In the world of automobile companies, the Tesla SWOT analysis is indeed intriguing.
The company throws up a unique perspective as it is one entity that has booked operating losses almost every year since its initial public offering.
But innovation is one department that this company has not lagged behind in any form.
The introduction of its low priced Model 3 has rustled up a lot of interest in the markets.
Therefore as an investment proposition, it is extremely thought provoking.
The company has logged in explosive sales growth but making a profit is still a big task for them.
So as an investor, you would feel the risk profile of the company is quite large.
You can also feel that there is huge debt on their balance sheet.
Therefore, the question is there a balance mismatch in the company’s operation model?
In a query to what a SWOT analysis is for this company, we will evaluate the company’s
and get a more sustainable perspective on the whole issue.
Strength as Per Tesla SWOT Analysis
As per the Tesla SWOT Analysis, the first point to consider is what the strength that this company has.
Tesla has a unique positioning in the automobile market.
It is not just about selling cars but completely revolutionizing the way we look at the entire driving experience.
The company has reported quite a robust sales growth
This can be about bringing the best luxury automobiles, long-range electric cars or the most innovative low cost models.
Over the past few years, their sales have grown at a phenomenal pace.
It jumped nearly 30% in 2015 alone after clocking a 50% plus growth in the previous year.
This growth has been mainly driven by their Model S.
Even if you see the 2016 demand from their Model X, the quarter on quarter is particularly encouraging.
So that said, given the huge sales numbers logically the growth drivers are there.
But what exactly is the reason that the company is not being able to clock in profit.
Therefore the question is whether the balance is berserk in some quarters.
That is exactly why we need to look at the other elements of SWOT.
These elements are the weakness, opportunity and threat elements also have to be analyzed.
You will have to take the strength in perspective with all the other factors.
So let’s train our guns on the other factors.
Weakness in Tesla’s Business Model
Next in the Tesla SWOT Analysis is a deep analysis of the weakness in the overall business model.
Given the huge debt in the books coupled with the amount of cash that they are pouring in every month, what is the key weakness?
Well, the cash that is going in every month is mostly due to the large investments that they have done in the overall research.
It is also because of development of new and innovative technology that they are creating in the entire car driving experience.
The huge expansion that the company has clocked in the past couple of years is also responsible for the cash outgo.
This is exactly why that despite the $4 billion revenue last year, there is a severe gap in the overall balance sheet equations.
The large cash outlays are also another key reason why the company has been logging negative cash flows in the past years.
Often in the tryst to analyze weakness, there is the question is whether Tesla’s $2.5 billion long-term debt is the greatest undoing?
Especially when you see this in perspective of it’s less than $2 billion cash in hand.
No doubt it makes a major dent in the overall earnings and leads to terrible cash flow inadequacy.
So would you consider this as the primary reason for the company’s pitiful finances and could it hamper future growth?
Let us now look at in perspective of the opportunities available.
Opportunities for Tesla
The Tesla SWOT Analysis reveals that perhaps the biggest opportunities for Tesla lies in its innovation.
Tesla’s latest models have generated a good response.
In spite of this, the question is why are the sales not able to help profitability?
One key reason could be even at $35,000, one of its cheapest models.
The Model 3 is still out of reach for a majority of consumers.
For most, the price is significantly higher than the highest range of budget.
The other factor is the kind of cost that the company puts in every year.
It is rather worrying that given the expenses the company incurs on an annual basis.
This could be a reason for the severe dent in its overall profitability.
The company would need to work towards bringing down costs to experience profitability.
For example, the measure that it has undertaken in putting up its Gigafactory that will enable them to make their own batteries at a much reduced cost can surely give finances a major fillip.
The expectation is that costs could come down by as much as 30% compared to current numbers.
Moreover, they would be then in a better place to support the basic economies of scale through improved distribution.
Well, that is still ensconced in future’s cocoon and what could be the possible threat that could derail this trajectory?
Tesla’s Threat Potential
The final element in the Tesla SWOT Analysis is no doubt the kind of threat that can derail the impact of the huge investment.
Is there any obvious growth opportunities?
With such a low cash flow, the biggest question is how will Tesla fund the huge ramp up it has envisaged?
Given the huge capital outlays, Tesla is not appropriately geared to tackle competition either.
Given the dynamic nature of the automobile industry and the pace with which other players are catching up on the innovation arena, Tesla needs significantly large funding to stay a step ahead.
There is still time for its latest innovation to hit the road, and by that time it needs to be seen how it will fare as against other economical electrical automobile variants?
The Tesla SWOT Analysis therefore undeniably establishes the fact that while innovation is its greatest strength, the risk in the business module is huge.
There is a steep competition in the automobile industry.
The is also upcoming expansion drives and rising costs.
Therefore, Tesla management surely needs to look at more sustainable funding avenues.
It has to look at breaking even on the balance sheet front as well.
Its long-term growth potential is terribly dependent on the success of the Model 3 that’s expected to be on the road by 2017.
It is, therefore, needless to mention that the company really needs to be innovative in cutting costs.
Additionally, they have to match revenue generated to the levels of funding they require going forward.