Tesla Inc. is a green energy company with S.E.X.Y products — Tesla Car Models S, 3, X, Y. It is led by a charismatic visionary and is one of the most discussed and analysed companies today.
Founded in 2003 and headquartered in Palo Alto, California, Tesla is known for products and services ranging from motor vehicles, energy storage and solar panels to financial services and retail merchandise.
At a fast rising share price that’s was at $800 when the thread was prepared, Tesla’s considered a volatile stock and a favorite of short sellers.
Tesla has a unique business model different from other car makers, which is founded on the innovative values of its founder and current CEO, Elon Musk.
Let’s do a SWOT analysis to obtain insights on what their business model is like.
1. Strong Brand Following
The Tesla brand is one that inspires loyalty among their customers and prospective customers. Tesla’s brand of idealism has a cult-like following.
Tesla’s products are arguably the best in the spaces that they operate. With its fundamental commitment to innovation, Tesla has been able to build superior products that have so far stayed competitive among the few competitors in the electric automobiles industry.
Tesla currently has factories in the US, Europe, UK and Asia, giving it an advantage in terms of cost when compared to competitors who outsource some of their production like battery production.
Tesla Model 3 is tested to be the safest car ever by the National Highway Traffic Safety Administration (NHTSA) in the US.
3. Superb Distribution Network
Tesla’s distribution channel, which it owns, is unique to it’s business model. Tesla uses its internal marketing and sales teams to deliver its products directly to target consumers.
Tesla all-electric cars are sold exclusively through the Tesla website and at company-owned stores. Tesla has grown its distribution network at an incredible pace till date.
At inception, Telsa had 10 stores and 9 service centres all within the US. Today, it has stores and service centres in 33 countries, and supercharger stops in over 47 countries.
1. Open Source Patents
While it might be a bold move within the global sustainability initiative, Tesla’s decision to make its patents open source inhibits it’s potential to stay even more competitive in its industries.
What could have been a game changer for Tesla, is now a level playing field for anyone interested in making electric powered cars and green energy initiatives.
2. Hardly Profitable
From inception till date, Tesla has never turned an annual profit. It managed to turn quarterly profit in Q3 and Q4 2019 with lean profit margins of 2.27% and 1.42% respectively.
3. Debt and Liquidity Concerns.
To solve for the unprofitability challenge Tesla is facing, it has continuously turned to the debt market to cover it’s cash burn. This has given it a high debt load of roughly $12b and less than $4b in cash and cash equivalents.
This compares to about $20b, $25b, and $40b respectively of cash and cash equivalents for Ford, GM and Fiat Chrysler in the automobile industry.
At this rate, Tesla may have to reduce or delay capital expenditure and investments to survive its continuous cash burn.
1. Electric Car Market Growth
Electric cars are no doubt the future of transportation. The time it will take to transition from fossil energy powered to electric powered vehicles is what is however unknown.
Countries like the Norway, Iceland and Sweden have embraced electric mobility, while countries like the UK have passed laws putting a date when fossil energy powered cars will be disallowed.
Tesla is well positioned to gain a large market share when these events translates to significant growth in the electric cars market. The faster the transition, the better for Tesla.
2. Increasing Demand for Green Tech
Asides electric cars, there is a large demand for green energy products which gives Tesla an opportunity to grow rapidly as demand increases.
Tesla already has differentiated products such as (industrial) batteries and power walls within the renewable energy space, whose range can be expanded as demand for them grows.
3. Synergy Within the Tesla Group
Companies within the Tesla Group could provide an opportunity of synergy for Tesla within the renewable energy ecosystem.
SpaceX, Neuralink, The Boring Company and the research company, Open AI, each have something to contribute to help Tesla improve efficiency and reduce cost, and stay competitive among current and potential competition in the green tech space.
1. Strong Competition
Already in the market, are strong car brands like BMW, Volkswagen and Daimler. These players have been in the automobile market longer than Tesla, and have the capacity to scale faster.
This threat becomes magnified when you have credible brands like Volkswagen, Audi and Jaguar, come into the market fully.
2. Slower Transition to Green Energy
With Tesla’s financial position, if the global transition to renewable energy products is delayed, Tesla risks going bankrupt or being run out of business by bigger and stronger players.
3. Discontinued Tax Incentives
The tax rebate that buyers of electric cars in the US and Netherlands — which are large markets for Tesla — enjoy have been discontinued.
This tax incentives are more significant to Tesla than it is to its competitors with stronger financials, as they can withstand a drop in sales better than Tesla can.
Except something dramatic happens, the discontinuity of these tax rebates can see the demand and net profit margin — if they turn a profit — decline significantly in subsequent financial reporting periods.
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