Introduction
The auto industry is one of the US’s most significant and valuable industries, with major foreign and local players. The field is characterized by stiff competition and intense business rivalry. Tesla’s entry into the US auto industry with electric and automated cars was one of the significant developments in the sector, considering the world is moving away from old fossil fuels while inclining towards clean energy sources.
However, despite the high expectations and hype, Tesla has not realized its dream in the market for many years since its grand entry, making its existence more one of survival than prosperity. The failure of Tesla to thrive in the American automobile industry is attributed to factors such as stiff competition, customer loyalty to traditional brands, and ineffective strategies. Porter’s Five Forces analysis portrays the company’s position in the market while explaining some of the strategies available to the firm in its quest for prosperity and growth in the new market. The paper explains Tesla’s market position using Porter’s Five Forces, analyzes the factors the company considered when entering the American industry, the strategies it employed to survive and progress, and how each contributed to its success.
Porter’s Five Forces Analysis of Tesla’s Position
Every industry is characterized by competitive forces that shape it and influence the performance of its players. A company operating in a particular industry must identify and consider key details to understand its market position (Baack et al., 2018). Similarly, the American automobile sector is characterized by various competitive forces that define and influence the players’ market positions (Yang, 2022). To understand Tesla’s position in the automotive industry, it is crucial to apply Porter’s Five Forces model, as discussed below.
Competition in the Industry
The US automobile industry is one of the most competitive, dominated by numerous rival companies. Apart from Tesla, other firms in the industry include Toyota, GM, Ford, and Hyundai. The stiff competition is motivated by the broad market provided by the dense
population. America is one of the largest automobile markets, with more than 70% of locals holding driving licenses (Sull & Reavis, 2019). Tesla Company, therefore, faces competition from major global firms dealing in the same product. For instance, market statistics indicate that Toyota has the most significant number of loyal customers, followed closely by General Motors, with Ford and Hyundai ranking third and fourth, respectively (Sull & Reavis, 2019). Due to the intense rivalry, new entrants to the industry, such as Tesla, are rendered vulnerable with a smaller market base.
The Potential of New Entries
The nature of an industry, in terms of the possibility of new entries, affects a company’s market position by exposing it to potential emerging threats. The American auto industry is unrestricted, allowing firms to join. Although solid rivalry makes it challenging for new companies to survive and thrive, the market remains open to new entries (Chen, 2022). Tesla Company penetrated America with electric, automated cars, making its product unique (Liu, 2022). However, the unrestricted market makes the firm vulnerable to new threats of substitutes. With the global community advocating for clean energy, new firms are more likely to enter the American market with electric and automated cars, thereby exposing Tesla Company to increased competition.
Power of Suppliers
Suppliers influence a company’s market position through their costs and product availability. The American automobile industry has over 110,000 suppliers providing spare parts and other essential materials for manufacturing and assembly (Sull & Reavis, 2019). The multiple suppliers, therefore, ensure Tesla’s position in the industry. The company has the freedom to choose the best suppliers based on cost and product quality, thereby making it easier for Tesla to regulate its product prices and lower them to attract customers. Additionally, the firm’s production activity should not be affected by delays from a single supplier.
Power of Customers
In a competitive industry like the US automobile industry, customers have the power to influence a company’s market position. Consumers can drive product prices lower to match their desire. With most customers loyal to major brands such as Toyota, GM, Ford, Hyundai, and Chrysler, the position of Tesla Company in the market is not secured (Lin et al., 2022).
According to American statistics, Tesla Company accounts for only 2% of the market share, confirming its limited influence on customers (Sull & Reavis, 2019). Loyal consumers often struggle to switch to a new brand they identify with, such as Toyota. Therefore, a new company like Tesla must utilize price and product quality to establish its market influence (Fedotov, 2022). The firm must lower its prices to match or beat those of other brands to attract new consumers. Unlike other brands with massive loyal consumers, Tesla cannot easily increase its prices to maximize profit.
Threat of Substitutes
The US automobile industry is characterized by a few large firms competing in similar products. The major players, such as Toyota, GM, Chrysler, Ford, and Hyundai, are all producing cars (Sull & Reavis, 2019). Although Tesla is introducing electric and automated cars to the industry, which is not a common practice, the presence of fuel-powered automobiles in the market affects its ability to maximize profits. In addition, the Toyota Company produces both electric and fuel cars, providing competition to Tesla’s electric and automated automobiles (Shu, 2022). The firm cannot enjoy high profits since many consumers have various products.
Factors to Consider Before Entering the American Market
Level of Competition
High competition makes it more challenging for young and new companies to survive, thrive, and expand. Before a firm enters a new market, it is essential to analyze the competition level in the industry by researching the number of substitutes available (Cateora et al., 2019). A market with several firms with similar products indicates extreme rivalry and discourages entry (Aityan et al., 2022).
The US auto industry is characterized by intense business competition, with companies offering similar products and services. Nonetheless, the electric car field remains largely unexplored, as most firms focus on traditional fuel vehicles, allowing new enterprises to venture into this area (Cateora et al., 2019). The Tesla Company studied the competitive landscape in the American auto industry and realized that the market remains open for selling electric and automated cars, as most businesses still use traditional fuel cars.
Pace of Growth
Knowledge of the market growth level is vital for businesses entering new markets to predict future growth and plan accordingly. Every firm has a goal of growth and expansion, and thus will choose a fast-growing industry. Additionally, companies operating in fast-growing markets must establish the necessary strategies and be prepared to adjust them accordingly. On the other hand, a sector that exhibits slow growth confirms to new firms that it will take them time to record growth and expansion, and thus should be avoided (An et al., 2022).
The American auto industry is one of the fastest-growing in the world, with both local and foreign players recording annual increases. For instance, the new passenger car market has grown to around $270 billion (Sull & Reavis, 2019). Tesla Company, therefore, considered and was attracted to the industry’s high growth, motivating it to enter the market, hoping to grow alongside the industry’s expansion.
Timing
A firm entering a new industry must consider the right timing for the process. Demand, competition, and profit maximization are all determined by the timing of the entry. For instance, the American auto industry experienced a massive decline in 2008 during the Great Recession (Sull & Reavis, 2019). Therefore, a new firm entering the industry then risked making losses.
Recent times have seen the global community discouraging the use of fossil fuels and promoting the adoption of electric cars. Being at the forefront of actualizing the clean energy campaign, the US automobile industry has been shifting towards electric vehicles (Liu et al., 2022). Hence, companies dealing in electric cars consider the American market the best for doing business. As an automaker, Tesla considered and was encouraged by the timing to enter the US market.
The Needs of the Consumers
The needs of customers can attract a firm to enter a particular market, especially if it can or deals in products and services that meet the needs of consumers. Most governments are encouraging their citizens to adopt electric cars as a means of combating climate change. The American auto industry is inclined toward electric cars (Sull & Reavis). Considering the market needs for electric cars, Tesla Company decided to penetrate the US market. The firm considered and was drawn to the American desire to transition to clean energy, which motivated the company to produce electric and automated cars.
Strategies of Tesla Company
Recognizing the intense competition in the American auto industry, Tesla Company developed strategies to penetrate and capture the market. Although they have not achieved the expected growth due to factors such as competition, the techniques have helped the firm survive and sustain its market position (Dana et al., 2022). Strategies such as product quality have enabled the new company to establish itself in the market amidst intense competition.
Product Quality
Tesla Company is using product quality as a strategy to penetrate and win the American market. By producing electric cars with advanced automation capabilities, the firm aims to ensure the product meets consumer expectations through quality. Previous records show that most consumers are motivated by the quality and features of the car. According to a survey of over 20,000 consumers, respondents confirmed that they consider efficiency, fuel consumption, and the overall quality of the cars they intend to buy (Sull & Reavis, 2019). By producing electric vehicles, fuel consumption is reduced as they are more economical.
Additionally, the automated nature of electric cars makes them more efficient, thereby better meeting the needs of consumers. Similarly, the Tesla electric cars are known for their fewer services and fewer repairs, making their maintenance cost low. Additionally, the vehicles have been equipped with features such as a navigation system, Bluetooth, MP3 players, and mobile integration, which are highly valued by millennials, the dominant consumer group.
Mass Production
Being new to the industry and focusing on serving predicted customer needs, Tesla Company embarked on a “production hell,” which involved mass car manufacturing. The production hell was designed to enhance the company’s product stock, thereby preventing the firm from failing to fulfill consumer needs (Sull & Reavis, 2019). To achieve this, the company produced three models, each specializing in the manufacture of a specific product.
Pros
The product quality strategy enabled the company to meet the expectations and preferences of its consumers. Since the automobile market is dominated by millennials who are motivated by the quality and features of the product, such as fuel consumption, efficiency, and comfort, focusing on product quality has helped Tesla’s electric cars meet consumers’ needs (Su et al., 2022). In addition, the mass production through the production hell enabled the company to meet the customer demands and enhance sustainability.
Cons
The product quality strategy that inspired automation overlooked job loss and safety, resulting in the company losing political goodwill. The automobile industry employs a significant number of people in America, both directly and indirectly, through the provision of driving services. The introduction of automatic electric vehicles, therefore, threatened the employment sector, causing Tesla to fail to achieve its growth expectations (Bakry et al., 2022). Additionally, the company failed to consider the safety aspects, which remains a big concern for most consumers and potential customers.
Areas of Improvement
Modern statistics show that most car buyers rely on digital media for information about the type of vehicle they intend to purchase. Automakers are therefore utilizing various online platforms to market and promote their products to customers (Lauri, 2022). With millennials dominating the car market, Tesla Company should invest heavily and utilize digital media to advertise and market its products (Jabil et al., 2022). The online media will help to popularize the firm’s new electric, automated cars.
Conclusion
In short, Tesla’s introduction of electric and self-driving vehicles to the US automotive market fell short of expectations because of intense industry competition. Although the firm managed to penetrate the restricted market, it did not achieve its intended goal, as it failed to meet the anticipated growth rate. The failure or stunted growth of the company is attributed to its vulnerable market position. While Tesla considered essential factors such as growth pace, competition, and consumer needs before entering the US market, the strategies employed by the firm, including product quality, pricing, and mass production, have not yielded the projected results.
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