Independent University, Bangladesh

Case study on Tesla Motors

Assignment 2
Submitted to:
Dr. Nazmul Hossain
Adjunct Associate Professor
School of Business
Independent University, Bangladesh

Submitted by
Name ID
Marzan 2031324
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Answers

1. The PESTEL factors that are most salient in the electric vehicle segment are:

a. Ecological: Given the climate change and level of Greenhouse Gases in the atmosphere causing
the depletion of ozone layer and so on. So this led to all industries adopting more greener
methods in production and output and certainly with the automobile industry and thus we see
electric vehicle segment getting such attention and investments.
b. Technological: With technological advancement, it has been possible to produce electric run
engines to give such output. Traditionally, the more power an engine possessed the more fuel it
would depend on but technological advancement led to this production of electric vehicles.
c. Economic: With oil prices always taking the upward move and oil becoming scarce, electric cars
seem to be more economic especially in countries like USA, Australia etc where cars are not
luxury.

There definitely is a good future for electric in the United States, given the sheer number of
manufacturers it has along its own flare of automobiles. With electric vehicles newly making a mark
and receiving good responses, it would be an ideal market to sell electric vehicles where oil prices
have been soaring and people are looking forward to more economic modes of vehicles given the
economic downturns and circumstances especially after the Global Financial Crisis of 2008 and the
current Covid affected world.

2. Using the five forces, we can assess the profit potential of the US car industry in the following
way:
a. The threat of new entry: The threat of new entry is not so high due to
i. Difficulty in economies of scale: Gaining economies of scale in the automotive industry
is tough as there are too many strategic decisions underlying like quantity of purchase
etc.
ii. Investment: Manufacturing automobile requires tremendous amount of investments
and traditionally a place for companies in the Big 5 or fortune 500 etc like Google who
unveiled a prototype in 2015 but it was possible due to its staggering finances. As
automobile requires research and development to a good scale and then setting up
plants. Given the varying tastes in the US Market, it is tough to decide and manage
finances.
iii. Location: It is tough for European manufacturers to get a grip on the US Market due to
the shipping costs, even though Japanese cars do occupy US streets to a big extent but
the local manufacturers tend to have the upper hand given that the Non US
ermanufacturers could get shares in the market almost after one and a half centuries
since the inception of the US Car Market.

Due to these factors, the threat of new entry in the US car market is low.

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b. Power of suppliers: Suppliers vary in range in the automotive industry given that They
themselves are different industries. Now a car needs tires, windshields, lights, suspension.
Engine and so on. That being the case that all or most of them are manufactured in the US and
They themselves are separate industries and have their own internal and external issues and
therefore it can be justified to say that the power of suppliers in the US Car is high.

c. Power of Buyers: The power of buyers in the US Car market is high as the buyers are not
saturated and neither is this a luxury for the consumers. Even though, trucks, pick up vans etc
can be considered to have limited buyers as a huge portion of them are sold in the B2B market.
But in the B2C market, tests have a varying range and henceforth tend to be powerful.

d. Threat of substitutes: Threat of substitutes is low in the US Car market due to

i. Fixed taste and preference: and car enthusiasts tend to be driving same brand and type
of car again and again, so a little up or down the price does not change their buying
habit. Even though, the USA has a bustling motorcycle market but the sheer statistics of
mortality and fatality keep motorists dis-encouraged and unlike many Asian Countries,
the roads are not clogged.

ii. Necessity: cars are not luxury in the United States and most people use 4 wheel sedans,
which is most notable. This presents lesser chance of people switching to other forms
like SUVs, pick up vans etc. If electric vehicles present lower cost in running and
maintenance, than They can well grab the market in the US.

e. Rivalry among existing competitors: Rivalry can be observed in any established large market like
that of the United States and names like GM, Ford, Chevrolette, Dodge are infamous to car
enthusiasts and magazines around the world. There is a good level of rivalry among at every
kind of cars which involves price wars, even though the Japanese brands like Toyota do occupy a
large portion of the commuter section and it has its own rivalry against its competitors like
Nissan, GM etc. Therefore, rivalry is high in the US with a name like General Motors facing a
negative cash flow of $3.3 billion in one quarter in the financial year of 2018 in order to keep the
price low in order to survive in the market. Another issue lies the vast geographical map of the
United States and each state has its own unique taste and demand of cars and this even
intensifies the competition in order to maintain the grip on the ever alive market.

Upon the analysis of the five forces, it can be concluded that the profit motive in the US Car market
is high but moderate in scale as there is intense competition and high power of suppliers and
buyers. But the positive is the lack of threat of new entry and the tremendous investment needed to
establish itself as a brand in one of the biggest car markets in the country. The key would be build a
good supply chain that would not exhaust and understanding the market pulse as economic
environment is always on the change in the United States and therefore being able to provide the
right car at the right place can make business profitable for a car seller/manufacturer in the US.

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3. a. Threat of entry: As Tesla is among the first to bring electric vehicles in the US market along
Toyota and others, it should patent and create high barriers for others to enter this segment of
the market as Tesla already is building its own plant to product batteries to power its cars. If this
can be easy for others to copy and replicate, than it can lose its competitive advantage of early
entry.
b. Power of suppliers: The list of suppliers in the automotive industry is long given that a vehicle
requires multiple set of machineries and elements and this makes the power of suppliers high in
the car industry. Even though unlike others, Tesla has been working building its own power
generator for its cars in likes of the lithium ion batteries which it looks forward to produce. Tesla
should definitely see to the end of it as the technology is new and would not get them an ample
amount of suppliers if they want to outsource and being self dependent would also not expose
their invention to outsiders. They should also ensure a good and reliable chain of suppliers as
their cars would be a boom in the market and production should not halt.
c. Power of buyers: Serving the buyers is the main aim of any given business and so is the case
with Tesla and it already has a large market as commuters in the US are keen for cars and it’s a
necessary there given the wide network. The power of buyers is high as They have many brands
to choose but Tesla should consider the requirements of the buyers. For e.g. Among the biggest
issues for any car owner is the cost of fuel and maintenance, if Tesla can reduce the cost of
running and maintaining its cars in comparison to traditional cars than They definitely can
attract buyers. One thing though, buyers in the US Car market are not isolated in terms of
choosing a brand or car and this has to kept in mind when designing the strategy. Tesla should
consider pricing and customer preferences in manufacturing the cars and crafting strategy.
d. Threat of substitutes: This is where Tesla can consider some room for complacency as there
are very little substitutes for sedans which Tesla looks forward to produce. As users of any kind
of vehicle tend to stick to it and unlike SUVs and Trucks, sedans are easier for general public to
deal with. They should look forward to see the movements in the market and try have their
customers loyal to them strategically.
e. Rivalry among existing competitors: Even though the rivalry among competitors in the US Car
market is very fierce and causes many to experience significant losses at times in order to
survive in this large market. But the electric segment of the US Car market is niche in nature and
does not have many exponents in it and therefore there is a lack of it. Even though, most
companies are looking forward to developing their own electric models in order to capture this
new market and therefore Tesla has be careful in reading the market pulse and gaining a
competitive advantage over its existing and upcoming rivals.

Recommendations
i. Supply Chain: Vehicle manufacturing is hugely dependant on its supply chain and it
usually tends to be long and wide given the sheer number of sophisticated machineries
and parts needed in order to manufacture a car.
Elon Mask must ensure a sustaining chain of supply through which, his company will not
have to depend upon others for production and neither will production come to a halt
or nor They have to up the prices to cover the costs. Something positive in this regard is

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 the set up of its own plant for producing batteries, this on a least will reduce their
dependence on external sources.
ii. Research and Development: Traditionally the car market has been dominated by fossil
fuel and then came in natural gas which became famous in few countries to see a
decline later on but both were non renewable sources of energy and thus for more than
two centuries, the car market has been dependent on these industries for its products
to be marketed. But now, with electric vehicles making a mark it can be said that this
industry has experienced a breakthrough despite previous attempts of many other
forms like solar powered car etc, after fuel the electric vehicles are only which have
been able to make a mark so therefore, we can see more inventions with research and
development being easier than ever. This is where the CEO must not show complacence
of any nature, it must be aware of the technologies or offerings entering the market and
look forward to develop its own product as usually the US Market is where the new
products are introduced. Therefore, it would have to face surprise competition if it does
not keep a good eye on the market and keep on developing further.

iii. Pricing: Pricing is an important factor in the 4 Ps of marketing as ultimately this is what
decides whether a customer would exchange money or not for your product. Given that
the US Market is very vast with a long list of manufacturers both local and foreign
operating and therefore pricing is crucial as charging the wrong price will alter the mind
of the buyers as this segment of cars would attract mostly commuters, who prefer fuel
economy, low maintenance paying a low price for their cars.

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 4. Strategic map of the US Car Market

From the picture above (hand drawn) displaying the strategic group mapping of the US Car industry, we
have taken into consideration the price and engine power. The more the price of a car, the more the
engine power it has in terms of cc and horsepower. Secondly, the more the engine power, the less the
fuel consumption would be given that it’s debatable as it varies from segment to segment. For e.g. A
BMW M5 cannot be expected to run more than 20 odd km on 1 liter but a Toyota Corolla would
definitely be expected to do so.

We have grouped BMW, Audi, VW, Porshce as firms looking to sell lucrative cars with high engine power
and sporting capabilities.

Secondly, we have grouped Toyota, GM, Ford, Chrysler as firms producing cars in the commuter
segment with low engine power and price.

Now in the strategic map above, Toyota, GM, Ford, Chrysler held the top market shares in 2013 with
17.97%, 15.76%, 14.46% and 11.55% respectively and even though They do have very high powered cars
like the Supra and Mustang but They mostly sell commuter cars like Corolla with fuel efficiency but don’t

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unlike Volkswagen (VW), BMW, Jaguar, Audi focus on high end cars like GTI, R8 etc. It shows that
commuter cars play the major role in the car market with its prices low but accumulated turnover being
higher.

5. The reason for such high market capitalization despite such low revenues in comparison to GM
is that Tesla in the car market is in the growth stage and in the capital market; experienced
investors are interested to invest in what will grow than what already has grown. GM does not
have a new or untapped market to acquire but Tesla’s electric vehicle segment is yet to reach its
full volume in terms of sales with a steady rise over the years with sales reaching the million
mark and given the ecological factor, restrictions have been ever increasing on traditional fuel
run cars with many becoming illegal and with that the social awareness and low maintenance,
running costs due to its technological advancement makes this segment worthy of investment
and a good market to operate in present and future. Henceforth, there are so many outstanding
shareholders of this brand in comparison to an established player like GM.

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