Video Transcript: TESLA SWOT Analysis

Okay, great. In this video, we'll use the SWOT framework to analyze Tesla and  organize our thoughts about the company. Hopefully, a 360 degree analysis of  its strengths, weaknesses, opportunities and threats will improve our idea about  the firm's future outlook. Tesla was founded in 2003 and is on the mission to  become the first successful pure electric vehicle producer in the world. Also, it  aims to be one of two US auto producers that have not filed for bankruptcy, the  other one being Ford. Let's start with the company's strengths. First of all,  everyone has heard of Tesla, right? So it definitely has strong brand recognition.  Actually, Tesla is the most recognized electric car producer in the world, quite an advantage with respect to other companies that are about to enter the industry.  Moreover, many customers appreciate Tesla's innovator's spirit and the fact that  it is a first mover in the automotive industry. Such originality coupled with  aesthetically pleasing design and positive customer experience with the product  justify Tesla's premium pricing and choice of differentiated competitive strategy.  Elon Musk, Tesla's notorious CEO and major shareholder is one of the most  famous and appealing businessmen around the world. His ability to tell a story  and involve the public is unmatched. By doing this, he wins over many people  who actively follow his businesses and will likely become customers. What is  very important. Such customers can be very loyal if handled correctly, which is  priceless in the long run, Tesla is attractive to people because it doesn't simply  sell cars. The company sells a story, the story of an organization which is in  business with an ideal purpose to preserve the global environment. Probably  this is Tesla's most valuable strength. Along with that, we can mention several  other important advantages the company has. Its cars are ahead of the  competition in terms of battery range and experience with battery production  and recharging. Tesla has put in motion a plan that would make it the biggest  battery producer in the world. The company intends to construct several  gigafactories, three in the US, one in Europe and one in Shanghai, resulting in a significant cost advantage against competitors who outsource battery  production. Tesla's autopilot feature has been operational for several years now,  accumulating more and more data and testing in real life conditions in a future  where we will increasingly depend on autonomous vehicles, Tesla's experience  with autopilot would be extremely valuable. Of course, we also need to mention  the company's Supercharger network, allowing Tesla owners to charge their  vehicles for free in a very fast way when on the road. In a perfect world, this  would do however we live in a fossil fuel dominated world. So let's consider  Tesla's competitive weaknesses too, number one and quite important, Tesla  continued to burn cash in 2017 and 2018 the company has not turned a profit  ever since it was founded. That's understandable, considering that it grew  rapidly with the goal of becoming a true global auto producer. Plenty of  investments were made to achieve that negative cash flows are a problem,  given that Tesla's stock price is under significant pressure from short sellers who

believe the company is overvalued, the fact that Tesla isn't a traditional mass  market car producer became obvious in late 2017 and 2018 when the company  started producing model three, the automatic production line it had constructed  didn't function properly, and Tesla was unable to reach its target of 5000  automobiles per week for about a year. This proves that it can be very hard to  make the transition from being a premium sports car producer delivering several 1000 cars per month to a mass market company. It is very likely that the  company will experience similar challenges when it attempts to realize cost  efficiencies and improve margins. Traditional car companies have the advantage that they have been in the business of producing at scale for decades, Tesla is  an innovator in its field, but some may feel that Elon Musk's idea to make all of  their patents open source was a bit naive and idealistic, endangering the  company in the long run, as it wouldn't be able to protect its inventions from  imitation in. The last weakness we'll add here is Elon Musk's divided attention.  The fact that Tesla has a CEO who is responsible for four separate billion dollar  entities is a bit disturbing. First, is he going to be able to sustain such workloads  in the long run? And second, how much of Elon Musk's time is spent working on  Tesla, besides strengths and weaknesses, we should also consider future  opportunities too, right? Let's go ahead and list some possible developments  that could help the company succeed in the long run. The electric car market is  the future of transportation. Most people agree on that, how fast will the  transition to electric vehicles be? Most people disagree on that. Nobody knows.  Some experts believe it will happen over the next 10 years. Others, especially  the ones involved with petrol refineries, claim it would take at least 40 years.  One thing is certain, though, for Tesla, the faster the transition to electric  vehicles, the better. Currently, the company is well positioned to win a significant market share of people switching to electric vehicles in a favorable scenario, this could be great for Tesla, as very few of the other automobile producers are  ready to compete in the electric vehicles market at full scale. So that's definitely  one opportunity. Another one is that Tesla expanded its product range.  Remember, because of their merger with SolarCity, the company now offers  batteries power walls and other equipment related to production and storage of  renewable energy. A rising demand for renewable energy could mean more  business for Tesla. Furthermore, Tesla's huge industrial batteries will become a  very interesting product line in the event the renewable energy market continues to grow at this pace. If it speeds up even further, the demand for storage of  electricity produced by renewables will rise sharply. Of course, there are some  very enticing opportunities ahead of the company in terms of economies of  scale, increasing volumes of production, and hence lowering the cost of  production. Think model three, for example, economies of scope, producing  different types of vehicles will probably be more efficient when the range of  products Tesla offers expands and R & D costs can be shared between different 

models. Another exciting opportunity is factory automation. Elon Musk shared  that at some point, the production hell the company experienced was caused by  too much automation, and the level of automation of its model three production  line had to be reduced. That was a painful experience, but now that Tesla has  the scar tissue and has learned a valuable lesson, it will probably try to build up  on what was attempted before removing flaws from the automation process.  This could result in improved production volumes and lower costs, especially in  terms of production personnel. Okay, great. One of the weaknesses we  mentioned was that Elon Musk divides his time between several companies.  Well, this can be a problem, but it also can be highly beneficial in the right  circumstances. Elon Musk is involved with firms like SpaceX, the boring  company, neurotechnology firm neuralink and nonprofit organization OpenAI. At  some point, it is highly likely that synergies between these organizations could  help Tesla improve its competitive position and know how providing a valuable  advantage against traditional auto producers. The last piece of our SWOT  analysis are the threats ahead of the company. As we mentioned before, the  gradual transition to electric vehicles can happen in 10 but it can also happen in  40 or more years in a favorable scenario. Slower transition is a significant threat, because it strips Tesla from its first mover advantage and puts it in a position to  operate in a market that is not growing fast enough. Such a scenario isn't very  likely, given that most research indicates the electric vehicles market is about to  experience tremendous growth over the next several years. Of course, the entry of traditional producers is a significant threat, as we discussed, firms like BMW,  Volkswagen and Daimler will undoubtedly enter the market as Tesla continues to release new models, there is no guarantee production difficulties would not  appear again. This is another threat. Finally, one has to consider tax incentives  for electric vehicles that are allowed in the US and around the world. At the  moment, governments subsidize electric vehicles through tax deductions and  other similar incentives in the US, for example, automakers are allowed to sell  up to 200,000 subsidized vehicles at the maximum incentive rate of $7,500 per  vehicle. Then incentives are halved to $3,750 per vehicle and so on. Although  people from the automotive industry have asked for these incentives to be kept  intact even after reaching the 200,000 threshold, US politicians seem reluctant  to do that. So discontinuing incentives for electric cars is another threat for an  electric producer like Tesla. Okay, perfect. I believe this wraps up our extensive  SWOT analysis in which we looked at Tesla's strengths, weaknesses,  opportunities and threats. Hope it was interesting for you, and thanks for  watching.