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SWOT Analysis of Tesla

1651 words (7 pages) Essay in Business

15/02/19 Business Reference this

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Tesla, Inc. is an American company that specializes in electric automobiles, energy storage, and solar panel manufacturing. Founded in 2003, Tesla has recently disrupted many industries, most notably the auto industry. Tesla’s focus on electric power vehicles, lithium-ion battery, and energy storage set itself apart from their competitors; “Tesla has expanded its focus from simply building the best electric car to paving the way for autonomous vehicles, solar power, and so much more” (Houser, 2017). This demonstration of leadership and shared knowledge expresses their overall effort to “accelerate the advent of sustainable transport” (Musk, 2013). While it isn’t common for a company to hope their competitors copy their products, this is exactly what CEO, Elon Musk, hopes for. While Tesla is a business, it is more interested in the fundamental good of getting the auto industry as a whole to move towards sustainable transport faster; the first step in doing so would be to get their competitors to follow suit. As defined in the text, a SWOT analysis is “a technique through which managers create a quick overview of a company’s strategic situation” (Pearce, 2015). Tesla, Inc., like any company, has strengths, weaknesses, threats, and opportunities that are unique to their company specifically.

(S)trengths

The strengths of a company are focused on proficiency, skill, and the advantages of an organization. Tesla, Inc. stands out against competitors due to their unique position in the market. Tesla has created a market for cars that are both luxurious and long range electric. By doing so, they have set themselves apart from their competitors who either offer luxury gas vehicles or less expensive electric vehicles, but not both. Tesla, Inc. is also reputable for its high rate of innovation, especially in introducing the world’s first fully electric sports car. Apart from its range of vehicles, Tesla also makes solar energy and energy storage systems. All three of their current product lines are highly innovative and equipped with the best, most advanced technologies. Prior to Tesla, consumers often had to choose a car between a car that would fit their luxurious desires or a car that didn’t need to be fueled by high gas prices and would contribute towards a healthy and stable environment. In alignment with their innovation, Tesla doesn’t use the traditional method of car selling through dealerships; Instead, they sell their own cars through Tesla-branded stores. Through this approach, Tesla is able to go directly to the customer. However, another valid reason for Tesla to not follow the traditional strategy to selling its cars is because Tesla is not the typical car; Unlike gas-run vehicles, Tesla’s cars use a different business model that does not require services such as tune-ups and oil changes. In addition, Tesla is better off selling themselves rather than through a dealership because of the conflict of interest in being assorted with gas-powered vehicles; this poorly aligns with their image and does not make the dealership approach a good advocate for their all electric brand image. While it is important to recognize a company’s strengths, it is also important to acknowledge their weaknesses. There is no such thing as a company that only has strengths, the reason for that is because no company has unlimited resources. Companies and businesses have a minimal amount of resources and have to use their limited amount to focus and support their strengths.

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(W)eaknesses

Weaknesses are areas that a company can improve in; they are the factors that prevent an organization from reaching its full potential. While most are highly supportive and encouraging of Tesla and their mission, many of their supporters can’t represent and purchase the car themselves due to the high cost of the car. Tesla’s current models readily available for sale, Model S and Model X, are quite costly with them both having a starting price tag of roughly $80,000. Such a high cost makes them not affordable to be purchased among the middle class, which significantly decreases the size of their potential audience. Tesla fully develops the vehicles as well as their sub-assemblies themselves, which results in a high cost of production per vehicle. With that said, it would be difficult for Tesla to make their cars more affordable whilst making a profit. The Model 3, Tesla’s more affordable model, begins at a cost of $35,000 before incentives which is an extreme price slash in comparison to their other models. While the Model 3 may be well priced for customers, it doesn’t seem to be priced to a point where Tesla will make much profit, if any at all. It seems that Model 3 is a big risk in terms of financial gain because “in order for Tesla to break even on the vehicle, UBS believes that customers must purchase nearly $6,000 in additional options” (Stumpf, 2017). However, the production of Model 3 may provide the company to seek opportunities they could not before.

(O)pportunities

Opportunities are external factors that may contribute to the organization while supporting the strengths. Model 3 is Tesla’s newest release which is a smaller, more affordable version of Model S with less range, power, and fewer features. The $35,000 model is currently available to be reserved. This is a huge opportunity for Tesla to expand the size of their audience market, primarily because one of the main disadvantages previously was that the cost was too high for the middle class to afford. Upon reserving the model, there is a twelve to eighteen month waiting period to receive the car. “According to an update from Tesla, about 373,000 people want to buy the Model 3” (Shen, 2017). With hundreds of thousands of people waiting for their Model 3, there is more demand than there is supply, which explains the waiting period. According to the Bloomberg Model 3 tracker “Tesla has manufactured 7,618 Model 3s so far, and is now building approximately 1,052 a week” (Randall, 2018). This opportunity of making models for the middle class also creates, and is proven in the current evidence, an increase the ongoing demand. A third opportunity that Tesla is taking the lead in is autonomous driving. Autonomous driving is a big opportunity for Tesla to break through that has the potential to completely change everything about the future of transportation. Although it is more in the test phase at the moment, the possibilities are huge and will disrupt and cause many different industries to be altered once it is under effect.

(T)hreats

Threats include potential issues and risks that may be caused by external factors. A major threat that Tesla, Inc. faces is competition from both luxurious and environmentally friendly car brands; this will be even more problematic when their competitors, who haven’t already, release their own and possibly more advanced electric vehicles. Because the cost of Tesla’s current makes and models are so pricey, they currently face the threat of brands like Ford and Nissan. Ford and Nissan, two brands that also offer electric, environmentally friendly vehicles, do so at a more affordable price of approximately $30,000. Future competition is also likely by companies like Toyota who plans to offer more than ten purely electric vehicle models in its lineup by early 2020. Another possible threat to Tesla is their experimentation with price skimming. Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay. Then, as the demand of the first customers are satisfied, the firm lowers the price to attract another, more price-sensitive segment. This is exactly what Tesla is doing with their Model 3, which shows to have a high demand, but low profit. It is uncertain how they will be financially affected, but current study shows a loss of profit.

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Conclusion

The main message of Tesla, Inc.’s mission is “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible” (Musk, 2013). From vehicles, to solar energy, to energy storage systems, all of Tesla’s products are related to sustainability; To be sustainable is what the company was built around in order to reach their end goals. The conducted SWOT analysis for Tesla, Inc. provides the opportunity to better understand the environment in which they operate; it ultimately highlights important factors which affect both its internal and external environment. In the future, it is expected that there will be major advancements made in the fields that Tesla, Inc. are involved in. Such progress will change the world for the better, but to do that requires every individual within the world to willingly adapt.

References

Houser, K. (2017, February 26). 7 Ways Tesla Is Changing Everything. Retrieved February 17, 2018, from https://futurism.com/ready-for-edit-7-ways-tesla-is-changing-everything/

Musk, E. (2013, November 19). The Mission of Tesla. Retrieved February 17, 2018, from https://www.tesla.com/blog/mission-tesla

Pearce, J. A., & Robinson, R. B. (2015). Strategic management: planning for domestic & global competition. New York: McGraw-Hill.

Randall, T., & Halford, D. (2018, February 14). Tesla Model 3 production tracker. Retrieved February 19, 2018, from https://www.bloomberg.com/graphics/2018-tesla-tracker/

Retrieved February 16, 2018, from https://www.tesla.com/about

7 Reasons Why Tesla Insists on Selling its Own Cars. (2016, January 19). Retrieved February 19, 2018, from http://fortune.com/2016/01/19/why-tesla-sells-directly/

Shen, L. (2017, July 3). Everything You Need to Know About Tesla’s Cheapest Car Ever. Retrieved February 19, 2018, from http://fortune.com/2017/07/03/tesla-model-3-electric-car/

Stumpf, R. (2017, May 21). Researchers Estimate Break-Even On Tesla Model 3 at $41,000.

Retrieved February 19, 2018, from http://www.thedrive.com/new-cars/10479/researchers-estimate-break-even-on-tesla-model-3-at-41000

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