In the electric car market, the most prominent American company, Tesla, was founded in 2003 by a group of engineers who wanted to prove that people do not need to compromise to drive electric cars. Through trial and error, the company confidently walked towards success, reaching new and new heights, and in June 2020 became the most expensive car company in the world, overtaking such giants as Toyota and Volkswagen in capitalization.
The market analysis of Tesla involves the assessment of the company and its categorization in one of the four main types of markets. These include oligopoly, monopolistic competition, pure monopoly, and perfect competition. Tesla can be classified as an oligopoly since the company competes with a small number of other firms, which manufacture electric cars. The main competitors are Volkswagen, BYD Company, and Nio, which are the largest electric car manufacturers. The substitutes primarily include gasoline cars or hybrid cars, which include highly popular giants, such as Toyota, Ford, BMW, and Fiat.
In order to properly conduct an elasticity analysis, it is important to consider the pricing power leverage of Tesla. One should note that pricing power leverage is highly reliant on market control, which is rooted in marker share, and Tesla needs to compete with its direct electric car competitors and substitute gasoline car companies. Tesla’s market share across the globe is less than 1%, which means that it has limited pricing power. The latter is partially increased by the fact that Tesla has an outstanding brand image and is perceived as unique in the eyes of consumers, and thus, the amount of differentiation is substantial.
It is critical to point out that barriers of entry for electric cars are significantly high, and thus Tesla can be considered well-protected from new competitors. It is highly difficult to start a company specializing in electric car manufacturing due to the large amounts of investments needed. The main threat can mainly come from large gasoline car manufacturers, who can shift towards electric vehicles.
However, the rivalry analysis reveals that Tesla is moderately vulnerable to existing competitors. Its largest competitors, such as Volkswagen, possess large amounts of capital to boost their product performance, quality, and appeal.
In regards to Tesla’s suppliers, there are eight main ones, which are ZF Lenksysteme, Stabilus, Sika, Modine Manufacturing Co., Inteva Products, Fisher Dynamics, Brembo, and AGC Automotive (“Who are Tesla’s (TSLA) main suppliers,” 2019). For example, Modine Manufacturing Co. supplies battery chillers, whereas Brembo supplies brakes. The latter firm has high levels of leverage since brake systems are needed for non-electric cars as well as electric alternatives, and the supplier has no major competitor, which means that brakes are inelastic.
The buyer power analysis reveals that they have leverage because there are other options in regard to cars. Buyers can choose electric cars from other direct competitors, and they also can buy gasoline or hybrid cars.
The government is already involved in Tesla’s performance because the incentives are created in favor of non-fossil fuel-based cars, whereas gasoline-based cars are taxed more.
The main resources are not difficult to imitate for potential competitors with large capital. However, certain car parts are manufactured directly by Tesla, which makes the product moderately challenging to replicate.
On the basis of the analysis, it is evident that Tesla has a sustainable competitive advantage due to the fact that there is low supplier power, high barriers of entry, oligopoly market type, government support, partial resource independence, and solid brand image.