It is important for a company to not only be able to identify its core strengths and weaknesses through an internal review, but to also be able to identify external opportunities and threats such as risks and challenges the business may face. Chapter 3 focuses on how to identify and address environmental threats so they do not become an issue for the company. The structure-conduct-performance model was developed to assess the conditions under which firms would gain an edge over their competition. Structure refers to the structure of the industry, conduct is how the firm operates within that industry, and performance is both the performance of the firm as well as the economy. A key takeaway from this framework is that industry structure completely determines both firm conduct and performance.

Because the industry structure is so important, it is impossible to understand a firm’s strengths and weaknesses without a thorough understanding of the industry in which they operate. This is evident in the case of Tesla in that the auto industry completely defines how Tesla operates as a business and its performance. The auto industry is characterized by much lower margins than industries such as technology, and have higher overhead and manufacturing costs. The text describes the auto industry as a monopolistically competitive industry, meaning many firms carve out niche markets but that their monopolistic position is always threatened by competitors and new entrants. Tesla presents a threat to traditional auto manufacturers and is threatening their market share.

The structure of the industry determines how the products are manufactured, distributed, sold, and marketed. It also determines the firm’s competitors and it is only through understanding the competition that one can see how a firm can leverage their strengths to create competitive advantage.

While Tesla is a leader in EV technology, they operate at nowhere near the production scale of VW and Toyota. However, a major source of cost advantage that is independent of scale is proprietary technology. According to Iman Ghosh on Visual Capitalist, Tesla’s competitive advantage comes from their strong investments in research and development, resulting in electronics that are estimated to be six years ahead of automotive industry rivals such as GM. Other proprietary technology includes their supercharger network of charging stations. Conversely, large traditional automakers may possess know-how and learning-curve cost advantages from their long histories and scale of operations.

References:

The World’s Top Car Manufacturers by Market Capitalization

The World’s Top Car Manufacturers by Market Capitalization

Tesla’s 5 Biggest Competitive Advantages
https://cleantechnica.com/2020/07/16/teslas-5-biggest-competitive-advantages/