Industry Analysis

Industry Analysis
Automobile Industry Using Porter’s Five

Forces
a. Threat of New Entrants (Low to Moderate)

 High Costs: Making cars is expensive. New companies have to spend a lot of
money to build factories, research, and develop their products. That’s a big
barrier for anyone who wants to join the industry.
 Established Brands: People tend to stick to brands they know, like Toyota, Ford,
or BMW. Tesla has also become a brand people trust, especially in electric cars.
New companies have a tough time breaking in because they have to convince
customers to switch.
 Tesla’s Tech Advantage: Tesla is ahead in terms of technology, like its Autopilot
(self-driving) system and battery efficiency. These are not easy things for new
companies to copy or improve on quickly.
 Blue Ocean Connection: Tesla didn't just make another regular car. Instead, they
entered the electric vehicle (EV) space when it was still new, creating a market
for people who wanted to drive electric but didn’t have many good options. By
doing this, Tesla didn’t have to compete directly with big car companies focused
on gas-powered cars.
b. Bargaining Power of Suppliers (Moderate to High)

 Battery Dependence: Tesla needs a lot of batteries to make their cars. Since
batteries are made from rare materials like lithium, nickel, and cobalt, Tesla relies
heavily on these suppliers, giving them some power over Tesla.
 Tesla’s Response: To reduce this dependence, Tesla built its own factories, like
the Gigafactories, to make its own batteries. By making their own, Tesla doesn’t
have to rely as much on outside suppliers, which gives them more control.
 Blue Ocean Connection: Tesla moved ahead by investing in their own battery
production. This allowed them to keep innovating and reduce their reliance on
others, unlike many traditional car companies that still depend on external
suppliers for key components.
c. Bargaining Power of Buyers (Moderate)

 More Choices: There are now more companies offering electric cars, like Lucid
Motors, and even traditional automakers like Ford. This gives buyers more
choices, and when buyers have more choices, they can push for lower prices.
 Tesla’s Unique Brand: However, Tesla has built such a strong brand that people
often want a Tesla, even if there are cheaper options. Tesla’s brand stands for
innovation, green technology, and premium quality, which makes people less
sensitive to price.
 Blue Ocean Connection: Tesla created a powerful brand associated with
sustainability and cutting-edge technology. People see Tesla as more than just a
car they see it as part of a movement towards a cleaner future. This has reduced
buyers’ ability to push Tesla on price.
d. Threat of Substitutes (Moderate to High)

 Gas-powered Cars: Gas cars are still cheaper and more widespread than electric
cars. Many people may still opt for a gas car, especially in places where charging
stations for EVs are limited.
 Public Transport and Ride-sharing: Services like Uber or using public
transportation are also alternatives to owning a car, which could be a substitute,
especially in big cities.
 Blue Ocean Connection: Tesla reduced the threat of substitutes by making their
electric cars desirable not just for their performance, but also for their
environmental impact. They also addressed the issue of charging with their
network of Superchargers, making it easier to own an EV without worrying about
where to charge.
e. Rivalry Among Existing Competitors (Moderate to High)

 Traditional Car Companies: Tesla competes with big names like General Motors,
Ford, and Toyota, who are now trying to catch up by launching their own electric
vehicles. These companies have been in the car business for a long time and are
now investing heavily in EVs.
 New Electric Car Companies: Tesla also faces competition from newer players
like Lucid Motors and Rivian, who are offering their own electric cars.
 Tesla’s Edge: Even though there’s more competition, Tesla still has the edge
because it was one of the first to focus on electric vehicles and autonomous
driving. Tesla also sells directly to customers (no dealerships), which keeps them
closer to their buyers and allows for customization.
Blue Ocean Connection: Tesla avoided direct competition with traditional gas-
powered cars by focusing on the electric market. They created a blue ocean by
offering something totally different, an electric car that’s fun, fast, and
environmentally friendly. They also made it easier to buy a car by selling directly to
customers online or through their own stores.
2. How Tesla Applied Blue Ocean Strategy
Tesla followed Blue Ocean Strategy by creating a whole new market that didn’t exist
before. They did this using the Four Actions Framework:
1. Eliminate
Car Dealerships: Tesla cut out traditional dealerships and started selling directly to
customers. This not only reduced costs but also made the buying process more
straightforward. For example, you can customize your Tesla online and have it
delivered straight to your home.
2. Reduce
Advertising: Most car companies spend a lot of money on advertising. Tesla,
however, relies on words of mouth and its strong presence on social media. They
reduced spending on ads, which allows them to invest more in innovation.
3. Raise
Technology and Customer Experience: Tesla raised the standard for what people
expect from cars. Features like Autopilot (selfdriving technology) and over the year
updates (where your car’s software gets updated just like a smartphone) are things
that traditional cars don’t offer. This has raised customer expectations for what a car
can do.
4. Create
Sustainability Ecosystem: Tesla didn’t just create cars they created a whole
sustainable energy ecosystem. They sell solar panels, home batteries (Powerwall), and
of course, electric cars. By doing this, they’ve expanded beyond the car market and
into clean energy solutions.
3. Conclusion: Tesla’s Competitive Landscape and Blue Ocean Strategy
Tesla stands out because it didn’t just compete with traditional carmakers; it created a
whole new market for electric vehicles. They used Blue Ocean Strategy to make their
own space where they didn’t have to fight with established companies. Instead of
competing with gas-powered cars, Tesla focused on electric mobility and autonomous
driving, which allowed them to succeed without facing the same intense price wars
and competition.
By also integrating sustainability and cutting-edge technology, Tesla has shaped the
future of the car industry. While Porter’s Five Forces explain the challenges Tesla
faces, Blue Ocean Strategy shows how they’ve been able to overcome these
challenges by making bold moves and offering something completely new.
References:
Tesla's official website: Tesla.com
https://www.forbes.com/sites/stevedenning/2023/07/05/how-tesla-is-revolutionizing-
management-to-save-the-planet/
https://www.researchgate.net/publication/353104682_Tesla_Inc_Managment_Report
https://www.sjemr.org/download/SJEMR-4-2-379-389.pdf
Porter’s Five Forces of Competition Framework include:

Threat of new entrants
Competition from substitutes
Competition from established rivals
Bargaining power of suppliers and
Bargaining power of buyers

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Industry Analysis

Automobile Industry Using Porter’s Five

a. Threat of New Entrants (Low to Moderate)

b. Bargaining Power of Suppliers (Moderate to High)

c. Bargaining Power of Buyers (Moderate)

d. Threat of Substitutes (Moderate to High)

e. Rivalry Among Existing Competitors (Moderate to High)

2. How Tesla Applied Blue Ocean Strategy

3. Conclusion: Tesla’s Competitive Landscape and Blue Ocean Strategy

Porter’s Five Forces of Competition Framework include:

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