Tesla in Automotive industry Strategy project

Topics: Electric vehicle, Electric car, General Motors Pages: 17 (5411 words) Published: May 18, 2015


Table of contents

1.Introduction3
2.Market definition5
3.Industry attractiveness and profitability5
4.Tesla in the market9
4.Sustainability of the competitive advantage11
1.1Trends in the automotive industry11
1.2The isolating mechanisms12
1.3Strategy recommendations13
5.Conclusion14
6.Bibliography14

1.Introduction

The Encyclopaedia Brittanica defined the automotive industry as all the companies and activities involved in the manufacturing of motor vehicles, including most components, such as bodies and engines; but excluding tires, batteries and fuel1. The automotive industry started with the production of what is widely considered to be the first ever automobile, the Benz Patent-Motorwagen in 1886. Although the first car was originally manufactured in Germany, in the many decades to come, the United States led the world in total automobile production until the start of the 21st century, when China took the top position. Today, China produces nearly 20 million units per year, almost double the amount of the United States. It is one of the world’s most important sectors when measured by revenue and it is a business that is still growing significantly. Last year for example, over 87 million automobiles were produced worldwide, a 3.6% increase compared to the year before and a 43.82% increase compared to 20032. Needless to say, the automotive industry is big business and it is very probable there are business opportunities that are yet to be exploited. Tesla Motors is an American car manufacturer that tried to exploit such a business opportunity. It’s an American company that designs and manufactures electric vehicles and electric car components3. Founded in 2003, Tesla’s goal was to lessen the world’s dependence on petroleum-based transportation and drive down the cost of electric vehicles. Moreover, Tesla’s aim is to prove that electric vehicles can be awesome as well4. This might not sound particularly unique, but Tesla Motors does have a very distinct strategy in the sense that it wants to enter the automotive market by first focusing on high-end luxury cars and sports cars. Later, when Tesla’s products and consumers acceptance have matured, they would move into the market for the middle-class consumer, which is larger but also significantly more competitive5. The idea is to establish a strong brand name at first, which will aid the company in a later stage when the decision is made to start producing lower-priced automobiles. Tesla’s first model, the Roadster, had a base price of approximately $100.0006. Their second car, Model S, is priced at $63.750 including a $7.500 tax credit. The company now has plans to launch a $30,000 small SUV the Tesla Model X 7. Eventually, Tesla wants to become a mass producer of electric vehicles and service both upper- and middle-class customers8 This discussion aims to analyze Tesla’s strategy. It is clear that Tesla has a very differentiated strategy and we will want to determine whether or not Tesla is likely to succeed in achieving its goals and become a successful enterprise. Firstly, we will take closer look at the ‘environmental’ automotive industry using Porter’s theory. Secondly, we need to closely look at Tesla’s strategy. How will Tesla try to win a respectable share of the market? As mentioned before, Tesla is a very young company and it will inevitably face fierce competition from incumbent firms. A clear plan to establish a foothold in such a market will be essential for the firm’s survival. The next step is to see if Tesla identified all relevant factors and industry forces, and if it has defined a strategy that takes all of these elements into account. It will surely need to attain a unique strategy if it wants to position itself in a key position in the market. What is it exactly that differentiates Tesla from other car manufacturers and in what way could this be beneficial for the firm? Does their...
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