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Electric Vehicle Market Analysis & Strategy

This document contains a student's responses to 5 questions regarding electric vehicles, the US car industry, and Tesla Motors. The student analyzes key PESTEL factors for electric vehicles, assesses the profit potential of the US car industry using Porter's five forces model, provides recommendations for Tesla Motors to compete, draws a strategic group map of the US automotive industry, and explains why Tesla's market capitalization is high relative to its revenues compared to GM.

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Antara Haque
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78 views3 pages

Electric Vehicle Market Analysis & Strategy

This document contains a student's responses to 5 questions regarding electric vehicles, the US car industry, and Tesla Motors. The student analyzes key PESTEL factors for electric vehicles, assesses the profit potential of the US car industry using Porter's five forces model, provides recommendations for Tesla Motors to compete, draws a strategic group map of the US automotive industry, and explains why Tesla's market capitalization is high relative to its revenues compared to GM.

Uploaded by

Antara Haque
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MBA 550: Strategic Management

Submitted to: Dr. Md. Nazmul Hossain

Submitted By:
Antara Haque
ID: 1930973

Submission Date: 20th December 2020


1. Which PESTEL factors are the most salient for the electric vehicle segment of the car
industry? Do you see a future for electric vehicles in the United States? Why or why not?
Answer: The most salient PESTEL factors for the electric vehicle segment of the car industry are
economic, technological and ecological.
• Economic factors: Electric vehicle segment of the car industry would be economic
because of no consumption of oil and gas. As the price of these resources keeps changing,
electric vehicle segment would not be affected by it.
• Technological factors: For a vehicle to be completely electric the technology needs to be
very efficient and highly advanced.
• Ecological factors: Electric vehicle will help in saving the environment by limiting the usage
of natural resources such as gas and other non-renewable energies.
I think the future for electric vehicles in United States in very bright as technologically and
economically United States is a very advanced nation. People are willing to buy new and
innovative product. Electric vehicles can attract more attention due to lower ecological footprint
in comparison to other vehicles.

2. Looking at Porter’s five forces of competition, how would you assess the profit potential
of the U.S. car industry?
Answer: The profit potential of U.S. car industry is assessed based on the following criteria below:

• Threat of Entry: Barriers to entry is medium in case of U.S. car industry. This industry
requires massive amount of capital, networking, expertise and high-tech features. A new
player impacting the market significantly is unlikely.
• Power of Suppliers: Supplier power is low because of the extremely fragmented and
globally distributed industry. Competition is high among the suppliers which makes their
bargaining power low.
• Power of Buyers: Power of buyers is also low here because customers have many brands
to choose from. Buyers have a strong position on bargaining as there are plenty of
options.
• Threat of Substitutes: Threat of substitute is very high because other substitutes are trying
to enter in an already consolidated market with strong differentiation strategy. As
customers have many options to choose from, they can choose any other car that offers
significant features.
• Rivalry among Existing Competitors: Rivalry among existing competitors is high. New
players are constantly trying to bring in new innovations while existing big players are
trying to adapt quickly in order not to lose market share.

3. Using the five forces model, what implications can we derive for how Tesla Motors should
compete in the U.S. car industry? What would be your top three recommendations for
Elon Musk? Support your arguments.
Answer: Tesla Motors should effectively address the external factors that are working against
them to be competitive in the long run. They should focus most on their technological progress
and use their profits to fund further investigation and evolution. My recommendation would be
to begin with more models of Tesla at cheaper price that are technologically advanced and
develop own lithium batteries for vehicles, so that they do not need a supplier.

4. Draw a strategic group map for the U.S. automotive industry. What are your conclusions?
Answer: Strategic group is the set of companies that pursue a similar strategy within a specific
industry. Strategic group map is a framework that explains differences in firm performance within
the same industry. Strategic group map helps to find performance differences within the focal
industry. A strategic group map for the U.S. automotive industry is drawn below:

TESLA
MOTORS VOLKS
WAGEN
Price Charged

BMW
FORD NISSAN

CHEVROL
ET

Performance

5. Why do you think that Tesla’s market capitalization (Share price × Number of outstanding
shares) is roughly 50 percent that of GM, while GM’s revenues are more than 50 times
larger than that of Tesla Motors?
Answer: In my opinion, the reason behind Tesla’s market capitalization being roughly 50 percent
that of GM, while GM’s revenues are more than 50 times larger than that of Tesla Motors is-GM
has a number of varieties of cars, while Tesla has only a limited segment of cars. Thus, Tesla
cannot make sales as huge as GM, for which GM’s revenues are much more.

Common questions

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To enhance competitiveness, Tesla Motors should address external challenges by focusing on technological advancements and leveraging profits for continued research and development. Key recommendations for Elon Musk include introducing more cost-effective, technologically advanced models and developing proprietary lithium batteries to reduce dependency on suppliers. These actions can help Tesla maintain a technological edge and reduce production costs, thereby improving market position .

The power of suppliers is low in the U.S. car industry, which positively affects the industry's profit potential. This is because the supplier market is highly fragmented and globally distributed, leading to high competition among suppliers. Consequently, their bargaining power is low, allowing car manufacturers to negotiate better terms and potentially reduce costs, thereby enhancing profit margins .

The most salient PESTEL factors affecting the electric vehicle segment are economic, technological, and ecological factors. Economically, electric vehicles have an advantage as they do not rely on fluctuating oil and gas prices, reducing vulnerability to changes in these resource costs. Technologically, the efficiency and advancement of technology are critical to the development of fully electric vehicles. Ecologically, electric vehicles reduce the use of natural resources and lower the ecological footprint compared to traditional vehicles. These factors combined indicate a bright future for electric vehicles in the United States, as the country is technologically advanced and there is market willingness to adopt innovative, environmentally friendly products .

A strategic group map of the U.S. automotive industry highlights that firms within the same industry may pursue different strategies, affecting their performance outcomes. By analyzing these maps, one can identify which firms are direct competitors based on strategic dimensions such as pricing and performance. This understanding helps to explain why some firms outperform others, as companies in the same strategic group tend to face similar opportunities and threats yet may have varying capabilities and strategies .

Tesla's market capitalization remains strong, despite having lower revenues than GM, because it reflects the market's high expectations for future growth potential and innovation. Tesla focuses on a limited segment but emphasizes technological leadership and brand strength. Investors see significant long-term value in Tesla's ability to offer innovative products and expand into new markets, which is not directly tied to current revenue levels .

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