SWOT Analysis – Tesla Motors
|Topics:||🚗 Electric Cars, Business Ethics, International Business, Self Driving Cars, 🧮 SWOT analysis, 🙋♂️ Management|
Table of Contents
Tesla Motors is an American electric automotive company and holds a large market share in the American electric vehicle market. The company is flourishing rapidly because of its innovative ideas and business activities. Some of the main strengths of Tesla Motors include highly innovative business ideas, efficient production processes, strong brand value, rapid sales growth, high position in electric vehicle market, fame for production of highly efficient eco-friendly cars, best possible safety features in cars, and strong investment partners. The company is known for transforming the way people drive and enjoy driving by providing a sense of uniqueness and outclass reliability to the customers.
Over the past few years, the company has enjoyed enormous growth rate because of its widespread acceptability not only in the American market but also in all other countries in which the company operates its business. For example, the sales growth percentage of model X and model S in the previous two years have been exceptional. Only in the previous two years the sales level has increased by 27% for 2015 and 59% for 2016 (Dalvagas, 2016).
Weaknesses come side by side for almost every strong company. Where there are strong features, there are also some areas where Tesla Motors needs to improve in order to remain ahead in the race of competition. Some of the main weaknesses that company needs to pay attention include high debt load, burning through cash, time –consuming vehicle delivery system, less experience as compared to competitors, high price tags, and limited market presence. High debt load is a major problem for the company. “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” (Dalvagas, 2016). On the other hand, the cash on hand at that point of time was just $1.4 billion, which was almost half of the total debt. Another major weakness of the company is the delivery time the company takes from order booking to car delivery to the customers. It takes almost a year for the company to make delivery because the manufacturing capacity is too limited to handle huge amount of orders.
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Tesla’s vehicles are priced higher as compared to competitors because of which a large number of customers prefer to buy Toyota and Mazda vehicles that are somewhat cheaper than Tesla cars. Limited market presence is another weakness of the company. For example, Tesla has very limited presence in the developing economies and earns revenues mainly from the United States market. “This internal strategic factor is a weakness that limits Tesla’s ability to grow based on the rapid economic growth of overseas markets” (Kissinger, 2016). High price tag is another major weakness of the company.
For every business, there exist some opportunities, which can lead the way for the business towards rapid expansion and success if caught and handled properly. Tesla Motors is no exception to this. The company has some incredible opportunities waiting to be worked upon. Some of the main opportunities for the company include global sales expansion, business diversification, supply chain expansion, cost reduction ideas, and self-driving features. Tesla needs to cut down the costs in order to improve profit margins. Building up of Gigafactory is one such step towards cost reduction mechanisms that is likely to reduce the costs of the batteries by 30% of present day costs.
The company can also work on quality control processes to reduce production costs and attain higher reliability of business processes. Self-driving is one such area that is not only innovative but also in much demand by the customers. Tesla Motors can work on this area to increase its customer base and eventually market share among the self-driving feature providing companies. The biggest growth opportunity for the company is to expand its operations and presence in emerging economies. Business expansion brings more fame, more customers, and more customers for the company. “This opportunity is based on the significant economic growth of other countries where the company has insignificant presence” (Kissinger, 2016). Not only this, the company can also increase its product base by manufacturing more battery powered electric products.
Every business has some threats that need to be figured out and addressed at the right time in order to keep an edge over competitors and remain alive in the market. Some of the main threats for Tesla Motors include strong competitors, decreasing fuel prices, and dealership regulations. Strong competition is a constant threat for the company as the number of competitors continues to increase with the passage of time. Even now, there are companies like Toyota and Mazda that hold a large percentage of market in the United States. Other companies with lower price tags can also enter the market to cut down the market share of Tesla Motors. Decreasing fuel prices all over the world is another threat for the company as customers can opt for gasoline-powered vehicles instead of buying expensive electric vehicles. Another threat for the company is involvement of dealership in selling the cars. Although the company is selling its cars directly to the customers at present, but Virginia and Texas has led the base for more states to prohibit direct sales and require dealership involvement to sell the cars. This is a big threat that can reduce the profit margin for the company.
Recommendations for Tesla Motors
The company needs to pay special attention to the pricing that the company charges to the buyers. The prices set by the company are not in the range of average income people and only well-established customers can afford to buy latest models. Tesla should focus on this area and should set prices that should be competitive yet low as compared to the other automobile manufacturing companies operating in the market. “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” (Dalvagas, 2016). The company should also improve its market presence by expanding the business to more countries. This can be done through outsourcing of assembly plants just like another car manufacturing companies do. The company should focus primarily on markets where fuel prices are high and people look for alternatives to expensive fuel-based gasoline engines.
The company has been facing the problem of negative free cash flows and has been made to sell more shares and raise more debt. This problem can be reduced by increasing the cash flow from operations, increasing the number of sales by lowering down the prices and expanding the business to more countries, reducing cost of production and operating costs, and reducing the level of debt by reducing business expenses and attracting more investment to the company’s businesses. Tesla Motors should also look forward to expand its presence to third-world countries where fuel prices are high and people prefer to use alternative technologies to cut down the billing costs. For example, the company should expand its business to India and Pakistan where the demand for electric-powered vehicles is founding the base and more and more people are opting for electric vehicles as a way to minimize fuel expenses and get more mileage. Along with this, the company should also look for manufacturing electric products other than vehicles so as to diversify the business and increase the customer base from vehicle market to electronics market.
- Dalvagas, I. (2016). SWOT Analysis: Tesla Motors, Inc. Retrieved from http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Tesla_Motors,_Inc_.aspx#.WKgd19R95kh
- Kissinger, D. (2016). Tesla Motors, Inc. SWOT Analysis & Recommendations. Retrieved from http://panmore.com/tesla-motors-inc-swot-analysis-recommendations