The Porters five forces analysis is used to determine is a framework for an industry analysis. It is applied to determine the level of competition in an industry and to measure whether companies in that industry can earn profits above their cost of capital. The greater the industry rivalry is the less probable it is for companies to earn above their cost of capital.
Tesla’s electric vehicles (EVs) are based in the luxury segment. Incumbent automotive competitors are focusing on combustion motors as well as electric engines and a combination of both. The electrification of the automotive industry is mainly due to changes in the regulation of the emissions of automobiles, change in customer preferences, plus technological …show more content…
263) The buyers in the automotive industry are either private persons or commercial companies. Since private persons are price sensitive car manufacturers have to sell at a low profit. Therefore, companies are enhancing their brand image to reduce the bargaining power of buyers and consumers in the premium segment are less price sensitive. The companies operating in the premium market have above average margins. Porsche with the highest profit margins of 18% in the car industry compared to Volkswagen of 2.9% in 2013 (Miersma, 2014). Since the high number of sales approximately 68 million in 2013 (Statista, 2015) and high differentiation by cars the buyers power is reduced. Since private customers are usually not buying several cars at once and customer concentration is rather broad it further diminishes their control. Even though the switching costs are rather low since customers could easily sell their car and search for a different model which fits better to their needs is in favor of their power in increases the power of buyers. Therefore, the bargaining power of buyers is moderate in the mass market but lower in the premium