TESLA SWOT ANALYSIS 2019

Introduction:

CONTENT
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
CONCLUSION

Company	Tesla Motors.
Industry	Automobiles.
Other Industries served	Solar Energy.
CEO	Elon Musk.
Founded	2003.
Headquarters	Palo Alto, California, United States.
Net Revenue (2018)	$21.46 Billion
Net Loss (2018)	$976.1 Million
Number of Employees (2018)	48,817
Main Market	United States

>> READ THE LATEST SWOT ANALYSIS OF TESLA MOTORS FOR 2020 HERE.

Tesla is seeing faster growth in 2019. Apart from increased sales of its leading car models, the company has registered several more achievements during the first two quarters of 2019. It’s the only automotive company that solely deals in fully electric car models. Tesla is enjoying growth in popularity. While one reason is its focus on sustainability, the other is innovation. The company and its leader are both known for their passion for innovation, sustainability and passenger safety. Tesla’s Model X is claimed to be one of the safest SUVs in the world. 

Growth in popularity and sales indicate that in the near future Tesla will see sharp growth in profits. Obviously, these are the benefits of its focus upon quality and innovation. Tesla is truly an innovative company. Its premium car models are growing highly popular among American customers. However, the product portfolio of Tesla is larger and includes more products like solar energy systems, battery packs, energy storage products, dual motor power trains and more products like autopilot systems. Even if the company has not been able to generate huge profits, with expanding customer base and increased popularity of electric models, it might soon see its growth rate accelerating. 

Tesla may not still have as large a footprint as most leading automotive brands but it has started seeing success. The challenges before Elon Musk and his company are big. However, things seem to have started taking a positive turn in 2019. Elon Musk is confident about the success of his company. Moreover, consumer trends are changing and the balance can be expected to tilt further in favour of sustainable energy, electric cars and Tesla in future.

Learn more about Tesla’s business and its strengths, weaknesses, opportunities and challenges in this SWOT analysis. 

Strengths : –

Brand equity :- 

Brand equity is an important strength in the business world including the automobile industry. Customer experience and satisfaction matter more than ever now. It is not because of increased competition only but customer is at the centre of everything automotive brands make and sell. However, Tesla excels in both the areas. The brand has acquired a lot of fame due to its focus on technological innovation. Strong brand equity has started translating into higher sales. Tesla’s consistent focus upon user experience and product quality has also resulted in a strong brand image and greater trust among consumers.  Strong brand equity helps Tesla gain extra competitive strength. In the longer term, it could turn into a major advantage helping Tesla achieve higher sales and revenue. 

Quality & Innovation :-

Since its foundation, product quality has remained a core focus at Tesla.  The company is known for its premium cars. Tesla currently sells three models including Model S, Model X and Model 3.  Apart from high performance, these cars are also known for their attractive styling. The brand has continued to improve its existing models through latest technologies and updates. Tesla’s focus on innovation has helped it produce some of the best electric car models in the world. 

The company has kept growing its investment in research and development each year. In 2015, the R&D expenses of Tesla stood at $718 million and grew to $834.4 million in 2016. In 2017, its R&D expenses reached $1.34 billion and then rose to $1.46 billion in 2018.  Tesla’s intense focus on research and development and its commitment to quality, both have led to fast growth in popularity which has started showing in the form of growing car sales in 2019. While the company incurred a net loss of around $2 billion in 2017, the net loss reduced to less than $1 billion in 2018. With growing car sales, the company’s bottom line is looking stronger and the loss run that has continued for quite some years might be closing its end.

Growing Network :-

The company is growing its network of stores and galleries throughout the globe. It has stores and galleries as well as service stations in more than 30 countries including U.S. and China. However, the company is also investing in expanding its super-charger network. Expanding its super-charger network has also helped the brand grow its customer base faster. The company uses its stores and galleries for  sales as well as marketing. This enables the brand to control inventory costs as well as manage warranty service and pricing better.

Premium stores and galleries of Tesla Motors are located in metropolitan cities where they are highly visible to the higher end customer segment. Several of these stores also provides after sales service. The company has also been able to grow demand by opening service centers in new areas. Business growth of the company heavily depends upon its super-charger network and Tesla has continued to build its network throughout Asia, Europe and North America as well as other geographic areas for customers’ convenience and to grow its customer base in the urban areas.

Growing sales :-

  Tesla enjoyed impressive growth in vehicle deliveries during the first half of 2019. In the second quarter of 2019, Tesla delivered around 95,200 vehicles. This was a growth of around 51% compared to q1. During the first quarter of 2019, Tesla had  produced around 77,100 vehicles and delivered around 63,000. Number of vehicles produced grew to 87,048 in the second quarter and the number of vehicles delivered to 95,200. All the three models saw significant growth in delivery figures from the first quarter to the second. While Model S and X deliveries grew by around 45% from the first quarter of 2019 to the second quarter, the deliveries of Model 3 grew by  around 50%.

Automotive revenue of the brand during the first quarter of 2019 was $3.7 billion compared to the same period last year; yoy growth of 36%. The company expects its revenues to grow by at least 50% in the year 2019 compared to the previous year. The pace at which vehicle sales grew in the second quarter, it seems Tesla is going to perform better than analysts’ projections in 2019 (seekingalpha).

Engineering Expertise: –

One of the leading strengths of Tesla is its expertise in automotive engineering. This gives the brand the competitive edge it has achieved and made it the leading producer of electric vehicles globally. Moreover, Tesla places intense focus on design and engineering of its motor vehicles so its customers can have the best driving experience. The company also has a large number of patents to its name which it proudly dedicated to its customers and fans all over the world some years ago.

Weaknesses : –

High operational costs :-

Operational costs for Tesla are increasing every year. Apart from quality  raw materials, there are several areas that add to the cost of revenues. In 2018, the brand also increased its investment in research and development. Simultaneously, the brand is working on ramping up production as well as growing its dealer and super-charger network.  Its cost of revenues have grown fast during the past three years. From $5.4 billion in 2016, the cost of revenues of Tesla grew to $9.5 billion in 2017 and then to $17.4 billion in 2018.

Cost of revenue for Tesla’s automotive business includes direct parts, material and labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistics costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to Tesla’s Supercharger network, and reserves for estimated warranty expenses. Total operating cost of Tesla grew to $4.4 billion in 2018 from $3.85 billion in 2017 (Annual Report, 2018).  Operational costs are also high because of Tesla’s commitment to quality and innovation.

Limited Presence :-

Tesla is faced with a major challenge and it is doing a real balancing act. On the one hand, it is trying to establish itself in a hyper-competitive industry and on the other, it has to increase its presence globally to grow its profits. Since, the company deals in only electric cars and vehicles, its portfolio is limited compared to BMW, Volkswagen, Audi or Ford and Toyota. However, United States is still its core market and growing its presence in the other regions of the world becomes difficult due to several barriers. China is the second leading market for Tesla products.

To grow its presence in more markets, it would first need to establish its presence in these regions. The company would need to establish its supercharger network in these regions as well as its service stations. Currently, the company’s focus is on its core markets. U.S. accounted for around 70% of its revenue in 2018. China’s participation in its revenue is much lower comparatively. While United States generated around $14.9 billion in 2018 as revenue, China generated $1.8 billion. So, apart from heavy competition from the incumbent players in the industry, Tesla’s journey becomes all the more challenging due to the need for accompanying superchargers. United States and China are both the leading and most profitable markets for automobile brands and focusing on these two markets initially could help it grow its market share and customer base faster.

Premium products:-

One other impediment to the fast growth of Tesla is the premium cost of its products. While Tesla Model S and X come with a hefty price tag of above $70K, Tesla Model 3 is currently the one with the lowest price tag at above $35K. Overall, Tesla has maintained the image of a premium car brand and released Model 3 to grow its customer base. However, while its  customer base has grown with the release of Model 3, still compared to a large number of competitors in the market, its customer base and market share very low. Sales could have been multiple times higher, had Tesla cars been priced as affordably as most other brands in the market. Tesla would love to maintain its quality and premium image and that leaves very little scope for reducing prices. So, this is a clear reason that accelerating growth might remain difficult for the brand. Overall, the automotive market is already highly challenging with intense competition and a very high degree of government regulation. 

Opportunities:

Autonomous driving technology :-

The automobile industry has evolved a lot in the recent decade driven mainly  by technological changes. Auto brands are investing in digital technology to give their customers the best riding experience and to grow their market share. Autonomous driving is currently a hot area and most of the leading automobile brands have already taken significant steps in this direction. Tesla’s autopilot technology has already acquired enough fame for its safety and convenience features.  However, the autonomous driving technology while it holds immense potential has still a lot of space to evolve.

Tesla provides regular software updates on its car models for the safety and convenience of its riders. Autonomous driving is an important area and cars equipped with autopilot are gaining popularity over time. Self driving cars may be the future of the automobile industry. However, the technology has to be perfected a lot and Tesla is carrying out more work continuously on its autopilot features. Tesla’s autopilot is loaded with features but with limitations mainly meant to prevent abuse and carelessness by riders.

Ride sharing services: –

Tesla’s Robotaxi which the brand is expected to launch in 2020 is an ambitious plan. There are several challenges in its way including regulatory challenges. Moreover, having fully driverless cars is difficult for more reasons. However, ride sharing services can be launched in other formats too including semi-autonomous. Tesla might launch its own ride sharing app and its Robotaxi platform could have a business model similar to Uber or AirBnB.  Elon Musk’s Robotaxi plan is attractive but to make it a reality, he might need to adapt and evolve the business model such that it fits in the current market conditions.

Asian markets: –

The Asian markets and particularly China and India can prove a leading market for Tesla. China is the largest market for automotives. However, while United States accounted for close to 70% of the brand’s revenue in 2018, China’s share is still below 10%. Given the brand can improve its dealer network in China as well as its super-charger network there, it could find a larger customer base in the  world’s second largest economy. Asian markets are among the fastest growing in the world and there are more opportunities waiting for Tesla in China including a large market for its other products than automobiles.

Sustainability trends :-

The demand for sustainable products has grown all around the world leading to growth in demand for electric cars and other products that rely on sustainable energy. These trends are a great sign for Tesla and indicate that the demand for its fully electric cars would continue to grow in near future. Tesla is focusing on growing its range of electric cars. The company will release another Model Y in 2020. Model Y is priced above Model 3 but lower than Model X and S. Its cars are gaining popularity in the United States market. Driven by the growing sales of its existing models, Elon Musk is looking forward to letting his customers and fans have more attractive options to select from.

Threats:

Competitive pressure :-

The automobile industry is marked by intense competition and all companies invest heavily in research and development as well as marketing. Tesla being a premium brand competes with some of the leading premium car makers including BMW, Audi and other sports and SUV brands. However, due to the intense competition growth in the initial phase remained slow for Tesla. Car sales have accelerated but the company will still have to focus a lot on marketing as well as ramping up its supercharger network to gain ground faster. Competitive pressure also leads to higher operational costs and reduced profit margins in the automotive industry.

Regulatory threats : –

The automotive industry is also marked by heavy government regulation. All over the world governments and regulatory agencies are getting stricter in their regulation of the  automobile brands. Apart from emission control, labor laws and other laws also affect automobile businesses, driving the compliance costs higher for them. However, tesla being a maker of all electric cars would not have to worry about emission controls and yet the level of regulation affects market expansion plans. Government regulation is also a barrier to Tesla’s Robotaxi plan. Overall, profitable growth for automobile brands all over the world has become difficult due to heavier regulation.

Currency and economic fluctuations: –

Another major threat to the profitability of leading car brands are the currency and economic fluctuations. A stronger dollar worldwide is already hurting the profits of the international car brands. U.S. is the leading market for Tesla products accounting for around 70% of its revenue in 2018. However, as Tesla continues to expand into overseas markets, currency and economic fluctuations are bound to have a larger impact on its profitability. Since Tesla transacts globally in multiple currencies like the Euro, Japanese yen, Canadian dollar, Chinese yuan and Norwegian krone, currency fluctuations risks related to its revenue, operational expenses and cost of revenues will remain.

Conclusion:

Tesla is leading the automobile industry in sustainability and innovation. The company has seen growth in number of car deliveries in the first and second quarters of 2019. The popularity of Tesla vehicles has increased. United States is the leading market for Tesla cars. However, the company is also releasing a new Model Y in 2020 motivated by the success of its existing models. Tesla and Elon Musk have ambitious plans for future. Given its growth rate accelerates, the company may start running in profits in the next few years. Elon Musk plans to launch his Robotaxi in 2020. However, there are several challenges ahead. Apart from regulatory pressures, competitive threat is also a barrier to the expansion plans of Tesla. To acquire faster growth, the company must grow its focus upon the Chinese market as well. Currently, United States is the largest market for Tesla products. However, China is also an important market with strong potential. Tesla would also need to grow its super-charger network to increase its sales in both United States and China.

• More Sources:
• Tesla Annual report 2018 and quarterly releases 2019.