tesla-swot-analysis

Is Tesla Overvalued? Tesla SWOT Analysis In A Nutshell

Among the most recognized car manufacturers, Tesla is valued more than the combined market capitalization of GM and Ford. While the company’s direct distribution is a strength, its lack of financial viability is a weakness. Competition is a future threat. However, if Tesla defines a new market for car manufacturing its potential growth will be massive.

Tesla’s strengths

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Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
  • Strong brand: Tesla has been able in the last decade to become among the most recognized brand, also thanks to its rockstar CEO, Elon Musk. A single tweet from Elon Musk is worth more of a hundred press releases from major publications. And that helped.
  • Direct distribution: Tesla benefits from a direct distribution model, where the cars are primarily sold in its store or online, and thus Tesla is able to cut the middlemen, thus still able to offer the car at an attractive price (at least the Model 3).
  • Manufacturing: Tesla has been investing massive resources in building up its own manufacturing facilities, which will be the company’s most important assets for years to come.

Tesla’s weaknesses

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Tesla made over $24.5 billion in revenues, and it lost $69 million from operations, while its net losses were $862 million. In Q4 2019, Tesla turned a profit for the first time. And its main market is still the US.
  • Single-sourced supply chain: while the company still sources most of the components from multiple suppliers, there are still certain, important components that are single-sources. This is in part normal in the car manufacturing space. Yet Tesla tries to prevent the risk of being without the proper stock to assemble the cars by piling stocks of components that are single-sources.
  • Financially not viable: Tesla is still financially not viable, as, in 2019, the company generated a net loss. Yet the positive aspect is that for the first time in Q4 2019, the company generated a profit.

Tesla’s threats

  • Competition from leading brands: while Tesla is a recognized brand, it’s still a small player in a niche (electric cars) in the automotive industry. This makes Tesla easily attacked by dominating existing brands.
  • Lack of electrical vehicle adoption: Tesla is surfing the growth of the electric car industry growth. If that becomes an industry larger than the current automotive industry, then Tesla will be well-positioned for that. However, if that doesn’t happen Tesla won’t be as much value. And while the company can control part of this process, another part cannot be controlled.
  • Delays or other complications in the design, manufacture, launch, and production: if Tesla fails in its go-to-market strategy this can result in big, substantial losses. Therefore, the company will need to make sure to be able to reach its targets in terms of manufacturing and also in developing the proper capability for its manufacturing facilities.

Tesla’s opportunities

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Tesla has become among the most recognized car manufacturers. Although, players like GM and Ford delivered more than 2mln cars, compared to Tesla’s over 367K vehicles. Yet Tesla is valued three times more than the combined market capitalization of GM and Ford as the market sees the potential of a market that might become much bigger than the current one.

This huge market potential is reflected in Tesla’s valuation, and the company able to develop new products categories in the space can become a “price setter” where its products will be so much differentiated that the company might enjoy good margins for a long time!

Read next: Tesla Business Model

Read more: What Is A SWOT Analysis

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here