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Tesla Inc. Five Forces Analysis (Porter’s Model) &

Recommendations
UPDATED ON SEPTEMBER 14, 2018 BY DANIEL KISSINGER

Tesla Inc. (formerly Tesla Motors, Inc.) maintains its pro tability through
strategic measures that address the competitive challenges outlined in
this Five Forces analysis of the global automotive business. Michael
Porter developed the Five Forces Analysis model as a strategic
management tool to understand the impact of external factors on
rms and the competitive landscape of their industry environment.
This Five Forces analysis of Tesla looks into the external factors

A Tesla car in Germany. A Five Forces analysis

signi cant in the automotive industry and the energy solutions
(Porter’s model) of Tesla Inc. (formerly Tesla industry, and how such factors affect the company. As one of the
Motors, Inc.) points to competition as the biggest biggest players in the electric vehicle market, Tesla must effectively
force in the automotive industry environment.
address such external factors to ensure its long-term competence and
(Photo: Public Domain)
resilience in the face of competitive rivalry involving automakers like
Honda Motor Company, General Motors Company, Ford Motor
Company, Volkswagen, Toyota Motor Corporation, Nissan Motor Company, and BMW (Bavarian Motor Works). The
company must account for the nature and characteristics of such competition in the domestic and international
markets for electric automobiles, batteries, and solar panels, as considered in this external analysis.

Tesla Inc.’s success as an innovative manufacturer of electric vehicles is partly based on its strategies that tackle
the external factors in the automotive industry environment and the energy storage and solutions market. This
Five Forces analysis (Porter’s model) shows that Tesla must prioritize competitive rivalry as the most signi cant of
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analysis.
Summary & Recommendations: Porter’s Five Forces
Analysis of Tesla, Inc.
Firms in the international automotive industry environment experience a variety of external factors, including raw
material availability and technology-based rm competitiveness. Tesla’s resilience is a re ection of strategic
effectiveness. This company analysis shows that the business manages to grow in spite of competitive challenges.
However, Tesla must ensure that it addresses external factors according to the intensity of the forces impacting
the business, as shown in this Five Forces analysis:

1. Competitive rivalry or competition (Strong Force)

2. Bargaining power of buyers or customers (Moderate Force)
3. Bargaining power of suppliers (Moderate Force)
4. Threat of substitutes or substitution (Moderate Force)
5. Threat of new entrants or new entry (Weak Force)

Recommendations. The results of this Porter’s Five Forces analysis of Tesla, Inc. show that competition is the
most signi cant force that impacts the business. Thus, the company must prioritize this force in its strategic
formulation. A recommendation is to continue strengthening Tesla’s competitiveness: Stronger competitive
advantage is achievable through innovation and increased market presence. For example, in terms of innovation,
the company can boost its research and development (R&D) investment to outpace competitors’ rate of energy
storage innovation. In terms of increasing market presence, aggressive marketing campaigns support Tesla’s
vision and mission statements. The other forces outlined in this Porter’s Five Forces analysis also have signi cant
intensities, but to a lower degree compared to competitive rivalry. Managerial initiatives must address these forces
according to their intensities.

Competitive Rivalry or Competition with Tesla, Inc. (Strong

Force)
Tesla, Inc. operates in a highly competitive market. This aspect of the Five Forces Analysis outlines the in uence of
competition on the automotive and energy solutions industry environment. In this case of Tesla, the external
factors and their intensities responsible for the strong force of competitive rivalry are as follows:

Small number of rms (weak force)

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High aggressiveness of GDPR,
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we do notforce)
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Low switching costs (strong force)
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There are only a small number of rms operating in the automotive market. In Porter’s Five Forces analysis
framework, this external factor limits the effect of competition on companies like Tesla, Inc. However, these rms
are generally aggressive in innovating and promoting their products. For example, large automotive companies
have aggressive marketing campaigns. Tesla’s marketing mix or 4Ps partly meets such aggressiveness, which
strengthens the effects of competitors against the business. Also, the low impediments for customers to buy cars
from other manufacturers (low switching costs) further strengthen the force of competition. This aspect of the
Five Forces analysis of Tesla Inc. points to competitive rivalry as a high-priority strategic management
consideration in the automotive and energy solutions industry environment.

Bargaining Power of Tesla’s Customers/Buyers (Moderate

Force)
The in uence of customers on rms and the automotive, battery, and solar panel industry environment is
accounted for in this aspect of the Five Forces Analysis. Tesla’s customers are a direct factor that determines the
company’s sales revenues. The following external factors and their intensities maintain the moderate force of the
bargaining power of customers on the company:

Low switching costs (strong force)

Moderate substitute availability (moderate force)
Low volume of purchases (weak force)

Low switching costs reduce barriers for Tesla customers to purchase cars from other providers. In the context of
this Porter’s Five Forces analysis, this external factor imposes a strong force against the company and other
players in the automotive industry environment. However, the availability of substitutes is only moderate in many
cases, thereby limiting customers’ bargaining power against Tesla Inc. For example, many customers in suburban
areas have limited access to public transportation, making it more practical to drive their own car. In addition, the
low volume of purchases (each customer buys and keeps only one or a few cars) reduces the in uence of
customers on Tesla. Thus, the intensities of the external factors in this aspect of the Five Forces analysis re ect
the bargaining power of customers as a moderate force and a secondary management priority. This prioritization
is re ected in Tesla Inc.’s generic strategy and intensive strategies.

Bargaining Power of Tesla’s Suppliers (Moderate Force)

Tesla Inc.’s business depends on the reliability of suppliers. This aspect of the Five Forces Analysis shows how
suppliers shape the industry environment by in uencing the availability of materials that rms need. The
intensities of the external factors that create the moderate force of the bargaining power of Tesla’s suppliers are
as follows:

Moderate forward integration (moderate force)

Moderate size of suppliers (moderate force)
Moderate supply level (moderate force)

Tesla Inc.’s suppliers have a low level of forward integration. This external factor refers to suppliers’ limited control
in the distribution and sale of their products. For example, some suppliers use third parties to sell their materials to
Tesla, while We
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sized, thereby having limited in uence on the automotive industry environment. Another external factor is the
moderate level of supply, which empowers suppliers to affect Tesla, but only to a limited degree. This aspect of this
Porter’s Five Forces analysis of Tesla Inc. indicates the bargaining power of suppliers as a secondary strategic
management priority.

Threat of Substitutes or Substitution (Moderate Force)

Tesla, Inc. experiences the impact of substitutes on the automotive and energy solutions industry environment. In
this aspect of the Five Forces Analysis, the intensities of the external factors that lead to the moderate force of the
threat of substitution against the company are considered, as follows:

Low switching costs (strong force)

Moderate substitute availability (moderate force)
Moderate performance of substitutes (moderate force)

As pointed out in the other aspects of this Porter’s Five Forces analysis of Tesla Inc., low switching costs enable
competition. In this external analysis case, the low switching costs enable substitutes, such as public
transportation, to easily attract customers. This external factor imposes a strong force against Tesla’s industry
environment. However, the moderate availability of substitutes limits such in uence of suppliers. For example,
customers have only a moderate and limited number of substitute options in the market. In relation, many
substitutes have only a moderate level of performance in satisfying customers’ practical needs. For instance,
public transportation is not as versatile as a private car. This condition further limits substitutes’ force against
Tesla. In this aspect of the Five Forces analysis of Tesla, Inc., the external factors point to the threat of substitution
as a secondary management consideration in the company’s strategies.

Threat of New Entrants or New Entry (Weak Force)

New entrants are new rms, which impact the industry environment and determine the performance of
companies like Tesla Inc. This aspect of the Five Forces analysis identi es the intensities of the external factors
that create the weak force of the threat of new entry, as follows:

High cost of brand development (weak force)

High cost of doing business (weak force)
High economies of scale (weak force)

Tesla’s business is dif cult to compete with, especially because of the high cost of brand development, along with
the popularity of Elon Musk. For example, it is dif cult for new entrants to match the company’s strong brand,
which is one of the strengths enumerated in the SWOT analysis of Tesla Inc. This external factor is an entry barrier
in the context of Porter’s Five Forces analysis. In addition, automobile manufacturing has high costs, which impose
a barrier to new rms. Also, established players like Tesla bene t from increasing economies of scale, which new
entrants can only achieve upon exceeding a production threshold. Based on the external factors in this aspect of
the Five Forces Analysis, the threat of new entry is only a minor strategic management concern in Tesla Inc.’s
industry environment.

References
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 Grundy, T. (2006). Rethinking and reinventing Michael Porter’s ve forces model. Strategic Change, 15(5), 213-
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Karagiannopoulos, G. D., Georgopoulos, N., & Nikolopoulos, K. (2005). Fathoming Porter’s ve forces model in
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Tesla Inc.’s Website.
Tesla, Inc. – Form 10-K.
United States Department of Commerce – International Trade Administration – The Automotive Industry in the
United States.
United States Department of Commerce – International Trade Administration – Automotive Products:
Expanding a Key Industry to TPP Countries.
Walder, J. (2013). A critical evaluation of Michael Porter’s Five Forces Framework. GRIN Verlag.

TA G S :   A U T O M O B I L E I N D U S T R Y , A U T O M O T I V E I N D U S T R Y , C A S E S T U D Y & C A S E A N A LY S I S , E N E R G Y
I N D U S T R Y , P O R T E R ' S F I V E F O R C E S A N A LY S I S , T E S L A I N C . ( T E S L A M O T O R S I N C . )

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