Tesla Inc.’s Analysis and Further Development

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Introduction

Business, irrespective of its forms and sizes, is always a highly competitive and cut-throat realm, where, in prevalent cases, only the superior manages to stay afloat and flourish. In this regard, to analyze the actual course of companies, entrepreneurs employ various financial, exploratory, and prognostic methods to detect threats, vulnerable points, opportunities, and new ways for confident progress. This paper aims at outlining SWOT and Porter’s Five Forces techniques and applying them to examining the current state of Tesla, as well as offering specific recommendations for further steady development.

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SWOT Analysis

SWOT (the acronym from strengths, weaknesses, opportunities, and threats) analysis is an instrument for strategic and management planning. It is widely used by organizations to evaluate core internal and external factors, actual performance, fresh initiatives, and future potential and build an appropriate strategy to win competitive advantage. The due approach to this analysis requires managers to focus on accuracy, facts, and real-life conditions and avoid gray zones and preconceived beliefs.

SWOT Analysis is a procedure that typically comprises four areas in two dimensions. In particular, strengths and weaknesses belong to an organization’s internal factors and characteristics, while opportunities and threats are the attributes of the external environment. Strong aspects present the areas where companies excel among rivals, including a vast loyal customer base, strong brand image, and unique technologies. Regarding weaknesses, managers should identify problematic points hindering organizations from running at an optimal level (Grant, 2020). High employee turnover rate, weak consumer awareness, capital necessity, or a high debt amount may be among these problems.

Opportunities imply investigating conducive external factors that can be exploited to the company’s competitive advantage to increase sales and market share. In contrast, threats are elements in the business environment, which can potentially inflict damage to organizations or their projects. Ongoing or possible wars, crises, natural disasters, and adverse climatic conditions, such as incessant rains or prolonged drought, are among factors that may impair business activity. Overall, considering internalities and externalities, entrepreneurs can gain a holistic picture regarding the chances of a planned venture to be successfully realized.

Porter’s Five Forces Analysis

Porter’s Five Forces (PFF) analysis is a framework that helps companies understand the competitiveness of their business environment or industry and elicit potential profitability directions. According to Porter, the competition state in industries directly depends on five fundamental forces: existing industry rivalry, bargaining power of buyers, the threat of potential entrants, bargaining power of suppliers, and the threat of substitute products (Bruijl, 2018). The aggregate strength of these forces defines an organization’s attractiveness, its competition intensity, and the profitability of a potential industry.

The first of the five forces requires an entrepreneur to define the number of competitors and their capacity to crush his or her company or projects. Significant numbers of serious contestants can reduce or even undermine a particular sector’s profitability through different measures, including service improvements, price discounting, and advertising campaigns (Bruijl, 2018). New entrants to the market a company targets also impact its potential for expansion. The power of suppliers concerns the possibility of how easily suppliers can influence the cost of inputs. Specifically, suppliers can threaten companies with rising prices of products and services, which can harm profitability. Simultaneously, customers’ power assumes the ability of buyers to drive prices, which depends on their number and significance (Goyal, 2020). Finally, the threat of substitutes implies the number of goods or services that can replace a company’s products. When the hazard is high, the company’s power can be noticeably weakened.

The Rationale for the Choosing Tesla

Tesla is an American manufacturer of electric vehicles and clean energy solutions founded by Martin Eberhard and Marc Tarpenning in 2003 and named after the famous electrical engineer Nikola Tesla. As of 2020, Tesla has reached the leading position in the electric vehicle industry, with its production capacity of nearly 500,000 vehicle deliveries and the highest five-year annual revenue growth rates (Wagner, 2021). Nevertheless, the company still faces considerable challenges since it has shown a net annual loss for the last six years and experiences pressing competition from fast-developing competitors (Wagner, 2020). Thus, it is worth examining Tesla’s weak points and potential prospects to promote further solid progress.

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SWOT Analysis of Tesla

Strengths

Tesla currently occupies the top niche in the electric automobile industry, leaving its competitors far behind. This position is stipulated by the company’s distinctive solutions, the primary of which is selling all its cars directly to consumers, not via dealerships. Furthermore, Tesla is a self-driving car technology and innovation leader, which enhances the market trust and broadens its customer base. The company has also developed a vast network of fast-charging stations, achieving over 20000 units (“Stay Charged,” n.d.). Finally, Tesla offers a comprehensive insurance program to its clients.

Weaknesses

Tesla has some serious drawbacks that need urgent and careful consideration. The first problem is a significant debt burden accounting for $14.7 billion in total, as of 2019, which may hinder future investments (“Tesla Inc.,” 2021). Another issue is that all of its automobiles are manufactured in one plant in California, producing additional costs when shipping vehicles to China or Europe. Besides, Tesla has some concerns with meeting consumer demands and production requirements.

Opportunities

As the recent decade has demonstrated, the electric car market is a highly developing sector, which will continue to grow because an incremental multitude of people become more environmentally conscious. Moreover, with technology improvement and governmental assistance programs, electric vehicles also become more affordable. Finally, Tesla has an increasing presence in Europe and China and plans to build factories in these regions, which will boost its car supply.

Threats

The production of electric cars is still costly, which adversely reflects on the price tag. Besides, established vehicle companies, such as Toyota, General Motors (GM), and Nissan, begin to sell electric cars at a lower price, which may slacken Tesla’s optimal growth. Another threat is Tesla’s image as an American car manufacturer, which can cause difficulties while invading foreign markets since consumers may prefer vehicles of domestic makers.

Porter’s Five Forces Analysis of Tesla

Industry Rivalry

In general, competition in the electric automotive industry is considered to be moderate but consistently growing because few companies presently possess adequate technological and production capacities to supply electric vehicles. Companies like GM, BMW, or Nissan have ambitious projects and exemplars that have not yet won market trust. Nevertheless, it is expected that everything may change in the next several years because rivals invest billions of dollars in this industry.

The Threat of New Entrants

Breaking into the electric vehicle sector is far from a simple task, especially for a start-up. For instance, it has taken Tesla billions of dollars of debt and above 15 years to reach the current position (McCain, 2019). Therefore, the possibility that another company will launch similar projects is immensely slim. However, it is more likely that China will assist its own start-ups in invading the market. The most considerable threat comes from powerful car companies, including Audi, Ford, or Fiat-Chrysler.

Bargaining Power of Buyers and the Substitution Threat

The influence of electric car purchasers is tremendous due to various factors, one of which is an expanding range of electrical car options offered by other competitors. Furthermore, car companies began to sell their electric vehicles at a lower price, encouraging consumers to switch to other rivals. Finally, car buyers are inclined to purchase and utilize only one car at a time, and they rarely prefer to buy a new car a second time. It is also worth noting that nowadays, drivers can use different modes of transportation, some of which are available, while others are on the verge of emergence. In this regard, gas-powered and hybrid vehicles are the closest substitute for an electric vehicle.

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Bargaining Power of Suppliers

Tesla cooperates with many suppliers that help produce its vehicles. Usually, in the automobile industry, car manufacturers have more influence on their suppliers, conditioning suppliers’ low bargaining power. This is because the latter are solidly embedded into the automotive supply chain, and parts are custom made for production, which thwarts selling them elsewhere. However, Tesla may face pressure from the manufacturers of electric batteries, which have exclusive control for their price and alter it depending on conditions.

Conclusion

In summary, the findings show that the company occupies an influential and prominent position in the electric vehicle industry and possesses substantial potential for swift progress. Finally, SWOT analysis has many advantages, including simpleness in use and understanding, applicability in all business levels, from departments to corporations, and high interactivity. Nevertheless, the given framework contains some flaws, such as disregarding core principles and the likelihood of data use distorted by biases, hearsays, and overgeneralization. Regarding Porter’s Five Forces analysis, the utility in examining the external environment and organizations’ potential to grow and developing a marketing strategy that meets market challenges are among its edges. However, the method does not consider non-market forces, it lags behind the rapid pace of market changes and scientific advancement, and the milieu exploration is inadequate.

References

Bruijl, G. H. T. (2018). The relevance of Porter’s five forces in today’s innovative and changing business environment. BizChange Strategy Consulting Ltd. Web.

Goyal, A. (2020). A critical analysis of Porter’s 5 Forces model of competitive advantage. Journal of Emerging Technologies and Innovative Research, 7(7), 148-152. Web.

Grant, M. (2020). Strength, weakness, opportunity, and threat (SWOT) analysis. Investopedia. Web.

McCain, C. (2019). A strategic audit of Tesla, Inc. Lincoln: Honors Theses, University of Nebraska.

Stay Charged. (n.d.). Web.

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Tesla Inc. (2021). Web.

Wagner, I. (2021). Tesla – statistics & facts. Statista. Web.

Wagner, I. (2020). Tesla’s net income/loss from FY 2014 to FY 2019. Statista. Web.

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