Tesla Swot Analysis
Essay by Veeronica22 • May 22, 2019 • Case Study • 4,514 Words (19 Pages) • 1,420 Views
Executive Summery
The US is steadily moving towards becoming more energy and environmentally friendly. As concern for the environment grows so does the EV market. Tesla has already changed the car industry with their innovated R&D which is incorporated into their entirely EVs. With their cool and functional tech features and stylish design Tesla’s brand stands out from the rest. Tesla’s investment in infrastructure and vertical integration is priming them to be the leaders in EV and take over a large portion of the newly emerging EV market. However, their main weakness is their production and manufacturing. Tesla will need to focus on this weakness in order to become profitable in the near future.
Background
External Factors
Some of the external factors that is affecting the US auto market are social pressure from consumers to be more gas efficient and environmentally friendly. The government is also encouraging consumers to purchase EVs with tax break incentives. Additionally, the government is giving tax breaks to auto manufactures who are reducing their carbon emissions. Lithium supplies are increasing but the many of the supplies are coming from countries with tumultuous governments like Venezuela, or from countries that may soon have tariffs attached like China. This can create large fluctuations in lithium supply prices.
Internal Factors
Tesla’s strengths include their technical innovation that is always on the cutting edge. Their brand loyalty is like no other in the car industry. Tesla is the only car manufacturer in the industry that is investing large amount of money into building a sustainable infrastructure around their EVs. However, while Tesla is breaking new ground with their unique features and sales tactics, their main weakness remains their production and manufacturing of their vehicles. Being such a new company, they have yet gained the know-how on efficient manufacturing. They are still in their infancy as a company and will hopefully continue to learn as they develop.
Criteria
The main criteria that I focused on when choosing which strategies to peruse was the ability to increase profitability and sell more cars. Consumers who know about Tesla are excited about what the company is doing in regard to changing the status quo from ICE to EVs, the innovated technology, and stylishness and image the vehicle provides to customers. In order for Tesla to continue its goals of making EVs the new norm, the company will need to begin making a profit and turn out vehicles quicker. People can’t become loyal to the Tesla brand if they cannot get their hands on one.
The second criteria I focused on was differentiation. Tesla’s state of the art features places Tesla ahead of its competitors, with features like over their air updates, auto pilot, and having the longest-range battery. With production not at its most efficient, Tesla is not currently able to compete on price, but with its strength in R&D it can compete with differentiation, and is currently doing so.
The third criteria, was how well Tesla was focused on its core competence of using R&D in order to bring more energy efficient vehicles to the masses. With climate change on most consumers’ minds, the EV market is just beginning to broaden and Tesla is in the perfect position to take up a large portion of that market.
SWOT analysis Strategies
WO (1,1) Refine manufacturing and production skills and know how in order to take larger market share of EVs. This is so important for Tesla because this is what will make Tesla profitable.
Tactics w/ metrics:
- Produce 6,000 cars a week by 2020.
- Implement better safety protocols with factory workers to reduce mistakes and injury, to increase profitability. Reduce injuries by 20% by 2025
- Increase R&D for robotics to replace workers in factories to increase efficiency in factories.
SO (1,1) Use innovation to make Tesla vehicles more attractive by removing negative stigma of EVs to entice car shoppers to choose Tesla vehicles. Removing the stigma to buying EVs will sell more cars for Tesla.
Tactics w/ metrics:
- Conduct surveys of consumers to learn what prevents people from buying EVs. Conduct survey for one year. Compile list of reasons, and set out strategy to fix top 2 reasons consumers give for avoiding EVs.
- Create fun features that are more associated with entertainment, which enhances the EV driving experience. Partner with apple to make it easier to listen to music in the vehicle. Create better voice activation features to allow for hands free texting and calling. Partner with yelp, to help find highly rated restaurants or bars that are close by.
- Lower price of vehicles to open market up to more consumers to gain larger share of the market. Increase market share by 15% by 2035.
SO (2/3,2) Further invest in infrastructure to promote energy efficient cars and make Tesla synonymous with environmentally consciousness. The more Supercharge stations around the US the more Tesla is connected with being the leader in environmentally friendly innovation.
Tactics w/ metrics:
- Partner with hotels and gas stations to increase number of super charge stations around North America, especially on popular interstate highways. Increase Supercharge stations by 20% by 2035.
- Send Tesla reps to Universities to promote importance of reduce carbon and tout all the ways the Tesla is revolutionizing the auto industry. Younger consumers are more receptive to environmental issues and can create brand loyalty at a young age.
Exhibit 1 PEST Analysis
Political
- Government subsidies and increasing concern with climate change
- Implications: subsidies will decrease the cost of manufacturing EVs.
- Governmental concerns over self-driving vehicles.
- May hinder innovation of self-driving cars.
- New regulation could limit or ban self-driving cars
Economic
- Economy is growing and employment rate is relatively low.
- May push consumers to purchase a $35,000 EV.
- Tariffs between China
- Many products come out of China, which could increase cost of vehicles for auto makers who ship product out of China.
- Gas prices could rise
- Higher gas prices may push consumers toward EV.
Socio-cultural
- Increasing awareness of carbon footprint
- Consumers may be more interested in purchasing an EV.
- Millennials have the highest buying power and are hyper-focused on eco-friendly living.
- Emphasis on environmentally friendly aspect of EV likely to increase purchases with Millennials.
Technology
- Technology is evolving rapidly.
- New features increase interest in EV. Such as self-driving features.
- Safety features increasing.
- Consumer more likely to purchase a car with state of the art safety driving features.
- Better technology creates longer range battery.
- This removes the barrier of long distant driving with EV.
- Consumers more likely to purchase EV if they can travel across the country.
Exhibit 2: 5F Analysis
Compared Against: Other Auto Manufactures in the U.S.
Porter’s 5 Forces Analysis For the automotive industry, electric vehicles, and Tesla | |||
Context/Logic | H/M/L | Implications | |
Rivalry | 1. Are there many competing firms? Yes. In the auto industry generally (Volkswagen, Toyota, Renault-Nissan, Hyundai-Kia, General Motors), and within the EV market segment specifically (Chevrolet, Toyota, Nissan) (Paul), (Inside EVs) 2. Are competing firms of similar size and influence? No. Tesla’s primary competitors within the auto industry are all bigger, older, and more influential. Volkswagen topped the industry with total sales of more than 10 million cars last year (Paul). Tesla is more appropriately described as a disruptor in the industry, causing the bigger and more influential firms to adjust their business models based on Tesla’s actions. 3. Is industry growth slow? No. Demand for electric vehicles is high, and Tesla has been unable to supply enough electric vehicles to meet consumer desires. The Chevy Volt was the first widely sold all-electric vehicle to market, but lagging sales initially indicated to other traditional ICE vehicle manufacturers that the EV market was only a niche, with limited customer demand. Tesla proved that assumption wrong when it was first to market with high-end performance vehicles that are also fully-electric. Tesla’s Model S has generated so much customer demand that many car manufacturers now believe it’s imperative to begin introducing their own EV models, as indicated by the number of firms (13) that have entered the market since 2012 (the year the Model S launched), and the various car models they’ve introduced (Inside EVs). 4. Is there a lack of product differentiation in the market? Yes. Electric vehicles available at the low- to mid-range price point (Chevy Volt and Bolt, Nissan Leaf, BMW i3) all provide similar design, styling, and features to one another. High-end vehicle manufacturers that provide a hybrid or partial electric capability are slightly differentiated, but no company other than Tesla provides a high-end all-electric vehicle. Tesla has the most distinct, unique vehicle in the electric vehicle segment of the automotive industry. (Trefis Team, Great Speculations) 5. Has productive capacity been added in large increments? Across the industry, productive capacity to create new cars has been increasing at a slow rate. The same is true within the EV segment as traditional ICE vehicle manufacturers enter the EV segment. Tesla has been the primary driver within the EV industry in providing large increments of production capacity by first using the Fremont facility to manufacture the Model S, and now creating the Gigafactory in Nevada to support Model 3 production, as well as building other infrastructure that supports their all-electric vehicles. (Baker) |
| 1. Because there are so many auto manufacture in the industry, there is high competition and potential for rivalry. 2. Compared to others in the industry, especially industry leaders, Tesla is a very small firm. This is a high threat because the bigger auto makers have the infrastructure and financial backing to begin taking up more of the EV market. Within the EV segment specifically, however, Tesla has been able to build a strong position both in terms of brand and product quality relative to others in the segment. 3. Demand for Tesla vehicles is driving growth across the EV sector. Tesla is more influential and enjoys higher brand loyalty, customer value, and excellent social perception than is typical for a company of its size. The firm is perceived as providing products that convey higher social status on customers. 4. Tesla doesn’t have many direct rivals within the EV automotive industry because no other firm is doing what Tesla does. Tesla is differentiated by luxury and performance features, combined in a fully-electric vehicle. 5. Other larger automotive companies have been slow and cautious to invest in new infrastructure, or to create vehicles that require new infrastructure support. Mercedes (Daimler) is the only company that appears to be interested in creating new battery factories in the same way Tesla already has, but construction of those facilities still hasn’t even begun. (Moon), (Korosec) |
Threat of Entry | 6. Economies of scale are a significant barrier to entry in the electric vehicle market. Tesla has been producing the Tesla Model S since 2012, and the Model 3 in 2016. Tesla still hasn’t achieved economies of scale with their Model 3, but the recent ramp up in production volume is a good sign that Tesla’s cost per vehicle will begin to decrease significantly. 7. Product differentiation is a high barrier for new entrants into the car market because there are so many different types and styles of vehicles across a broad range of prices. Entrants to the EV segment face significant barriers unless they’re already well-placed in the overall automotive industry. The specific EV segment is less saturated, but already populated with a broad range of models, from the Chrysler Pacifica mini-van made by Fiat Chrysler America (FCA) to the Porsche Cayenne S-E made by Volkswagen Group. BMW has introduced SUVs and sedans, Audi hybrid-electric sedans and wagons, the Fiat has the Fiat 500, and Tesla has the Model S and Model X. As more ICE manufacturers begin to introduce new electric vehicle models competition will become stronger. 8. Cost advantages independent of scale - Proprietary tech: this is a high barrier for new entrants, as Tesla already has a significant advantage in this area. - Know-how: Tesla is the market leader in know-how and experience in creating battery-powered fully-electric vehicles. Entrants to the market are unlikely to be able to replicate or exceed Tesla’s capacity in this category. - Favorable access to raw materials: The market for car parts is dominated by car manufacturers leading the automotive industry; the market for batteries is significantly restricted to new entrants based on the competition that already exists between auto manufacturers to enter the EV market segment, and access to the materials for creating batteries is likewise restricted based on the scramble for natural resources (nickel, graphite, lithium, cobalt, etc.) by companies trying to create batteries to meet demand. 9. Government regulation or entry is a high barrier for new entrants based on safety and production regulations, and other industry standards that are already in place for existing car manufacturers. |
| 1. Barriers to entry are high because creating infrastructure to manufacture electric vehicles, and all of the supporting infrastructure for them to function conveniently, is so costly. 7. Tesla is only focused on electric vehicles, where rivals are straddling the industry between electric and gas. Tesla’s strong brand loyalty is also a high barrier that provides an additional shield against new entrants. 8. Tesla’s proprietary tech and know-how based on their production processes, software technology embedded in their vehicles, as well as their ability to transmit over-the-air updates to improve vehicle efficiency and performance, is already unmatched in the industry. This is a key strength of their business. (maybe a core competency?) 9. A new entrant to the market will have to invest significant capital into meeting standards and regulations requirements before it can introduce a vehicle that might compete with Tesla. |
Threat of Substitution | 10. Are good substitutions available? a. - No. There is no other battery-powered, fully-electric car that provides the range, high-performance, and comfortability that Tesla’s cars do. (Exhibit 3) b. - Rideshare and public transportation could pose a threat as a substitute. People choosing to forego car ownership altogether are more likely to be in Tesla’s target demographic. 11. Do substitutes have better/comparable features? No. Tesla cars are unique in their design, styling, features, technology, and cultural appeal. 12. Do buyers have low switching costs? No. Tesla is the only option currently available for buyers who want a stylish, comfortable vehicle that only uses batter power. Anyone who wants to buy a battery powered electric vehicle must make a choice. They can choose a small, poorly designed car with limited features that has a range that is almost comparable to a Tesla. Or they can spend significantly more to buy a luxury vehicle that provides an extremely limited range when it operates in fully-electric mode. | L | Tesla’s advantage in software and autonomous driving make it one of the few car manufacturers positioned to potentially enter the rideshare market with its own autonomous vehicles in the near future. There weren’t many (any) substitutes for the Model S in the luxury market. Now that Tesla is entering a lower price point with the Model 3, there are potential substitutes based on price, but those models can’t match the features of the Model 3. |
Threat of Suppliers | 13. Is the supplier’s industry dominated by a small number of firms? No. There are at least 25 firms in the business of creating batteries for electric vehicles globally. (Electric vehicle battery, 2018) - Tesla is in partnership with Panasonic producing batteries at the Gigafactory in Nevada. - Ford, Chevy, Hyundai, Volvo, and Renault are all in partnership with LG Chem. - Ford and Honda each have a partnership with Sanyo. - BMW and VW both partner with Samsung - Toyota has created a joint venture to create the PrimeEarth Energy Co, to produce batteries. - Nissan partners with NEC - Daimler and Ford each partner with Johnson Controls There are many firms, and they’re all competing for business with the car companies to find markets for their batteries to go into EVs. 14. Are suppliers selling unique/highly differentiated products? No. Car parts and the batteries for EVs are all mostly made from the same materials, and in largely the same manner. 15. Are suppliers threatened by substitutes? Yes. Both within the larger car parts manufacturing industry, and in the battery making business. Because of low differentiation from one battery maker to another, there is a risk of commoditization within the battery producer’s market. 16. Is there a threat that suppliers will vertically integrate forward into the car/EV market? The threat is very low. Nothing is impossible, but it would be very difficult and time consuming for any supplier (even Tesla’s partner Panasonic) to enter the market with a car of their own that might be able to compete with Tesla. 17. The biggest threat to Tesla under this category, is the fact that Tesla source some of their materials from a select few suppliers, sometimes even from only one supplier. | M | Tesla’s batteries already provide significantly better performance compared to competitors, both in the short-term and over a longer battery life. They must pursue strategic actions that allow them to continue to dominate this facet of their industry. As stated above regarding the threat of rivals, Mercedes (Daimler) is the firm that appears most likely to challenge Tesla in this area by creating new battery factories in the same way Tesla has. (Moon) (Korosec) |
Threat of Customers | 18. Buying power is low. Differentiation is high for Tesla. For the Model S and Model X vehicles, price sensitivity was not an issue because the target customers were affluent car purchasers interested in the latest technological advancements. With the production of the model 3, it is much cheaper and is comparable in price to most new vehicles. Thus, this target audience has more buying power because there are many more cars to choose from at this price point. Tesla’s strength is its strong differentiation. The Model 3 customers may be more price sensitive. | L | Tesla’s vertically integrated supply chain, manufacturing processes, and sales models all work together to insulate the firm from threats posed by customers seeking to become new entrants into the EV market. |
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