Do you want to know Tesla’s strength, weaknesses, threats & competitive strategies? If YES, here is a detailed Tesla SWOT analysis plus competitors analysis.
Tesla, Inc. is a successful automotive and energy solutions company better known for its innovation and product development. This SWOT analysis shows that the company has the strengths required to stay profitable in the long term. The company’s positive outlook remains inviting despite the threats and challenges in the industry.
Tesla, Inc., formerly (2003–17) Tesla Motors, is an American electric-automobile manufacturer. The company was established in 2003 by American entrepreneurs Martin Eberhard and Marc Tarpenning and was named after Serbian American inventor Nikola Tesla.
Tesla Motors was established for the development of innovative electric sports car. Eberhard was Tesla’s chief executive officer (CEO) and Tarpenning its chief financial officer (CFO). Funding for the company was acquired from a good number of sources, most notably PayPal cofounder Elon Musk, who contributed more than $30 million to the new venture and served as chairman of the company since 2004.
Over the years, the company also branched out into solar energy products. A line of batteries to store electric power from solar energy for use in homes and businesses was unveiled in 2015.
Tesla operates multiple production and assembly plants, such as: its main vehicle manufacturing facility at Tesla Factory in Fremont, California; Giga Nevada near Reno, Nevada; Giga New York in Buffalo, New York; and Giga Shanghai in Shanghai, China. As of 2022, Tesla sells Model S, Model 3, Model X, and Model Y cars.
After 11 years in the market, Tesla became renowned as the world’s best-selling plug-in as well as best-selling battery electric passenger car manufacturer by cars sold in 2019, both as a brand and by automotive group, with a market share of 17% of the plug-in segment and 23% of the battery electric segment.
On January 10, 2022, Tesla became the most valuable American automaker to ever exist, with a market capitalization of US$86.5 billion. Additionally, on January 29, 2022, Tesla became the world’s second most valuable automaker, with a market capitalization of US$104.7 billion, passing Volkswagen’s US$84.9 billion, but behind Toyota’s US$202.3 billion.
Generally, the automotive industry is a very competitive one, with traditional car companies gradually increasing their offerings of hybrid gasoline-electric cars as well as pure electric vehicles—such as the Chevy Volt and Nissan Leaf. Howbeit, Tesla still maintains its benchmark as a high-status ride, which is yet to be reproduced by other automakers.
However, this is gradually changing, as more car companies are getting involved with developing and producing electric cars, including BMW, Fiat Chrysler, Ford, General Motors, Honda, Hyundai, Jaguar & Land Rover, Kia, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Subaru, Toyota, Volkswagen, and Volvo.
Of recent, Kia has launched an EV SUV, called the Kia Niro EV, posed to be the EV SUV on the market. Other companies like Nissan and Volkswagen have also long offered relatively inexpensive options for EVs, with Nissan having the Leaf and Volkswagen offering its E-Golf.
Porsche in its own right has a lot of name recognition, especially for high-quality sports cars. The company claims its charging station to be the fastest in the world, and its Taycan going from 0 to 60 miles per hour in 3.5 seconds. The BWI i3 meanwhile is a high-roof hatchback but has the same high-end name recognition that Porsche carries.
Additionally, Tesla markets and sells its cars through its own network of retail stores located in North America, Europe, and Asia. For the full fiscal year 2019, the company reported gross revenues of $24.57 billion. Tesla has a market capitalization of $88 billion as of Apr. 2, 2022. It does not pay a dividend.
Although the company has not remained profitable despite the high demand for its electric cars and rapid expansion, it still maintains a good gap away from its preying competition. The company has also been investing heavily in its infrastructure, with the construction of its new Gigafactory in Reno, Nev., among other initiatives. All these will still serve to keep Tesla ahead of its competition in the industry.
SWOT Analysis for Tesla Inc.
- Engineering Expertise
One of the major strengths of Tesla is its expertise in automotive engineering. Generally, this is what drives investment and sales in the automotive industry. It gives the company the competitive advantage it has over its competitors in the industry.
Additionally, Tesla shows immense focus on product design and engineering of its vehicles so its customers can have the best driving experience. Tesla boasts of a large number of patents to its name which it proudly dedicated to its customers and fans all over the world some years ago.
- Massive Network
Over the years, Tesla has been growing its network of stores and galleries all around the world. It has stores and galleries as well as service stations in more than 30 countries including U.S. and China. Tesla has also been investing in enlarging its super-charger network.
Expanding its super-charger network has also propelled brand growth and its customer base. Tesla is known to use 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.
Note that premium stores and galleries of Tesla Motors are situated in metropolitan cities, places and cities that boast of high visibility to the higher end customer segment. Many of their stores also provide after sales service. The company has also been able to grow demand by opening service centres in new areas.
According to reports, the sales 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.
- Heightening Sales
According to statistics, the company enjoyed enormous growth in vehicle deliveries during the first half of 2019. Also, in the second quarter of 2019, Tesla delivered around 95,200 vehicles. This amounts to a growth of around 51% compared to q1.
Note that during the first quarter of 2019, Tesla had manufactured around 77,100 vehicles and delivered around 63,000. Number of vehicles manufactured reached 87,048 in the second quarter and the number of vehicles delivered to 95,200. All the three models witnessed enticing 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%. Also note that Automotive revenue of the brand during the first quarter of 2019 was $3.7 billion compared to the same period last year; a growth of 36%.
- Brand Equity
In the business world and even in the highly competitive automotive industry, brand equity is an important strength. Customer experience and satisfaction means so much now, especially with the growing need to stay ahead of competitors.
It is also very crucial because customers are at the centre of everything automotive brands make and sell. Nonetheless, Tesla has soured higher in both the areas. Tesla, right from its inception, has acquired a lot of fame due to its focus on technological innovation. Strong brand equity has started translating into higher sales.
The company’s consistent focus upon user experience and product quality has also built a strong brand image and greater trust among consumers. Note that this strong brand equity helps Tesla gain extra competitive strength. In coming years, it could turn into a major advantage helping Tesla achieve higher sales and revenue.
- Quality & Innovation
Tesla is mostly known for its premium cars. The company currently sells three models including Model S, Model X and Model 3. Note that aside from high performance, these cars are also known for their attractive styling. Tesla has continued to improve its existing models through latest technologies and updates.
Tesla’s focus on innovation has further helped in the production of some of the best electric car models in the world. According to reports, Tesla keeps growing its investment in research and development each year.
In 2015, the R&D expenses of Tesla stood at $718 million and rose to $1.46 billion in 2018. The company’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.
- Premium Products
One weakness exhibited by Tesla over the years is the premium cost of its products. While Tesla Model S and X come with a resounding price tag of above $70K, Tesla Model 3 is currently the one with the lowest price tag at above $35K.
Generally, Tesla strives to maintain the image of a premium car brand and released Model 3 to grow its customer base. Nonetheless, while the company’s customer base has increased with the release of Model 3, it is still quite low when compared to a large number of competitors in the market.
Company sales could have been multiple times higher, had Tesla cars been priced as affordably as most other brands in the market. Although the company would love to maintain its quality and premium image, that leaves very little scope for reducing prices.
- Manufacturing Complications
Note that the higher the level of innovation, the more mechanical complications and production risks. Tesla is always subjected to continuous launch, manufacturing and production ramp delays while launching their new vehicles.
For instance, Tesla faced endless manufacturing challenges when they were about to launch Model X, which lead to constant delays for distribution. Additionally, the company went through extreme troubles while manufacturing Model X’s battery module assembly line at Gigafactory 1.
- High Operational Costs
According to reports, operational costs for Tesla increases every year. Apart from quality raw materials, there are several areas that add to the cost of revenues. In 2018, the company increased its investment in research and development.
Gradually, the brand is working on ramping up production as well as growing its dealer and super-charger network. Their costs of revenues have risen massively within the past three years. From $5.4 billion in 2016, the cost of revenues of Tesla grew to $17.4 billion in 2018.
Note that the cost of revenue for Tesla’s automotive business includes direct parts, material and labour 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.
- Limited Presence
Even with the innovation and premium rides, Tesla is faced with a critical challenge and it is doing a real balancing act. On one hand, the company is striving to establish itself in a hyper-competitive industry and on the other; it has to increase its presence globally to grow its profits. However, since the company deals in only electric cars and vehicles, its portfolio is limited compared to BMW, Volkswagen, Audi or Ford and Toyota.
Nonetheless, united states is still its core market and growing its presence in the other regions of the world becomes difficult due to several barriers. Note that for Tesla 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. 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.
- Sustainability Trends
It’s no longer a new story that the demand for sustainable products has grown globally leading to boost in demand for electric cars and other products that buttress sustainable energy. According to experts, these trends are a great sign for Tesla and shows that the demand for its fully electric cars would continue to spur higher.
Tesla is focusing on growing its range of electric cars. The company released another Model Y in 2022. Model Y is priced above Model 3 but lower than Model X and S. All Tesla cars are gaining popularity in the United States market. Driven by the growing sales of its existing models,
- Bringing Battery Production Technology In-House
Tesla is making plans to make its own battery cells. According to the company, this move can be a big game-changer as it will help them grow its manufacturing rate while reducing production cost. Currently, Panasonic is their primary supplier of battery.
- Autonomous Driving Technology
In recent years, Auto brands are beginning to invest in digital technology to give their customers the best riding experience and to grow their market share. Autonomous driving is currently a hot cake and many of the top automobile brands have already taken crucial steps in this direction.
Tesla’s autopilot technology has already acquired enough fame for its safety and convenience features. Nonetheless, the autonomous driving technology while it holds immense potential has still a lot of space to evolve. This company also offers regular software updates on its car models for the safety and convenience of its riders.
Note that 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.
- Asian Markets
Going by population and acceptance of green products, Asian markets and particularly China and india can prove a leading market for Tesla. China is the largest market for automotive. Notably, while United States boasts of close to 70% of the brand’s revenue in 2018, China’s share is still below 10%.
Noting that Tesla 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.
- Product liability Claims
Even with Tesla’s premium quality assurance and high standards of manufacturing, the automobile industry, in particular, is so used to facing significant product liability claims which the company’s fears to be one of the biggest financial blows.
The company of the years Jane launched many autopilot vehicles, and not all of them have been successful in case of an accident. They have also faced lawsuits and claims related to the failure of technology in their products. If these liability claims continued, then Tesla may be subjected to greater financial setbacks.
- Competitive Pressure
Since the automobile industry is booming with intense competition and all companies invest heavily in research and development as well as marketing, Tesla is aware of the speed and eagerness from its competitors.
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
According to research, the automotive industry is also ridden with heavy government regulation. Not just in the United States, all over the world, governments and regulatory agencies are getting stricter in their regulation of the automobile brands.
Aside from the normal emission control, labour laws and other laws also affect automobile businesses, driving the compliance costs higher for them. Nonetheless, 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.
- Costumer Adaptation
Every business depends on the acceptance of its product and its due use by customers. If the public is ready to adapt change, companies gain from the innovative range of products. Notably, it can be a slow, unforgiving process, producing new challenges for companies like Tesla. The organization highly depends upon customers’ willingness to adopt electric vehicles.
- Shortage of Materials
Tesla might witness major delays in the supply of manufacturing materials due to the increased prices. The company uses aluminium, steel, lithium, nickel, copper, and cobalt, as well as lithium-ion cells from suppliers. All these materials have volatile prices, which can affect the company’s production line severely in the future.
Tesla is leading the automobile industry in sustainability and innovation. The company has the strengths to remain successful in the business in the years to come. However, as identified in this SWOT analysis, there are various pitfalls and challenges the company must address to maintain its competitiveness and improve its profitability.
Apart from regulatory pressures, competitions are beginning to catch up to the expansion plans of Tesla. To acquire faster growth, the company must grow its focus upon the Chinese market and grow its charging stations to meet up with its growing demand.