It was July 10th, 1856 when Nicola Tesla, a famous physicist, electrical engineer and inventor was born. Now, nearly 160 years later, Tesla Motors an American auto company founded 10 years ago and named after him is valued at $25 billion — more than 200 times its estimated 2015 earnings. Is this crazy?
Undoubtedly, Tesla is one of the hottest companies in Silicon Valley now. For many, Tesla Motors is now for the auto industry what Apple Computers once was for the computer industry and Elon Musk, Tesla CEO, is being compared to Steve Jobs.
But, is all this fuss that revolves around this new auto startup justified? In this article, I would like to take a closer look at the strengths, weaknesses, opportunities and threats of Tesla and consider what kind of future lies ahead of it. Behold the SWOT analysis of Tesla Motors.
The next big thing
Comparisons with the company from Cupertino are for sure somewhat justified. Both Tesla and Apple products are unique, beautiful, luxurious, loveable and perform extremely well. Also, both are very expensive and limited to a very specific type of customer.
But now, when Apple appears to be struggling with a slow decrease in innovation, Tesla Motors is looking way into the future. The biggest strength of the company is, undoubtedly, their cars. Tesla focuses on building vehicles that are 100% electrical powered, fast, safe and environmentally friendly from the very beginning. Producing green products is often neglected by companies, but I believe it is more important than any of us relies.
Nearly two years ago I traveled to Cuba. When I was walking with my wife in Havana, I had the chance to see all these elegant American cars from the late 1950’s. They were beautiful, but the constant, penetrating noise of their roaring engines was unbearable. If quiet, electric engines from Tesla are the future of car industry, then I am all for it.
And so are many customers. But Tesla lures its clients not only by using its ecological image, but also with the use of very innovative technology. Tesla not only gives its users a high-performance hardware, such as an engine that accelerates from 0 to 60 mph in under 4 seconds, but also packs their cars with cutting edge software.
In the picture above you can clearly see that the strengths mentioned in the previous paragraph greatly influence the opportunities that the company has. In strategic planning, a strong interaction between strengths and opportunities suggest a usage of an aggressive strategy and, without a doubt, this is what Musk’s company utilizes.
No more than a year ago, Tesla signed a major contract with Panasonic and started building The Gigafactory, a facility which will cost more than $5 billion, and by 2020 will be ready to produce battery cells on a massive scale for Tesla cars and their other products.
Nowadays, Tesla cars are still perceived as gizmo. They are mentioned regularly in press, but hardly exists in the mind of average customer. Elon Musk hopes that, as happened with Apple products, the limited number but influential early adopters will eventually help the brand to attract more and more customers.
The need for a larger amount of customers can be seen in the recent movements of the company. A few days ago, Tesla introduced a new home battery system, the purpose of which is to supply the house with a green, independent solar energy. The initial demand for the product was quite high, but analysts are skeptical. Bank of America analysts say that the home energy systems market is still small. Why?
The biggest problem lies in costs
The biggest weakness of Tesla is the price tag attached to their products. The cost of buying a new model S can be as high as $100,000. Even though, looking at the quality of the product, the price may seem reasonable, it is still a level of expense unattainable for most Americans. Therefore, Tesla is trying to address this problem with their new car, called Model 3, but this vehicle is expected to be delivered in 2017. Probably…
I used the word probably because Tesla has another important weakness — the inability to deliver products on time. Tesla has already delivered two vehicles: a sports car called Roaster and a luxurious sedan called Model S. But the third vehicle, called Model X, designed as an SUV still hasn’t managed to reach the production stage. Tesla X was previously scheduled to hit the road in 2013, then the premiere was delayed to 2014, and later on to the first quarter of 2015. It is now May 2015 and Tesla X still hasn’t been released.
When Steve Jobs came back to Apple after years of exile he declared that the company had too many products and limited its portfolio to four segments. Jobs wanted to have a smaller number of products because he wanted the vision of the company to be clear, and the teams inside the firm to be more focused. The same can be said about Elon Musk and its company. But the question is whether the same rules apply to both computer and car industries?
Tesla competitors such as Toyota and Ford have a long history and impressive product lines. Musk’s company, after announcing the discontinuation of the Tesla Roadster now has only one car in its portfolio — the expensive Model S directed to a very limited customer base. For a company which is all about selling car-sized gadgets it may be enough, but Tesla has much bigger ambitions. They want electric cars to evolve to the point where they are the de facto standard of the industry. Is this possible with only one or two cars on the market?
Will it catch on?
Tesla relies heavily on the adoption of electric cars and their biggest threat is that this adoption will be proceeding too slow. In 2014, the market share of electric cars in United States reached the level of 0.72%. The market is growing steadily, but it is still incomparable to the share held by gasoline-fueled cars.
Moreover, Tesla is not the only player on the field. In 2014, the first position on the list of electric cars sales was held by Nissan Leaf, and Tesla held second place with a 25% market share. Growing competitors are the second biggest threat to Elon Musk’s company. Companies like BMW or Toyota have already invested large amounts of money in hybrid cars such as the famous and popular model Prius, and it could be only a matter of time when they will expand more aggresively into the electric cars market.
But even if Tesla will eventually dominate the electric car market it still can be hard to convince consumers to buy their products. First of all, for the majority of customers, the cost of gasoline is still low enough to discourage investment in electric cars. Despite incentives offered by various governments, it still takes a few years for a customer to break even. Secondly, people are still afraid of using cars equipped with enormous batteries.
In 2013, the whole world was able see footage of a Tesla car burning on the side of the road. Even though Tesla cars have an extremely good safety record, the clip quickly went viral. The message was clear: even though they say it is safe, it is not. From the customer’s point of view, this is perfectly understandable. Tesla cars are new and innovative, and even though people want innovation they are often afraid of it. This illustrates the third largest threat to this American company — Tesla’s brand can be still too fragile and vulnerable to gain a widespread customer interest.
Even though it may seem that there are a lot of obstacles ahead of Tesla, the American company still has great potential. In the picture above you can see the part of the SWOT analysis that was done in CayenneApps SWOT which shows their biggest strengths. All these features: being green, innovative technology, and mostly positive PR can help the company to make proper use of its opportunities and follow the path once taken by Apple.
Apple is now worth more than $700 billion and recently Elon Musk announced that he wants his company to be worth that in 2025. Is Musk insane, or is he a prophet of a new era? To reach this level of valuation, the market for electric cars must grow and Tesla must be ready for this growth. After all, the same Elon Musk said that designing one car is far easier than creating a assembly line to produce hundreds of thousands of them…
As usual, the SWOT analysis for Tesla is now available in our Examples Library, which can be accessed using this link. Feel free to modify it and see what other strategy recommendations for Tesla you might receive.