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Tesla Model 3's entry into the Australian Market -a market analysis report

Thesis · September 2019

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 Tesla Model 3’s entry into the Australian Market – a
market analysis report

Dr Admire Matsika

26 September 2019

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Executive Summary
The Australian automotive industry is undergoing arguably its most significant transformation
in more than a century with the current influx of affordable electric vehicles (EVs) in a market
that has been dominated by petrol and diesel engine cars for over 150 years. The latest
arrival is the Tesla Model 3 which hit Australian roads for the first time in mid-September
2019.

In this report, Michael Porter’s five force analysis together with Tesla’s strengths,
weaknesses, opportunities and threats (SWOT) analysis are undertaken. The study shows
that the Model 3 is entering the market with the benefit of relatively more advanced battery
technology, an expanding network of superchargers across the country, a conducive socio-
political environment, skyrocketing world oil prices, and a reputation for high performance,
luxurious cars. On the other hand, Tesla Model 3 is hindered by several internal brand
weaknesses as well as external threats in the form of newer EV entrants into the market
such as the Porsche’s Taycan. Daimler/Mercedes also announced in September 2019 that it
will terminate research and development of internal combustion engine (ICE) technology and
start focusing solely on EV technology.

With a starting price of A$65,000, Tesla Model 3’s segment of the Australian market is tech-
savvy, white collar, middle to high income urban dwellers with no children to small families
(five or less family members) who are also early adopters and innovators. It is recommended
that, in order to utilise its marketing resources effectively, Tesla’s business strategy should
involve targeting this segment of the Australian car buyers’ market.

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Table of Contents

1. Introduction…………………………………………………………………....4

2. Market Analysis……………………………………………………………….5

2.1 Porter’s five forces analysis of Tesla model 3………………....5

2.2 Tesla Model 3’s SWOT analysis………………………………...…6

3. Market Segmentation……………………………………………...………...10

4. Target Market Recommendation….………………………...…………….11

5. Conclusion……………………………………………………………….…...12

6. References…………………………………………………………………….13

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Introduction

Unbeknown to the average car user, the automobile industry may be on the verge of
its biggest revolution in decades. As public sentiment towards climate change begin
to shift with increasing calls for large corporations and governments to act, some car
manufacturers are looking into environmentally friendly alternatives to the internal
combustion engine (ICE) to power future vehicles. Industry observers believe that
most cars on the road will be electric (Ajanovic 2018) or hydrogen cell-powered
(Time International 2018) by year 2030.

Tesla, Inc. and its affiliates (“Tesla”) is an American company that manufactures
electric vehicles (EVs), solar panels and rechargeable batteries. The company has
assembly lines in California, Nevada and Shanghai, China. It is that largest and most
advanced manufacturer of electric cars in the world with more than 95,000 cars sold
in the second quarter of 2019 (Marketline Company profile 2019). Whilst the
concept of an electric car is nothing new, in the current wave of electrification of
passenger cars, Tesla leads the way and the success or failure of the company will
determine whether the automobile industry will completely move away from ICE to
EV technology in the coming decade. Tesla is releasing the Model 3 car to the
Australia market starting late September 2019. The luxury car is pitched as the first
mass produced, relatively more affordable EV that will shake the market and change
the way consumers view electric cars.

In this report, a market situational analysis of Tesla is performed together with

segmentation and recommendations on how the car manufacturer can target and
position itself in the current Australian automobile industry environment.

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Market Analysis

Porter’s five forces analysis for Tesla Model 3

The five force’s analysis (Porter 2008) helps in highlighting Tesla’s challenges and
opportunities in the current automobile industry. According to the official Australian
automobile industry’s data collector (VFACTS 2019) of the 1,1 million cars sold in
Australia in 2018, 1,336 were electric. Nissan Leaf is the only other currently
available EV that is a direct competitor to Tesla, although its lower specifications and
pricing are not comparable. Potential entrants to the market, Porsche’s Taycan,
Mercedes Benz’s EQC and Audi’s e-tron are luxury vehicles that could be
considered worthy competitors when they become available (Koresec 2019). While
Tesla has a head start, availability of substitutes soon may compromise its growth
potential and would require the company to do more in order to differentiate itself
from the pack.

Buyer power appears to be low in the EV industry. The technology required to

manufacture an efficient, long range vehicle is beyond the capabilities of even the
largest ICE car manufacturers, let alone individual consumers (Perkins 2018). On the
other hand, supplier power is a huge factor in manufacturing EVs. Tesla relies
heavily on lithium-battery manufacturers such as Panasonic for supplies. Battery
components remain a major stumbling block to mass productions of affordable EVs.
To mitigate supplier power, Tesla has teamed up with Silicon-valley start-ups to
patent newer battery technology in addition to going into partnership with more
battery suppliers such as LG (Bloomberg.com 2019).

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Tesla Model 3’s SWOT analysis

Ferrell’s (1998) model is used to provide an analysis of Tesla’s strengths,

weaknesses, opportunities and threats (SWOT).

Opportunities
Tesla’s entry into the mid-tier luxury car industry could not have come in a better
socio-political climate. Recent students-led street demonstrations across the world,
are an indication that society is increasingly concerned about man-made climate
change. Tesla could exploit this socio-political sentiment and market its cars as
affordable, environmentally friendly alternatives that appeal to the young and
progressive.
Globally, the company has massive potential for growth with Asian and European
countries already embracing EVs at a much higher rate than Australia (MarketLine
2019). Trends in these countries are expected to have a ripple effect that will impact
the Australian market.

As with other mass-produced technology products, the cost of battery manufacturing

is expected to decline with time, while lithium mining becomes more commercially
viable across the world. Predictions are that costs of manufacturing batteries will fall
significantly in the next decade so that EV prices will be at par with ICE cars
(Musonera 2019). Additionally, the increased rate of installation of solar panels and
power storage devices in homes is expected to accelerate adoption of EVs as
consumers see more benefit in them compared to the alternatives.

Also, in Tesla’s favour, oil prices continue to rise with recent bombings in Saudi
Arabia and political instability in the middle East expected to cause further acute fuel
price hikes in Australia in the last quarter of 2019. Naturally, market observers
expect world oil price increases to accelerate worldwide adoption of EVs (Baur
2018).

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Threats
The major threats to adoption of EVs such as the Tesla Model 3 are public
perception, the lack of awareness among consumers as well as the natural human
reluctance to change. Tesla has continuously received criticism from sceptics of EV
technology for its business strategy (Pulliam 2016).

EV technology is within reach of other car manufacturers who, of late, have started
to put more effort into its research and development (R&D) at the expense of ICE
technology. In September 2019, Mercedes Benz announced that it will stop R&D in
ICE technology and focus on electric cars only. In this same month, Porsche also
announced its first ever luxury EV, the Taycan, which is expected to compete directly
with Tesla’s (Elliot 2019).

On paper, other alternatives to the electric car technology exists and poses a
potential threat to the Tesla Model 3. Lathia (2017) points out that hydrogen fuel cars
may be more efficient and affordable than EVs with some energy experts arguing
that this may be the ideal technology for future cars. While commercial scale
production of hydrogen fuel cars has not started yet, further R&D in this space by
other car manufacturers pose a direct threat to Tesla’s business. Another potential
option and competitor to the EV industry is the solar powered vehicle (Redpath
2011).

Strengths
Tesla is originally an energy storage solutions company that later decided to
manufacture EVs based on their battery technology. For this reason, Tesla’s battery
technology is considered far superior to competitors with no other car manufacturer
to date having been able to build a car that has longer range or better efficiency. By
leveraging its technology expertise and experience in the field, Tesla could remain a
leader in the EV market for years to come. Other observers (Musonera 2019) have
also noted that by designing its cars from scratch as an EVs, Tesla has been more
successful compared to traditional manufacturers who attempt to modify ICE cars
into EVs with mixed results. Companies such as Mercedes, Porsche and Toyota also
suffer the conundrum of taking away from their own shares of the automobile market
if they push for EVs so early in the market. Every EV sold is at the expense of an
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ICE car that a consumer would have bought if EVs were not on the market. EVs do
not require regular servicing and spare parts replacements which are additional
sources of income for ICE car manufacturers.

For the Model 3, Tesla’s starting price of A$68,000 is ground-breaking for a luxury
electric vehicle and undercuts any potential entries to the market for the foreseeable
future (Tesla.com website). Add this to the depth of technology and features that
have been built into the car and it is arguably the car for tech-savvy, early adopters
who will influence the remainder of the Australian market into fully embracing EVs.

Weaknesses
Tesla’s unusual marketing strategy includes no paid advertisements on radio, social
media or television. The company relies on word of mouth and social media
tweets/mentions as its main form of communication with potential buyers.
Unsurprisingly, the Model 3 may be the car that consumers want but are not aware
of its existence.

The first batch of Tesla Model 3’s to come out of California in 2017 scored bad
reviews for having poor paint work and minor gaps on the body. As a relatively new
company in the automobile industry, it appears that Tesla had not perfected its
quality control mechanisms and to date, its product quality reputation with some car
enthusiasts is lacklustre (Balboa 2018).

Thirdly, whilst Tesla touts the Model 3 as the affordable car for the average
Australian, its price range of A$68,000 to A$118,000 is well beyond reach of most
consumers and it is unlikely that the EV will topple off Toyota’s Corolla and
Hyundai’s Getz from the top of car sales charts anytime soon.

Finally, Tesla’s current Chief Executive Officer (CEO), Elon Musk is regarded by
some as a liability to the company due to his ill-timed social media comments, some
of which have resulted in censuring, a hefty fine and forced stepping down as Tesla
chairman (Graham 2018). Table 1 summarises the SWOT analysis with additional
points.

Page | 8
Page | 9
Market Segmentation

Demographic segmentation
With the pricing of the Tesla Model 3, the car is in the reach of the Australian high-
middle class who are prepared to spend more than A$68,000 on a vehicle. Given
that it is essentially a computer on wheels, the car is expected to appeal to the
younger generation who are tech-savvy and are not easily put-off by large screens
and numerous settings options on a car. The average potential buyer is also likely to
be white-collar with at least high school education. A five-seater with spacious
storage spaces both at the front and back, the car may also appeal to young families
with three or less children. The top range model (Performance plus) is one of the
fastest cars on the market with claimed 0-100km/h in 3.4 seconds (Tesla.com 2019).
Hence the car will also appeal to fast cars enthusiasts who appreciate the instant
torque and unique high performance offered. It would not be suitable for consumers
who enjoy off-roading, four-wheel driving or blue-collar individuals in need of a utility
vehicle that has a large storage capacity.

Geographic segmentation
At a maximum of 560km, the car has enough range for the average Australian who
drives 37km a day (Australian Bureau of Statistics 2018). However, the car may be
unsuitable for consumers living in very remote areas that need to drive more than
500km to the next charging station. Therefore, the average model 3 owner is
expected to be an urban dweller on the east or west coast, who commutes to work
daily and occasionally takes longer journeys for leisure, on weekends and holidays.
Because the car relies on Telstra’s mobile internet network for full functionality,
Australians in remote parts of the country are also not the ideal consumers of the
vehicle.

Psychographic segmentation
Using the VALSTM terminology by the Strategic Business Insights, the Model 3 will
appeal mostly to ‘innovators’ who believe in climate change science and are most
receptive to new technologies. ‘Experiencers’, ‘thinkers’ and ‘achievers’ may also
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find the car appealing for its trendiness, functionality and long-term money-saving
potential, respectively.

Behavioural segmentation
Tesla Model 3 will appeal to enthusiasts and image-seekers who will drive the car as
a statement denoting that they are conscious of environmental sustainability, partial
to technological advances and can afford a luxury vehicle. It is unlikely that the
‘savvy shopper’ and the ‘traditionalist’ outback Australian will buy the car until it
becomes more affordable and commonplace with a proven record. The average
Tesla buyer is likely to own an up-to-date smartphone, has solar panels on their
house roof and believes in recycling (Young 2018).

Target Market Recommendation

Given the segmentation discussion above together with cost, limitations and
capabilities of the Tesla Model 3, the recommended target market for the vehicle is a
tech-savvy, white-collar, young (35-50 years old) urban-dweller, small family with
none to three children, middle class income and centre to left-wing political views.
The following groups are unlikely to find appeal in the car and marketing to them will
not be resource effective: off-road and four-wheel drive enthusiasts, low income
bracket or too young to afford, larger than 5 member families, non-believers in man-
made climate change, tradesmen that requires large amount of space for carrying
tools and equipment and Australians in small towns and remote location who do not
have access to at least 4G mobile internet. Individuals who require more than 500km
of range to get to the next charging station will also not be suitable for the car.

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Conclusion

The Tesla model 3 enters the Australian market for the first time in September 2019.
It is a relatively affordable, technologically advanced car that is touted as appealing
to the average Australian consumer thereby driving the uptake of EVs in the country.
Its timing is well placed, given that climate change is topical and world oil prices are
skyrocketing. This analysis has highlighted some challenges and opportunities for
Tesla and segments the typical consumer for the electric vehicle who is tech-savvy,
early adopter, at least middle income, young and an urban dweller. Tesla will be
served well by rethinking their marketing strategy and increase public awareness of
its EVs through conventional marketing channels, while targeting the aforementioned
segment as it confers the most effective use of its market resources.

Page | 12
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