Understanding the External Environment
This session explores the core of strategic analysis: understanding the industry you operate in. We will use Porter's Five Forces framework to dissect the automotive industry and evaluate how Tesla has not only survived but thrived in a notoriously competitive environment.
Session Objectives
- ✔ Master Porter's Five Forces framework.
- ✔ Apply the framework to the U.S. auto industry via Tesla.
- ✔ Evaluate how a company can reshape its industry.
Briefing Document: Porter's Five Forces
The Core Framework: Porter's Five Forces
To move beyond gut feelings, we need a framework. Click on each force below to understand its role and see how it applies to Tesla.
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competitors
Bargaining Power of Buyers
Threat of Substitutes
The 'Sixth Force': Complementors
Products/services that increase the value of another.
Data Deep Dive: The U.S. Auto Industry
Rivalry: U.S. Auto Market Share
The traditional auto industry is highly concentrated. This chart shows how Tesla stacks up against established giants, illustrating the intense competitive landscape it entered.
Threat of Entry: Tesla's Growth Trajectory
Overcoming immense entry barriers like capital and scale is a monumental task. Tesla's delivery growth demonstrates its successful, albeit challenging, entry and scaling process.
Supplier Power: Reshaping the Value Chain
Tesla's strategy of vertical integration fundamentally alters its relationship with suppliers, reducing their bargaining power compared to the traditional OEM model.
Traditional OEM Model
- OEM (e.g., Ford, GM)
- ↓
- Tier 1 Suppliers (Bosch, Magna)
- ↓
- Tier 2 & 3 Suppliers (Parts, Materials)
- High reliance on external suppliers
Tesla's Vertical Integration
- Tesla
- ↓
- In-house Battery (Gigafactory)
- In-house Software & AI
- In-house Seats, Components
- Reduced supplier dependency
Buyer Power: What Do Customers Value?
Understanding buyer power involves knowing what influences their purchasing decisions. Tesla focused on high-demand attributes while changing the buying experience itself.
Group Breakout Activity
Group 1: Threat of New Entrants
- Before Tesla, how high were the barriers to entry?
- How did Tesla manage to overcome these barriers?
- Has Tesla's entry made it easier or harder for others?
Group 2: Bargaining Power of Buyers
- Describe the typical car buyer's power.
- How has Tesla's direct-to-consumer model affected this?
- Consider individual vs. fleet buyers (e.g., Hertz).
Group 3: Bargaining Power of Suppliers
- How powerful are traditional auto suppliers?
- Analyze Tesla's vertical integration strategy.
- What are the risks and benefits of this strategy?
Group 4: Threat of Substitutes
- What are the primary substitutes for owning a car?
- How does ride-sharing affect the industry?
- How does Tesla's 'Master Plan, Part Deux' address this?
Group 5: Rivalry Among Competitors
- Describe rivalry in the traditional auto industry.
- How has Tesla changed the basis of competition?
- Who are Tesla's most significant rivals today?
Bonus: Complementors
- What are key complementors for Tesla?
- How has Tesla used its Supercharger network strategically?
- How do government incentives act as a complement?
Test Your Knowledge
Check your understanding of the Five Forces framework. Each question is worth 2 marks.
Answer Key
Key Takeaways
The auto industry is, by traditional measures, a very tough business with intense competitive forces. Tesla's story is a masterclass in strategy, demonstrating that a company can actively reshape its competitive landscape.
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1.
Creating a new basis for rivalry: Shifting the focus from simple fuel efficiency to technology, software, performance, and brand experience.
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2.
Neutralizing power: Weakening buyer and supplier power through its direct-to-consumer sales model and aggressive vertical integration.
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3.
Building a strategic ecosystem: Using complementors, like the proprietary Supercharger network, to create a moat and raise switching costs.
The key lesson: Industry structure isn't static. A deep understanding of the competitive forces allows a company not just to survive, but to change the game.