History and Overview
Tesla Motors is an American company specializing in production of electric cars. It is known for achieving several important engineering and technological milestones and has a reputation of one of the most prominent contributors to the electric vehicles industry (Doeden 14). Despite the overwhelming acclaim and recognition, Tesla Motors also experienced a number of setbacks in the course of its development.
Tesla Motors was founded in 2003 by Martin Eberhard and Marc Tarpenning (Crunchbase par. 5). Elon Musk, one of the co-founders, was also among the chief investors at the initial stage, providing the majority of the required costs from personal fund (Crunchbase par. 3). Two years later, the company established its first strategic partnership by signing a production contract with Lotus Group. The result of the collaboration was the Tesla Roadster, the history’s first high-performance electric-powered sports car. Despite setting a new quality standard and presenting a technological breakthrough, the model was not a commercial success. While the amount of private funding exceeded US $100 million by 2007, the expenses were overwhelming.
In response, about ten percent of employees were fired that year, and twenty-five percent more in the following 2008, when Musk became CEO (Tesla Motors par. 14). By the end of the year, the company avoided bankruptcy by gathering $40 million in the fifth investment round. In 2009, Tesla Motors presented Model S and became eligible for the low-interest-bearing loan from Advanced Technology Vehicles Manufacturing (ATVM) Loan Program by the United States Department of Energy (Tesla Motors par. 22). The deliveries of the new model began in 2012, which became the first profitable year for the Tesla Motors. It is important to note that the company does not follow the standards of automotive industry and is thus not required to issue monthly performance reports, so the net income is sometimes derived from a third-party analysis.
However, several milestones achieved by Tesla Motors can be definitively outlined. First, the company was the first among competitors to repay the ATVM loan. Second, the electric vehicles produced by it were the first to break the 200 miles per charge range (Doeden 18). Third, aside from the EV production, the company is championing the charging equipment field and is responsible for several infrastructural milestones such as supercharger stations network coverage (Crunchbase par. 12). With the third model, known as Model 3, announced in 2016, Tesla Motors is currently among the most visible representatives of the EV industry.
Industry Analysis
The five main factors that must be considered in the analysis of the industry are the existing forces: ease of market entry, the bargaining power of suppliers, bargaining power of buyers, the availability of substitutes, and the existence of competitors.
Ease of Entry
The electric vehicles industry is a field which poses a significant technological challenge to the entrants. Up until the last decade, the progress in the field was purely theoretical and even now the profitability of the industry is hard gained, as can be seen by the numerous drawbacks experienced by Tesla Motors. In addition, to be efficient, powertrain components need to be significantly technologically advanced, which is only possible with the involvement of a number of partners from related industries. Currently, all major partners are already secured by existing companies specializing in EV production, and the new entrants will be challenged by the lack of R&D base for successful functioning. The field also differs from traditional automotive industry, which denies competitors of possible leverage. Finally, Tesla is already an established and recognized brand, which means additional challenge for the new entrants. Thus, the cost of entry is very high, and the ease of entry is thus a weak force.
Power of Suppliers
While the chief elements of the final product, such as engine, transmission, batteries, hardware responsible for charging algorithms (essentially the powertrain), and the charging stations, are for the most part developed and manufactured by Tesla Motors, many minor components of each of these are supplied by strategic partners, such as Panasonic and Lotus (Crunchbase par. 22). On the other hand, the number of suppliers collaborating with the company is high, and most of them are of moderate and small size. This allows Tesla Motors to control the supply chain. Finally, most of the suppliers operate in a competitive environment which further decreases their ability to alternate prices and thus lowers their influence on the company. Thus the power of suppliers is moderate to low.
Power of Buyers
Currently, most of the electric vehicles available to the customers share a relatively similar price range, which makes switching cost a strong factor. In addition, the EVs in their current state do not offer a decisive advantage over traditional means of transportation, including hybrid cars and public transportation. On the other hand, the volume of purchases is small (each customer most likely buys one or a few cars), which decreases the customer influence on the company. Thus, the power of buyers is a moderate force.
Availability of Substitutes
Currently, the market offers several categories of substitutes, with hybrid vehicles, gas vehicles, public transportation, and cycling being the most notable ones. The cost of switching to any of the above (with the exception of the public transportation) is relatively high, but the gas-driven cars are the least attractive in terms of environmental concerns and sustainability. The substitutes are also highly dependent on the environment conditions (e.g. the scarcity of public transportation and varying conditions for cycling in some areas). Finally, most of the substitutes are unable to satisfy the specific customers’ needs. Nevertheless, the combined influence of the substitutes is relatively high, which makes it the strongest of the marketing forces.
Existence of Competitors
Since entry is difficult, there are relatively few competitors to Tesla Motors in the market. However, all of them are major companies with significant resource and R&D bases at their disposal, such as Toyota, BMW, Daimler AG, and General Motors (Crunchbase par. 12). Thus, the competition is a moderate to strong force in the industry analysis.
Competitive advantage
The historical overview and industry analysis point to several competitive advantages of Tesla Motors. First, it possesses a reputation of a company actively involved in research and development and constantly achieving positive results. Second, the growing charging station network improves brand recognition and provides opportunities for a focused infrastructure. Third, a set of achievements (e.g. the range breakthrough) contributes to the overall image. Finally, the current strategic partnerships secure the required level of performance of the company.
External factors such as increasing gas prices and growing environmental awareness also contribute to the competitive advantage. However, the above factors only comprise a relatively insignificant differential advantage, while the cost advantage is almost non-existent. Since the latter is mostly determined by the current state of technology (e.g. the possibility to manufacture a cheap EV is low), it is recommended for the company to strengthen its technological base. For instance, by capitalizing its previous success record, it is possible to foster additional governmental support and thus gain necessary leverage to stay ahead of its competitors.
Works Cited
Crunchbase. Tesla Motors. 2016. Web.
Doeden, Matt. SpaceX and Tesla Motors Engineer Elon Musk, Minneapolis, Minnesota: Lerner Publications, 2015. Print.
Tesla Motors. Annual Report on Form 10-K for the Year Ended December 31, 2015. 2016. Web.