OUGh TESLA MOTOrS has successfully entered 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. There are also nontraditional competitors entering the electric vehicle market.

Google, for example, has been working on a self-driving car, unveiling a prototype in 2015. Apple is also investing in an electric car under the code name "Titan." None of these has the performance of a Tesla, but both are firms with established brands and credibility and significant financial resources. In addition, the old-line car companies are also adopting the new technology by introducing hybrid or all-electric cars, further increasing rivalry in the industry.

The Nissan Leaf, with a sticker price of about $30,000 before tax incentives, is the world's best-selling all-electric vehicle worldwide, with more than 200,000 vehicles sold. building a 980-acre facility near Reno, Nevada, to produce its own lithium-ion batteries to supply its automobile assembly plant in Fremont, California.

The new battery plant is slated to begin production in 2017 and requires a $5 billion investment to place the plant near sources of lithium and power it with renewable energy. Questions remain whether lithiumion batteries will be able to provide the needed performance for battery life and recharging time, or whether a new technology will emerge, making this a large gamble. Tesla Motors completed its IPO on June 29, 2010, the first IPO by an American automaker since Ford in 1956.

On the first day of trading, Tesla's shares closed at $23.89 and generated $226.1 million for the company. By fall 2014, Tesla's stock had risen to over $285 per share before starting to slide below $200 in spring 2015. Nonetheless, Tesla's market capitalization is almost one-half that of GM, although Tesla revenues were a little over $3 billion in 2014, while GM's were $155 billion.

Questions One of the biggest PESTEL factors impacting the allelectric car market, however, is that the price for crude oil declined steeply from over $110 per barrel in the summer of 2014 to about $40 by spring 2015. With it, prices for a gallon of regular gas in the United States fell from over $4 in the summer of 2008 to less than $2 by 2015.

With low gas prices, Americans prefer to buy large SUVs and trucks, which benefits GM, Ford, and Chrysler. In addition, several states are reducing or phasing out tax credits for alternative-fuel vehicles.

Another external industry force that Tesla Motors currently addresses is the bargaining power of suppliers. Lithium- ion battery packs are not only in short supply but also the single most-expensive component for Tesla's electric engines.

These critical inputs are supplied by only a few technology firms, including 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. To mitigate the strong bargaining power of key suppliers, however, Tesla has committed to

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?

2. Looking at Porter's five forces of competition, how would you assess the profit potential of the U.S. car industry?

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.

4. Draw a strategic group map for the U.S. automotive industry. What are your conclusions?

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.