Why Tesla may go bankrupt: the company’s strengths and weaknesses

tesla

Tesla is an innovative company: it develops autopilot technology, artificial intelligence, sets record numbers for electric cars, and sells its cars not in showrooms, but through a website. But at the same time, the business spends millions of dollars each year on research – and thereby puts itself in debt for the sake of innovation.

And while Tesla’s position is stronger than ever, the company cannot ignore its weaknesses and external threats.

With the help of SWOT analysis, we will decompose Tesla’s business into molecules and find out what Elon Musk should be afraid of and where he needs to strengthen.

 

swot

 

Strengths – what are Tesla’s strengths?

#1. Brand
Tesla is an electric pioneer in its field. If you ask a passerby what electric car they know, the most likely answer is “Tesla.” The company has such a strong brand that its name alone is enough to outshine its competitors.

#2. Innovativeness
Tesla cars are high-tech. The fastest production car in history, the Tesla S Plaid, can travel 837 km on a single charge and accelerate to 100 km in less than 2.1 seconds.

And while competitors are still trying to reach these figures, Tesla’s artificial intelligence and autopilot remain the unattainable pinnacle, that is, the company’s main trump card.

#3. Business Model
Unlike other automakers, Tesla has closed most car dealerships and reformatted the rest as showrooms.

It is possible to buy a car through the official website, where customers choose their configuration. This business model allowed Tesla to reduce its costs.

In addition, the company is very customer-oriented. Their approach is to create additional value for the customer. For example, they are constantly improving already sold cars through software updates – and they do it for free.

In addition, Tesla has mobile technicians who travel to the customer’s location if they have a problem with the car. And Model S owners can share data over the network – and technicians will troubleshoot even remotely.

#4. High stock price
Tesla has a leading position in two major markets in the world – Chinese and American. For example, 10 years ago the company’s shares were worth $5, gradually rising in value. In 2020, there was a sharp rise – the value increased by 740% and reached $883 at its peak. In June 2021, the stock is stable, with a price of $688.

But that’s still considerably more than Tesla’s competitors. By comparison, Volkswagen stock is worth $256 at the same time.

#5. Selling Regulatory Credits.
Tesla has learned how to capitalize on its competitors. In 2020, the company made its first net profit of $721 million. And it got a lot of help from conventional car makers, who bought regulatory credits from Tesla.

Regulatory or, as they say in the U.S., ZEV credits are points that automakers receive for selling zero-emission cars.

To avoid penalties for violating green laws, in some U.S. states, gasoline car manufacturers can buy the required number of points from electric car makers.

 

Weaknesses – where the company loses out

#1. Production Processes.
The inflated ambitions of Tesla and its owner are a plus, but they do not always translate into reality.

In 2019, Ilon promised to launch the Tesla Network service, 1 million robot cabs with autopilot, by the end of 2020. At the moment, not a single such car has been produced, and new dates for the start of the project are unknown.

Difficulties with production have happened before when the release of the Tesla Model X was delayed for two years.

#2. Customer Attitudes
Consumers still do not perceive electric cars as conventional cars – most prefer internal combustion engines. The market needs to be further “educated” on the topic of eco-friendly vehicles. For example, according to a 2019 study, 42% of Americans surveyed still thought electric cars were fueled by gasoline.

#3. Different demands for models
Tesla cars are unevenly in demand. While models 3 and Y are popular, the S and X, for example, have become less popular.

The latter is significantly more expensive than competitor cars and other Tesla models, which seriously beats the demand for them. The price of the Tesla Model S electric car starts at $79,990, while the Tesla Model 3 starts at $38,490. The Nissan Leaf, for example, will cost just $31,620.

#4. Positioning in the world.
The company is active in the U.S. and Chinese markets, but it’s not doing well in the rest. In 2020, Tesla sales in Europe fell by 30%, and in the advanced Netherlands and Norway, for example, by 78% and 75% respectively.

#5. Losses
Financial success and Tesla are far from synonymous. The business has been making losses all its history – and only in 2020 showed a profit of $721 million. In particular, thanks to the sale of regulatory loans.

For example, Tesla recorded an $862 million loss in 2019.

Threats – what a company should be afraid of

#1. Growing competition
Tesla used to be one of the few players in the electric car market, but now Renault, Mazda, Toyota, and other auto giants have turned their attention to this promising niche.

By 2030 BMW plans to occupy half of the European market of “green” cars, Mazda plans to produce only electric cars and hybrids and Honda plans to electrify 2/3 of its cars.

#2. Lawsuits
The company has to fight not only on the market but also in court. Lawsuits are regularly filed against it, questioning Tesla’s technology – resulting in monetary losses.

For example, a Norwegian court ordered Tesla to pay $16,000 to owners of Tesla Model S cars produced in 2013-2015. Users noticed a deterioration in battery performance: after the software update, the range of trips decreased, while the time to fully charge, on the contrary, increased.

#3. Limitations of the business model.
In some cases, the law doesn’t just interfere with a company’s business, it prohibits it entirely. Ten U.S. states only allow cars to be sold through car dealers, not directly. And we remember that Tesla’s business model is built on this very principle.

#4. Lack of regulations for unmanned cars
Even if the company releases a fully unmanned car now, it will be difficult to find a use for it. After all, there are no laws to regulate the movement of such cars.

Perhaps the problem is that Tesla is ahead of its time and society just isn’t ready for it.

#5. Limited raw materials for manufacturing
Tesla uses raw materials from suppliers to create batteries and other electric car parts. Lithium, aluminum, copper, and other materials are not infinite, and their prices fluctuate. This affects production and makes the company dependent on contractors.

#6. Tesla’s stock price depends on a hype
Analysts at the financial conglomerate Barclays have found a correlation between the rise in the value of Tesla securities and discussions of the company on forums. For example, as soon as users on Reddit comment on the business, its shares tend to rise.

This is considered a negative phenomenon because investors do not evaluate Tesla’s financial performance, but its popularity.

 

Leave a Reply

Your email address will not be published. Required fields are marked *