Discussion of Tesla SWOT analysis

Tesla Analysis

SWOT Analysis

Strengths

· Strong brand equity around the world

· Strong culture of innovation

· Strong and dynamic leadership team

· Economies of scale

· Access to low cost capital sources in both the debt and equity markets.

· Government policies cater towards production

Weaknesses

· Potential lack of focus with the acquisition of Solar City.

· Upfront costs relative to other transportation choices is still high

· Highly capital-intensive business which requires large amounts of continued investment thereby lowering distributable earnings to shareholders

· The product relies on commodities which are subject to high levels of inflation and price volatility.

Threats

· The company is subject to economic recessions and depression that can occur unexpectedly

· Consumer sentiment towards the brand can change as new competitors enter the companies target markets

· Foreign competition can lower prices through various government subsidies and regulations (I.E. China)

Opportunities

· Large amount of capital is being dedicated to the ESG space.

· Consumers have a large desire to purchase EV due to the rise in gas prices and overall inflation

· Opportunities exist in the electrification of other transportation methods such as trucks, airplanes, and more.

SWOT Analysis

Tesla, is one of the preeminent electric vehicle manufacturers in the world. Led by its dynamic CEO, Elon Musk, the company currently has a market value of $ billion. At its peak the company was valued at more than $1 Trillion. The company has very strong brand equity within the market which it allows to command a large portion of the EV market share. In addition, the brand has large share of the “consumer mind” which it can leverage to not only charge premium prices, but to drive demand (Tesla, 2013).

To begin, one of Tesla’s greatest strengths is its brand. The brand is synonymous with quality, style, and luxury. As one of the premier auto manufacturers in the world, consumers typically resonate well with the brand and view it positively. This has allowed, the brand to price its products on the premium end of the market, thereby improving cash flow and margins. As a premium brand, the company is well positioned to capture the luxury portion of the electronic vehicle market (Thompson, 2020).

In addition, consumers are very willing to pay premium prices for vehicles in order to help preserve the planet for future generations. This emphasis on enhanced governance, and ESG standards have been a tailwind for Tesla. Consumers are now much more willing to pay higher prices, to engage in a cause they resonate with. Tesla, which can significantly reduce the worlds reliance on fossil fuels, is tremendous in this regard. Likewise, its focus on renewable power generation also provide a worthwhile cause in which consumers can resonate with.

Finally, governments around the world are incentivizing the production of electric vehicles through various programs, grants, and tax credits. These incentives are not only designed to lower the cost of purchase for consumers, but also to lower the cost of manufacturing for corporations. This dual pronged approach allows the company to not only produce cars more seamlessly but also to sell them to the public in a much more affordable price. This in turn, enhances adoption rates of electric vehicles, thereby increasing demand.

These strengths are counteracted by weaknesses heavily related to the overall industry structure. Here, the structure of the industry is heavily capital intensive which requires large amounts of investment to maintain ever increasing levels of production. These required capital investments ultimately lower profitability as capital is tied up into property plant and equipment and can’t be given back to shareholders in the form of stock buybacks and dividends. Another weakness is that the company is heavily tied to commodity prices and supply chains. Here commodity prices are increasing due to inflation which is placing pricing pressure on the firm. Due to its inability to charge higher prices to consumers, inflation can ultimately dampen profitability and cash flows (Tully, 2020).

Like many auto manufacturers the company is highly sensitive to economic circumstances. Here, not only does inflation impact the business, but also macroeconomic factors impact the business as well. Electronic vehicles are discretionary purchases which are heavily dependent on multiple factors including unemployment, wage growth, job availability, interest rates, and overall supply. Each of these elements can either positively or negatively impact the ability of consumers to afford a Tesla vehicle. However, each of these elements are often beyond the control of Tesla. Although some of these factors can be hedged through various futures and forward contracts, many are still subject to the whims of the market. Finally, as it relates to opportunities, the company can continue to expand into other vehicle formats including trucks and even airplanes

The question marks are heavily in the incubation and nascent stages without a very large adoption rate. In particularly, there is a very large market opportunity for energy storage amount with other solar products that rely on renewable energy. The energy storage market is growing nearly four times as fast as the overall market at a rate of 8.4%. Currently the energy storage market is roughly $435 billion worldwide. This ultimately presents a very large opportunity for Tesla to not only capture market share but also leverage the industry to provide complementary services. For example, the company can provide other software services that are deeply imbedded within a company’s energy storage program. These services can then add stable, recurring, annuity like cash flow streams to the business. These cash flows in turn can then be used as means to secure further low-cost capital through access to the debt markets to further expand operations.