Tesla and the Porter Forces

Project Deliverable 2: Innovation and Competitive Analysis The CEO of Tesla, Elon Musk, has faced significant pressure from both the public and the investing world to deliver on promises of meeting production deadlines on the Model 3.

The Model 3 is meant to be the electronic vehicle (EV) for the middle class—a comfortable, suave, sophisticated and technologically advanced EV that is a step and class above the types of EVs produced by other car manufacturers—like the Volt, which has none of the sheen and sophistication that Musk has vowed to bring to the green energy sector of automobile manufacturing. However, going forward, Musk should consider that other luxury brand auto makers are beginning to catch up with his vision.

Porsche and Jaguar are virtually on his heels and they have none of the balance sheet problems and debt issues that Tesla is facing. The competitive environment is heating up and Tesla needs to up its strategy in order to meet the oncoming obstacles and threats that are sure to spell a problem for the company. According to Porter’s Five Forces of Competition model, the Threat of New Entry, Buyer Power, Threat of Substitution, Supplier Power, and Competitive Rivalry are the five forces that impact a business.

In the case of Tesla, these five forces can be assessed easily: new entry is an ongoing problem as all the world’s major auto manufacturers are essentially new entrants in the EV market. Buyer Power is an issue for Tesla, as the company’s Model 3 is not yet available at the MSRP of $35,000 that Musk said it would be so that the average consumer can buy an environmentally safe auto on a reasonable budget that is affordable for the average working man.

Threat of substitution remains palpable as Tesla flounders with its goal of getting the affordable Model 3 to market; other manufacturers offer cheaper EVs and though they may lack style and sophistication, they make up for it in price. For the green consumer looking for a deal and willing to sacrifice style for cost, substitutes will win the day. Supplier Power is another issue for Musk, who recently is reported to have asked for a haircut from suppliers in order to reach profitability by the end of the year.

Suppliers, however, have leverage here as they can withhold delivery until Tesla pays in full. Competitive Rivalry is also an issue, with Porsche, Jaguar, BMW, and several other auto makers all coming out with new EVs in the coming months and years to rival Tesla’s luxury brand EV status. Tesla introduced the stylish luxury brand EV to the world with its Model X and Model S.

These productions showed that it was possible to appeal to high-end consumers with technological innovations that were at the forefront of the industry while also supporting the concept of sustainability so dear to Musk’s mission and vision for the company (Hunt, 2017). The other trend that Tesla has introduced is the concept of market-disrupting sustainability.

In a world where oil and gas are at the heart of so many conflicts and struggles, and where environmental issues like global warming or climate change are on the tips of tongues, Musk offers a new solution in which car lovers can have their cake and eat it too: an EV that is as sleek and stylish as it is safe on the environment. Tesla has thus introduced two new trends: the stylish EV and the sustainable product for auto lovers.

Now, all other manufacturers are pushing to catch up. The problem for Tesla is whether it can stay solvent long enough to hold them at bay, or whether the debts it owes will be increased as a result of the company’s considerable cash burn (McGrath, van Putten & Pierantozzi, 2018).

The feasibility of Tesla remaining at the top of the stylish EV and sustainable car market is unlikely: competitors with much better track records are entering the fray and they do not have the albatross around the necks that is Tesla’s mounting debt. Tesla has been able to become a stock market darling thanks to its growth story and its narrative as a company of the future. That narrative may soon come to an end if the company fails to become profitable in the near future.

Indeed, Tesla is already stretched as thin as it can possibly go. It had to meet its 5000 car production deadline recently by erecting a makeshift tent to facilitate the production line. A company that has based its narrative on state-of-the-art designing and manufacturing should not be piecing its EVs together in a tent in the desert—yet that is what Tesla is doing just to meet its mark. Is this sustainable? The company’s debts are mounting and so too is the skepticism.

As Collins (2016) shows, Tesla has had a lot of promise, but not a lot of follow-through. Currently, the company’s organizational strategy impedes its ability to innovate and be a successful company. Musk is seen as the visionary behind.