Tesla's strengths, weaknesses, opportunities, and threats

SWOT Analysis Mini Project

Strengths

Weaknesses

Opportunities

Threats

Strong Products

High burn rate

Strong Demand in Europe

Low Gas Prices

Great brand

Weak balance sheet

Battery market

Increased competition

Talent pool

New product delays

China, other Asian markets

Trade Barriers

Leadership

Underdeveloped charging network

New Products

Economic slowdown

Partnerships

Insufficient capacity

Other Vehicle development

Product launch delays

Ability to raise capital

Niche market

Economic Incentives

Charging Station delays

Relationship with government

Improve existing vehicles

Difficulty obtaining financing

Product tie-ins

Regulations

Build North American network

Hostile foreign governments

South America/Australia

Insufficient IP protection

License technology

Legal actions

Strengths

Tesla has a number of strengths that have helped it to become this successful thus far. The first of these is that its products have proven to be strong. Its vehicles are so revolutionary that they outperform pretty much everything in consumer testing, earning extremely high levels of praise from highly influential critics. This means that the company's vehicles outperform the established rivals in the same class, something that is attractive to consumers.

This product success is matched by buzz, which helps to build the brand. Even though there are very few Teslas on the road, and they are not for sale in many places, the brand name precedes the company into new markets. There is pent-up demand when Tesla decides to enter a market, so strong is the brand that the company is building. In order to achieve its visions for the 21st century, Tesla will need its brand to be a household name, and the company is well on the way to achieving that.

As a result of the company's vision and leadership, it is also able to attract a very deep pool of talent. People want to work for Tesla, which is a critical pathway for sustained competitive advantage in technology. In the technology business, the companies that have the best people are the ones that will make the best products, and therefore the ones that will succeed in the long run. The ability to attract and retain top talent is one of Tesla's key assets. The company's leadership helps in this respect, as Elon Musk has been able to rally great people around him, and sell the company's story to all types of stakeholders.

Furthermore, Tesla's success has opened other doors, such as partnership, good relationships with government and the ability to raise capital. Good relationships with government are important to take advantage of various incentives that are offered for business development, and to enlist government help in trade disputes. The ability to raise capital is critical -- as long as people keep believing in Tesla it will be able to go back to the markets and get more money, essential given the company's biggest weakness is its burn rate.

Weaknesses

The biggest weakness for Tesla is its burn rate. It is spending money at a very fast rate, in order to scale up its operations to meet its objectives. The cost of doing this is high, and Tesla is seemingly on the edge of a cash flow problem all the time. The company needs to pay close attention to its cash flow in order to survive long enough to succeed. The weak balance sheet is another symptom of a high burn rate.

Tesla needs cash, and new product delays do not help the matter. The company has seen some delays in meeting its targets, and therefore has to focus on finding ways to accelerate its product development curve. This includes building out its charging network, which is essential to future growth. It is important that people who buy Tesla cars can charge them, and if they do then the cars will be more attractive to the mass audience.

With the high burn rate and the desire to develop new products, tesla is having trouble building out its production capacity fast enough. The demand is there, but that only matters if the company can produce the supply it needs to meet that demand. So there is an issue that Tesla needs to resolve with respect to building out its production capacity.

Opportunities

There are a number of critical opportunities. The biggest ones are with respect to markets - Europe is a good growth market for Tesla, China is an untapped market with tremendous challenges, and the North American market is one that needs some work as well to get a faster growth rate. New products will help with the growth market. Right now, the best opportunities are in building on the company's core battery technology. It already has a home battery system, and it may be able to license other aspects of its intellectual property for further gain.

The existing products can also be subject to steady improvements over successive iterations, as is common in the auto industry with each year's models. For example, Tesla introduced its "ludicrous mode" earlier this year, something that represents an improvement over the base technology, and which is available for a price. The company can also tie in with other technology makers for features in its vehicles, creating co-branding opportunities in things like GPS systems, software, speakers, satellite radio and other features. There are also economic incentives that can provide opportunity to enter new markets, or to achieve cost savings on particular aspects of the product.

Threats

As successful as Tesla is, it remains a young company and as such is subject to a number of threats in the external environment. Low gas prices are not yet a threat, but if consumers believe these prices will persist then such prices are a threat at least to the mainstream model that Tesla hopes to market in 2016 or 2017. While not an issue for the luxury car buyer Tesla currently targets, mainstream buyers are more sensitive to the overall cost savings a Tesla can provide. The mainstream market also has a lot of competition, and there are signs that other companies want to take Tesla head-on in the luxury market as well, which will create a competitive environment less conducive to profit-taking.