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With the rise of the electric car industry, we analyze the big player in the industry- Tesla

January 12, 2018

Industry Analysis

Market size/growth rate:

Tesla is in a unique situation when it comes to market share and size. The automotive industry is a hugely competitive industry and has been for a while. Elon Musk entered the electric car industry, which is brilliant because in 2013 global sales of plugin electric cars were less than 1%. The electric car market has continued to see growth year after year and could be the way of the future.

Number of rivals/competition:

Many competitors have jumped into the electric car industry to compete with Tesla with some of the bigger names being companies like Chevrolet, Nissan, and Toyota.

Product Differentiation:

Tesla really separates itself from the competition with the quality of its product and the level of differentiation. The Tesla Model S can reach up to 265 miles when fully charged compared to the next product by Nissan (Leaf) that can only reach about 84 miles. Tesla has better technology making their product better.

Innovation:

Elon Musk is great when it comes to innovation. He is continuously listening to consumer needs and making the necessary adjustments. I remember reading a story of a customer complaining about a charging station, Musk immediately tended to the need and fixed it.

Change in technology:

The electric car industry is extremely subject to changes in technology with companies innovating as much as possible to gain a competitive edge.

Potential:

I think this industry has great potential. Not only are electric cars becoming the new hot thing because of the way they look and the technology associated with them, but people will also connect in an emotional manner, as it is safer for the environment. I expect to see tremendous growth in this industry. If I were an investor I would strongly consider this industry as I believe it will pick up in the future at some point because oil is a natural resource that will eventually run out.

Competitive Analysis

Substitute Products:

  • Alternatives for an electric car like Tesla would be cars that are powered by gas because some consumers may be too afraid to make the switch.
  • Other top and potentially upcoming electric cars such as Nissan Leaf, Honda Fit EV, Chevrolet Spark, Ford Focus EV, Mitsubishi 1-MiEV.
  • Motorcycles, Mopeds, etc.

Suppliers:

The Model S contained over 2,000 parts and components that Tesla was sourcing globally from over 300 direct suppliers, the majority of which were currently single-source suppliers. Many thought alternative suppliers would prove to be costly and time consuming so a long-term deal was not made. Tesla ended up buying different plants and contracted with companies to manufacture their products.

Rivalry among competing sellers:

  • Tesla not only faces competition from the electric car and automotive industry but they also face competition from companies such as Harley Davidson, Yamaha and more because of motorcycles and other products consumers may resort to.
  • Tesla faces growing competition because the industry is new and upcoming so companies are trying to jump in and gain market share before its too late.
  • Innovation should be of concern to Tesla because since the industry is so new as a whole, companies may have ideas that Tesla hasn’t thought of yet.

Buyers:

Products in the industry are discretionary, meaning that consumers can buy at their availability when they want to. This makes it hard to increase sales, as a products lifetime is much longer than other industries. Buyers are also new to the industry and market so may need more convincing to switch from a gas-fueled car to an electric car.

New entrants:

  • New entrants are very likely in this industry
  • Problems that could arise when entering the market consist of the costs associated with production and trying to capture some of the market share.

SWOT Analysis

Strengths:

  • Elon Musk is definitely one of the biggest strengths for Tesla. I would compare the importance of Musk to Tesla as Jobs was to Apple, without Elon Musk, Tesla would be nothing.
  • Tesla had a “first mover” approach with the electric car industry. They are known amongst consumers as THE electric car. Whenever you hear Tesla you think about luxury electric cars and that’s a strength for them compared to new entrants who fight for consumer attention.
  • Technology is also a strength for Tesla. They have some of the most updated technology in their cars, which not only gives the car great quality with its production but also gives consumers that “cool” feeling.
  • Believe it or not the industry itself is a strength for Tesla. Electric cars will continue to be more and more popular as time goes on making it inevitable that sales go up for Tesla.
  • Battery life is also a great strength for Tesla. They destroy any other electric cars when you analyze the capacity at which they can travel. It’s not even close; Tesla is the best option.

Weaknesses:

  • Cost and production can prove to be a weakness for Tesla in this industry because electric cars cost more to produce and take more time than competitors producing gas-fueled cars.
  • Demand can also be an issue because consumers may not switch over to a Tesla model anytime soon and that can be costly for the company if they continue to produce cars but there is no demand for them.
  • Lack of charging stations can present short-term problems. Right now their aren’t as many charging stations as Tesla would like and that could deter customers away from the product because they don’t want to buy a car if they can never charge it anywhere. 

Opportunities:

  • Growth through acquisition of other companies.
  • International expansion.
  • Product differentiation such as trucks, ATV’s, motorcycles, etc.
  • More charging stations for consumers.

Threats:

  • Government laws and regulations under Trump administration.
  • Reliance on resources to produce high tech cars.
  • New entrants with more cash flow to innovate.
  • Produce more than selling.

Strategic Recommendation Analysis

In my strategic recommendations for Tesla I will focus on what I think are the two most important weaknesses within the company that they should focus on and improve on.

Weakness #1: Lack of charging stations

            I think this is huge for Tesla going forward. They really need to focus on expansion and building on their presence. I believe before marketing their cars and products they need to have more charging stations. With the lack of charging stations it’s essentially like Apple selling you an IPhone with no charger, once it dies your screwed and have to figure out a plan. Sometimes in business you have to work from back to front and what I mean by that is they should start investing more of their money into charging stations and not necessarily their cars. The reason I think this is because I am speaking from a consumer standpoint. Sure, I would love a Tesla but why would I buy one if there is no where I can really go in Maine to charge it? My strategic recommendation would be to start implementing more and more charging stations across the U.S as that will be one of the deciding factors that draws customers in.

Weakness #2: Pricing

This is also something that Tesla should continue to look into. They have recently done R&D on electric cars and potentially selling cheaper cars for everyday consumers. I think this is huge because people view Tesla as a car that is too expensive for them and out of reach. This can correlate with weakness #1 because if there are limited amount of charging stations than why would someone want to make a pricy investment on something that may not work out or be able to charge. I know Tesla is currently working on making cars possible for everyone in regards to price so my recommendation would be to keep on that path because once they start selling cheaper cars, everyone will be trying to buy one.

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