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88 CHAPTER 3 External Analysis: Industry Structure, Competitive Forces, and Strategic Groups
ALTHOUGH TESLA MOTORS has been successful in
entering the U.S. automotive market using innovative
new technology, its continued success will depend on
other firm and industry factors. While industry forces
have been favorable for a long time in the U.S. automotive
industry, recent dynamics have lowered the
profit potential of competing in this industry and thus
reduced its attractiveness. Now that Tesla Motors has
demonstrated how new technology can be used to circumvent
entry barriers, other new ventures may soon
follow. Moreover, the incumbent firms are also adopting
the new technology by introducing hybrid or all-electric
cars, further increasing rivalry in the industry.
Another external industry force that Tesla Motors
must address is the bargaining power of suppliers.
Lithium-ion battery packs are key components for
Tesla’s electric engines. They are supplied by only a few
technology firms such as Panasonic in Japan. Given
that these sources are few, the bargaining power of suppliers
in the electric car segment is quite high, further
limiting the industry’s profit potential. As a consequence
of the strong bargaining power of suppliers, combined
with the weak demand for its $100K sports car, Fisker
Automotive, another American automaker of plug-in
hybrid sports cars based in Anaheim, California, filed
for bankruptcy.
In this segment, the bargaining power of buyers
is also strong. Individual buyers have many choices,
and electric cars tend to be priced at a steep premium
due to low production runs. Large-scale buyers
such as rental car companies Avis and Hertz or
the New York City taxi fleet all have significant purchasing
power, further driving down profit potential
In addition, when demand
is slowing, excess capacity
tends to develop in the automotive
industry, and the incumbent car companies
begin to initiate a cut-throat price competition to move
inventory. Although both GM and Chrysler went into
Chapter 11 bankruptcy, neither exited the industry but
rather restructured, causing excess capacity to remain
in the industry. Finally, complementary products and
services such as battery charging and service stations,
which are not yet ubiquitous, are needed to help consumers
overcome anxieties concerning electric vehicle
ownership.