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TESLA SWOT Analysis (Harvard)

Article · June 2018

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Rakesh Naga Naidu Chinta

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 Strategic Analysis of Tesla - SWOT

Tesla Motors designs develop, manufactures, and sells high-performance fully electric
vehicles and energy storage products. It has established its own network of vehicle sales
and service centers, as well as Supercharger stations around the world to accelerate the
widespread adoption of electric vehicles. As of December 31, 2015, it operated 208
locations, along with 585 Supercharger stations in North America, Europe, and Asia. The
company currently produces and sells two fully electric vehicles, the Model S sedan and the
Model X sport utility vehicle. As of December 31, 2015, Tesla has delivered over 107,000
new Model S vehicles worldwide, after its first shipment in June 2012. The Model X was first
delivered in the third quarter of 2015. Management’s goal is to start production and
deliveries of the new Model 3, which is a lower-priced sedan designed for the mass market,
in late 2017. Vehicles are produced primarily in California, The Netherlands, and at a new
Gigafactory near Reno, Nevada. They are sold through a network of Tesla stores and
galleries, as well as through the Internet. Total revenue in 2015 was slightly over $4 billion,
with 48% of sales from the U.S., 9% from Norway, 8% from China, and the remainder from
other countries. The company also sells energy storage products, including the 7 kWh and
10 kWh Powerwall for residential applications and the 100 kWh Powerpack for commercial
and industrial applications. These products, marketed under the Tesla Energy brand, were
first delivered in the third quarter of 2015. As of December 31, 2015, the company had
13,058 full-time employees and was headquartered in Palo Alto, California. The company
was founded in 2003 and had its IPO on June 29, 2010.
Strengths Unique Position in the Auto Market:
Tesla is not the only auto manufacturer that offers electric vehicles, it has created, and
dominated, the market for luxury, long-range electric automobiles. This market is distinct
from the one for less expensive electric vehicles, as well as the market for luxury
gas-powered vehicles.

Robust Sales Growth:

Tesla has been growing at a rapid pace over the last few years, thanks in large part to the
public’s excitement for its automobiles. Sales increased by 27% in 2015, after jumping 59%
in the prior year. The extraordinary growth has been driven by strong global demand for the
Model S. First- quarter 2016 orders for the Model X, which was introduced in the third
quarter of 2015, increased fivefold on a sequential basis. Management plans to deliver
80,000 to 90,000 of these two brands in 2016. However, the new Model 3 has been stealing
the spotlight in recent weeks. This car, with its much cheaper $35,000 price tag, was first
introduced in March of this year to much fanfare.

Weaknesses:

Burning Through Cash:

This is largely due to the significant investments it has made in
research and development for the transformative technology in its cars. The cutting-edge
The automaker posted revenues of just over $200 million in 2011 while reporting sales of
over $4 billion in recent years. Tesla is also investing heavily for the construction of its
Gigafactory in Nevada, which has already begun producing battery packs and will likely
manufacture lithium cell batteries by year’s end. Because of these large cash outlays, Tesla
has reported negative free cash flows and earnings for nearly every year since its IPO. As a
result, Tesla has been forced to raise more debt and sell more shares.

High Debt Load:

The company has a relatively high debt load. As of March 31, 2016, Tesla had nearly $2.5
billion of long-term debt and capital leases on its balance sheet, or roughly 72% of total
capital. This compares to only $1.4 billion of cash on hand. Interest payments on this debt
are fairly significant, and will likely continue to cut into earnings. If the company is unable
to satisfy its debt obligations, because of insufficient cash flows, it may have to reduce or
delay investments and capital expenditures, which could hamper future growth.

Opportunities:
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Model 3:
Tesla’s newest brand was recently introduced to much excitement and fanfare in
late March of this year. The Model 3 is priced much lower, at $35,000, the price tag puts the
vehicle in the same price range as lower-end Mercedes-Benz and Audis. Elon Musk, CEO
of Tesla, stated that “you will not be able to buy a better car for $35,000, even with no
options.” This car could transform the company from one which produces 70,000 to 80,000
cars, its current estimate for this year, to one that manufactures ten times that in a few
years. This is the car that may make that a reality.

Cost-Reduction Initiatives:
In order for Tesla to finally begin posting profits, it will need to bring down costs. It is
making moves to accomplish this goal. As we mentioned earlier, the company is in the
process of building batteries for its vehicles at reduced costs, possibly up to 30% lower than
what it currently pays. The company’s ability to lower costs and support economies of scale
while realizing greater efficiencies in production and distribution should help to bring down
unit costs and improve the bottom line in the coming quarters.

Threats:
Funding Production Ramp: There are concerns that Tesla may not be able to fund its
ambitious production ramp in the coming months. While Tesla surprised many when it
announced that it hoped to manufacture 500,000 cars in 2018, two years ahead of
schedule, many were left wondering how exactly it planned to do so. While it had nearly
$1.5 billion of cash on hand, as of March 31, 2016, the capital outlays for the project will be
much larger.

Competition:
The automotive market is highly competitive, although Tesla finds itself in a unique position.
Given the high price of its current offerings, most of its competitors are other luxury cars,
which all are currently using standard internal combustion engines. Once the lower-cost
Model 3 hits the market in late 2017, it will not only compete with Audi, BMW, and Daimler,
but also lower cost electric vehicles, including the Nissan Leaf and Chevy Bolt. All of these
companies have been in business far longer than Tesla, and have greater financial,
manufacturing, and marketing capabilities, so the company will need to prove that it is
capable of competing on a larger scale and at higher volumes.