Since its inception in 2003, Tesla Inc. has been at the forefront of revolutionizing the automobile industry. For quite a long time, automobile manufacturers have continuously produced the traditional Internal Combustion Engines (ICE). The profitability of this particular industry and the increasing population of worldwide consumers especially in developing countries has prevented them from producing hybrid vehicles that are deemed risky. The costs of these hybrid vehicles are quite higher and as such, it is not a strong incentive for automobile manufacturers to embrace this new technology. Elon Musk, a founder of Tesla Inc., has helped grow this company into a multi-billion venture in relation to total returns and sales growth. Even though it has had success in the automobile industry, Tesla Inc. has had its challenges and weaknesses as well as growth opportunities.
According to Porter’s five forces model, it is clear that Tesla Inc. has faced these forces that tend to shape up competition in line with industrial-organizational economics. These forces can be narrowed down into two: horizontal competition and vertical competition. The first component under horizontal competition is the threat of substitute products. This has been a major challenge that the electrical automobile company faces. The production of the traditional gas combustion motors by firms like General Motors, Ford, Nissan, and Toyota which are relatively cheaper has slowed down the growth of the automobile company. More units of the traditional vehicles are sold per year because of their affordability (Chau, 2016) . As such, it has been a challenge for people to embrace electric vehicles even though they are environmentally safe.
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Secondly, the threat of established rivals. The automobile industry boasts of established manufacturers who are known to produce and sell large volumes of automobiles yearly. This is a challenge because they command a certain market share which makes it hard for other new firms to establish themselves. It took a while for tesla to command a substantial portion of the market. Even still, established companies pose a challenge, one that they are working to overcome gradually. There are also threats of new entrants into the industry. Even though this technology-driven industry has high capital requirements which translate to higher barriers of entry, there is still a possibility that new players might enter the market (Maamoun, 2021) . Just as Elon Musk put it, it is really that new entrants are what drives innovation.
A significant component of vertical challenges is the bargaining power of customers. Evidently, the cost of production of electric cars is quite high compared to conventional gas-powered engines. This translates to higher costs of purchase. The challenge here is that the buyers’ power is high since they may have alternatives. This is because there exist alternatives that consumers can opt for. Therefore, you find a small percentage of people opting for electric vehicles. Another challenge faced by Tesla is the bargaining power of suppliers, that is, the market of inputs. Costly raw materials and components, as well as increased labor costs, further increase the prices of their products.
In the face of these challenges, there is an opportunity for Tesla to expand its operations and grow. Its leadership and good strategic position put it in a good place to high volume affordable EV cars in the long run. Moreover, Tesla's battery technology that they have shared might revolutionize the industrial engagement all to the benefit of Tesla. This would result in increased sales of automobiles as well as battery related components. The open-source approach that they have taken also promises to boost their reputation and put it ahead of competitors.
Tesla Inc. has grown significantly over the years in terms of leveraging technological advancement in the production of modern pollution-free vehicles. Though it has encountered many challenges, its proper leadership has steered it towards becoming one of the fast-growing companies in the world.
References
Chau, K. (2016). Overview of electric vehicle machines - From Tesla to Tesla, and beyond. 2016 International Conference of Asian Union of Magnetics Societies (ICAUMS) . https://doi.org/10.1109/icaums.2016.8479941
Maamoun, A. (2021). Elon Musk and Tesla: An electrifying love affair. https://doi.org/10.4135/9781529743487
