strategy (large range, luxury design, modern cockpit, Autopilot), but at a more affordable price point of approx. $35,000 (Price, 2016). Overall, Tesla works towards a high market penetration in the mainstream market with Model 3 as well as an overall increased demand in EVs in the industry. Therefore, the company is committed to increase its production capacity to 500,000 cars per year by 2018 (Heisler, 2016a). One major step to achieve that aggressive goal was the investment in a Gigafactory, which will start in 2016 to produce enough batteries for up to 500,000 Tesla cars per year (Sparks, 2016).
Establish a broad model-line up and strong brand in the automotive mass market.With the introduction of Model 3 and the investments in the production capacity, Tesla is building the foundation to position more than just one car in the automotive mass market. Model 3 will be used to introduce the brand to larger consumer group. It will serve as a facilitator to establish Tesla in that segment and to increase overall EV demand in the mass market. A stronger demand will require more variety in the product-line of EVs in the mass market. Competitors in that segment already have several conventional vehicles in their product line-up, therefore it is likely that Tesla is aiming to first generate and then serve the market for EVs with more than just Model 3, in order to stay competitive with existing brands. Additionally, variety is part of every differentiation strategy, to give more choice to the consumer within the brand.
A key driving factor is the negative financial performance of the company. Tesla aims to improve its financial performance with a penetration of the mass market. A closer look on the financial statements of Tesla reveals a persistent net loss in the past years (Tesla, 2015). In a highly competitive industry like the automotive industry, a positive financial performance is a prerequisite for further investment and growth. One of the drivers for Tesla is to achieve and maintain a positive financial performance. Tesla was aggressively working in the recent years to establish its product line up and brand in the automotive market. This strategy required large investments and can be seen as one of the reasons for the negative financial performance. The top-down strategy (from luxury models to mainstream models) of the company is a key component in order to achieve a positive financial statement and market competitiveness. Tesla has used the previous years and current product-line up to prepare for a penetration in the mass market, resulting in a higher profitability due to economies of scale.
Tesla is relying on an overall growth of demand for electric vehicles in the automotive industry in the near future.A key factor to reach economies of scale in the automotive mass market is an increasing demand of EVs. Indicators are positive: The global e-Mobility market volume grew in the period 2011 – 2015 by an annual growth rate of 27.2% (Marketline, 2015). Forecasts for the market vary to reach a global market volume starting from $300 billion (Marketline, 2015 ) up to $390 billion (Accenture, 2014) in 2020. Tesla has already received almost 400,000 preorders with a $1,000 commitment from interested customers for the recently announced Model 3 (Smith, 2016). Additionally, governments all over the world are supporting EV sales with subsidies, incentives, tax exempts and loans for automaker and buyer.
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