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Global Strategy
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Introduction
Tesla Motors, Inc. is one of the players in the American auto industry, which was established in the year 2003 by a group of bright, smart and innovative engineers of the Silicon Valley. These engineers demonstrated that vehicles using electricity could be remarkable substitute for cars that run on petrol or diesel. Tesla does not limit itself to designing, production and marketing of electric cars, but it also offers extremely sophisticated components of electric vehicle powertrain to other players including other automotive giants like Daimler and Toyota. Tesla is headquartered at Palo Alto, California, and it also has wholly-owned subsidiaries in other geographies including North America, Europe as well as Asia. Currently, Tesla has a workforce of more than 200 people and also 31 stores and service locations all across the globe. Also, more number of stores and service locations are expected to be established in the near future. In the year 2012, Tesla opened its first store in Toronto - the company’s first step for entry in to the Canadian market.
The primary objective of the company is to offer extremely levels of performance and also vehicles that are powered with electricity at an extremely affordable price to the average consumer. In the year 2008, Tesla gained widespread attention for the first time through its production of its Tesla Roadster, an exclusively electric functioned sports car.
Tesla later extended its technological gain to the luxury sedan market. Model S, Tesla’s zero emission and sustainable luxury sedan, was then brought into the market as their second electric vehicle in the year 2012. The third model of Tesla was model X is slated to be delivered into the market shortly. Therefore, Tesla is the sole automaker that offers zero-emission sports cars in the serial production currently. With this backdrop, this paper analyses the entry strategy of Tesla to enter into the US auto market, while also focusing on Porter’s Five Forces Analysis.
Industry Analysis/Porter’s Five Forces Analysis
In this section Porter’s Five Forces are analysed with respect to Tesla Motors and the US auto market. Porter‘s five competitive forces model is probably the first step towards strategic analysis that helps in assessing the attractiveness of a particular industry.
Bargaining Power of Suppliers
The power of suppliers is extremely high in the automobile market because the company is highly reliant on these suppliers and in case of issues with the components, delivering the right value and product will consequently result in the disruption of the production process, and the same would negatively reflect on the image of the company. This is because Tesla purchases components from more than 200 suppliers over the world. Irrespective of building extremely good rapport with the main suppliers like Panasonic etc., working in union with the manufacturing towards developing thee new battery cell and also for the replacement of the chassis supplied by Lotus supplier, quite a few suppliers stay single sources of mechanisms used in these cars.
Bargaining Power of Buyers
On a whole, the bargaining power of buyers is quite modest. According to the 2014 annual report of the company, the firm relies more on their association with Daimler and Toyota. This particular partnership with both these firms is of high importance for the company because the supply to both these firms constitutes a massive portion of their profit and hence, they cannot afford to lose this relationship resulting in both of them becoming powerful in the market. Yet, the Company also sells cars to individual clientele, and individual customers are eligible for tax deductions offered by many governments of the world.
Threat of Substitutes
The threat of substitutes is relatively low in the automotive industry in general and the US automotive industry is no exception to this fact. The reason for this is the presence of just a few options of automotive substitution. Walking or using of two vehicles might be possible substitutes for cars; however, the same might not be useful for long distance travel. Besides, other means of mass transportation like trains or buses are just a few other substitutes that are appropriate for local as well as distant travel. However, preference of having an own car is common in today’s modern era as it is highly convenient.
Threat of New Entrants
Threat of new entrants is high. As a new entrant into the electric car industry, even Tesla Motors faced numerous challenges in the early years of inception during 2003. Financial troubles, requirement of high capital investments, brand building, distribution channels, among others were some of the challenges that Tesla Motors faced as a new entrant into the market. However, entrance of other established car makers having relative high economic power into the electric car industry is considerably low.
Industry rivalry
Competition is highly intense in the automotive industry. However, specifically in the electric car industry in which Tesla Motors is a part, the rivalry is moderately low because of relatively lesser number of players, especially in view of the 18 different car models available in the market. One appealing element of this market is that it is highly attractive and also fast expanding. Thus, a few companies like BMW, Audi and Volkswagen also have entered this market recently by offering cars under the plug-in category.
Current Strategies
Tesla Motors has adopted a focused differentiation strategy as its business level strategy as most of their clientele belong to the middle-class and upper-middle class and the company’s objective is to offer high-performance and affordable cars to its customers. The company had chosen strategic alliance as its corporate level strategy and as part of this; it had signed partnership deals with many firms. The company also has alliances with companies like Toyota and Daimler that are OEM manufacturers.
Conclusion & Recommendations
Tesla is popularly known as the “Apple of automakers” the company is distinctive, high-tech, appealing, and a reliable substitute for thoughtful and sophisticated customers of the contemporary era. Branding is highly significant for the company in order for it to increase its share in the market and also the same aides in the distinguish products in a concrete way. As a considerably new brand, building a strong identity for the brand is of high importance and crucial for Tesla motors in view of its future survival in the market. Taking inspiration from the highly successful business model of Apple Inc. and its branding strategy, Tesla still has a massive challenge to become equally successful like Apple.
Bibliography
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Mangram, M.E., 2012. The globalization of tesla motors: a strategic marketing plan analysis. Routledge, 20(4), pp.289-312.
N.Brown, 2013. Daimler Wnats Increased Cooperation with Tesla Motors. [Online] Clean Technica Available at: http://cleantechnica.com/2013/11/07/daimler-wants-increased-cooperation-tesla-motors/ [Accessed 15 November 2014].
Porter, M.E., 2007 Reprint. Competitive Strategy. NY: Free Press.
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