Management and Organizations
March 8, 2013
Five Forces Analysis

Tesla Motors, Inc. is a luxury electric vehicle manufacturer from the United States focused towards creating increasingly affordable, efficient, and environmentally friendly vehicles.1 Tesla is a relatively new company that accounts for less than three percent of the hybrid and electric vehicle manufacturing industry.2 This report will extensively discuss the five competitive forces that influence HEV and EV manufacturing industry and how Tesla should evolve their business strategy to account for these industry forces.3
The HEV and EV manufacturing industry solely includes firms within the United States for the purposes of this report. The industry manufactures automobiles that utilize electric motors for compulsion, as opposed to traditional gas powered automobiles. It is an emerging industry currently in the growth stage. The industry is highly concentrated with just three major players, Toyota Motor Corporation, Ford, and Honda Motor Company Ltd. The industry is profitable and expected to grow another 6.3% annually the next five years.4
In this industry the threat of new entrants is weak for a variety of reasons. First, expensive and expansive manufacturing plants are utilized by all major firms in this industry, enabling leaders to produce larger volumes of HEVs and EVs than their competitors with fewer manufacturing resources. Considering firms in this industry produce relatively large volumes at lower costs, supply-side economies of scale deters the threat of new entrants. Second, capital intensity in this industry is high, these enormous capital requirements to enter the industry also deters the threat of new entrants.4 Third, major firms in the industry have incumbency advantage due to strong reputations for manufacturing safe vehicles. Consumers are skeptical of new automobile