Tesla Corporate Finance

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Bargaining power of suppliers: (MODERATE)

The bargaining power of suppliers is not very large considering Tesla provided patent protected technology that gave it an advantage at producing batteries. Their partnership with Panasonic also puts them in a secure position with their most crucial supplier of batteries. But there is a minor threat considering Tesla relies on a very large number of suppliers since it is in the automobile industry.

Bargaining power of buyers: (LOW)

The high switching costs lowers buyer bargaining power and also Tesla sells a luxury product, which has an inelastic demand and is difficult to bargain. A lack of competitors and substitutes to some of Tesla’s products lower buyer bargaining power as well.

Threat of substitute products: (MODERATE)

The threat of substitutes arises when buyers face few switching costs and in the automobile industry, buyers often face high switching costs. Tesla has an advantage in this aspect since there are no substitutes that can compete with the quality and performance of Tesla’s vehicles. Also there is not a single pure substitute to Tesla’s sports car the Roadster, but there are other close substitutes such as hybrid and flex fuel vehicles.

Rivalry among competing firms: (HIGH)

There is high industry rivalry considering there are numerous and somewhat equally balanced competitors. Industry growth has also slowed a lot over the past and there are high fixed and storage costs. The unattractiveness of high competition in the industry suggests that it is a tough industry to enter. If Tesla’s vehicle proves to be extremely successful, they can expect a large number of established automobile companies to interfere and intensely compete.

Based on the Porter’s Five Forces Model, the industry looks fairly attractive for Tesla and suggests there is no reason for Tesla to consider exiting the industry.

c. Internal Analysis:

The internal organization at Tesla gives it a cost advantage with its new approach rather than the costly traditional approach of other competitors. Tesla uses a Silicon Valley startup approach and boasts an unbelievably successful, progressive minded leadership team. Elon Musk’s past successful endeavors suggest he has the expertise to drive Tesla in the right direction concerning their operations. Tesla has a large advantage in both its tangible and intangible resources since it carries many patents in technology, a strong reputation, and also intelligent human resources. They are no longer relying on the traditional approach, which raises many questions concerning the potential of this new approach.

With the introduction of the Model S, Tesla began a strategic shift from a high-end target market to reach the broader family sedan market. Has more cargo room than any other sedan, five star crash rating, 4G wireless connectivity, 300 miles per charge, 45 minute quick charge, 0-60 in less than 6.

Building each one may take little additional investment since Tesla is building each from the Model S platform.

Tesla uses a just in time delivery system that allows people to order cars. No need to carry a large inventory and pay for large stores. Major department from the traditional model.

Tesla faces legal challenges in its distribution model through the internet. Some states have laws that prohibit the sale of vehicles to consumers without the use of an independent dealership. May have to change its model in some states.

Also they use a Silicon Valley marketing approach , design studio personalizes everyones Tesla experience.

Tesla targets 15% profit margin.

Discuss the facts --- Labeling

Competitive Profile Matrix

External Factor Evaluation Matrix

Barriers to Entry:

Econ of Scale

Regulation Issues

Tech innovations

Brand Loyalty/Switching costs

Infrastructure

Substitutes:

Hybrids

Flex Fuel

Hydrogen

Diesel

Compressed Natural Gas

Mass Transportation

Complements:

Govt. Tax Breaks

Utility incentive programs

Free parking at airports

Single occupancy use of carpool lanes

No parking meter fees

Look at ion battery