Tesla, Inc. is by far one of the most well-known companies in the world. As a testament to this fact, the mention of the name is more likely to conjure up images of its eccentric CEO and electric vehicles than Nikola Tesla, the famous inventor. How did the brand achieve such massive success? In this article, we’ll take a look at the Tesla SWOT analysis to help us fully understand what is lurking beneath the hood of this enigmatic, but highly successful tech giant.
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A Brief Look at the History of Tesla
While Elon Musk may not have founded Tesla, Inc (originally Tesla Motors), he was the driving force behind what the company has become today. Initially starting as a company that specialized in producing premium sports cars, Musk saw the potential for the technology that was being developed. Their first product, the Roadster, was revealed in 2006 and was their only product for several years.
In 2010 the company purchased a factory in California and began the production of its next vehicle, the Model S. The company also went public that year via an initial public offering (IPO) on NASDAQ, becoming the second automaker in history to achieve this after the Ford Motor Company. After several rounds of funding from private investors — as well as a generous loan from the U.S. government —, the company rolled out the Model S in 2012, while quietly discontinuing the Roadster.
From there, the company continued to expand into various other tech sectors, such as announcing the Tesla Autopilot system in 2014, a driver-assistance system, as well as investing in electric batteries and energy storage through the Tesla Powerwall, which was launched in 2015. The company also entered the solar panel business after a $2.6 billion acquisition of SolarCity in 2016.
The company launched its fourth electric vehicle, the Model 3 sedan, in 2017 as a cheaper alternative to its previous products. From there, the company has only continued to grow in scale and scope, building its first large-scale factory outside the United States (called a Giga factory), located in China. By 2020, the company had surpassed all other American automakers, and, just six months later, had surpassed the combined valuation of industry giants such as BMW, Volkswagen, and General Motors. Despite claims that the company was significantly overvalued, in 2022, Tesla became the sixth company in the U.S. to reach a $1 trillion valuation.
Tesla Strengths
Let’s take a look at some of the factors which make Tesla, Inc. one of the most valuable companies in the world.
Impressive Hiring Strategy
Musk has always been a CEO who prioritizes talent and experience over academic credentials, and this shows in how Tesla hires its employees. However, having this vision and being able to employ it as an effective hiring strategy are two different things.
To achieve this, the company has developed a somewhat unconventional yet effective two-step hiring process. The first step resembles the traditional interview process used by most recruiters, but emphasizes experience in relevant fields over academic credentials. Applicants who pass the first stage then move on to the second phase of hiring, which involves practical sessions which test the hands-on abilities of each candidate.
There are several advantages to this strategy. First of all, in highly technical fields such as engineering, experience is more highly valued than theoretical knowledge and leads to more productive workers. Also, by hiring staff with hands-on experience in these areas, the amount of time and money spent on training them is significantly reduced. This allows Tesla to hire the very best at the least cost.
Strong Brand Value and High Market Capitalization
As of when this article was written, Tesla had a total market capitalization of $547 billion, making it the seventh most valuable company in the world. Though this is roughly half its peak value of $1.06 trillion in 2021, the company is still a safe investment, and most investors see strong long-term growth potential. The Tesla brand is also quite valuable, valued at $76 billion in 2023, nearly twice its 2022 valuation.
Several key factors are driving both of these figures.
- The company is considered a good investment for risk-tolerant investors;
- The brand represents the future of fully autonomous driving;
- Tesla has always been at the forefront of a wide range of technological innovations; and
- It has a strong competitive advantage and market dominance over even its closest industry rivals.
A Phenomenal Organizational Structure
While Elon Musk has been criticized for some of his less-than-conventional leadership methods, one cannot deny the positive effect he has had on the Tesla organizational structure. Officially, the company practices a mixture of functional and divisional organizational structures, though it is also well-known for its internal flexibility.
Several factors could be said to contribute to the success of Tesla’s unique hierarchical structure, such as the hands-on approach promoted by Musk, as well as several unorthodox rules he enforces. These include:
- Avoiding frequent and unnecessary meetings;
- Exiting a meeting once you no longer add or receive value from the gathering; and
- Avoiding rigid and cumbersome communication channels.
Unique Brand Positioning and Superb Marketing Strategy
Tesla is not only one of the most valuable brands in the world, but also one of the most unique. Serious debates still rage on over whether the company is an auto manufacturer which dabbles in technology or a tech company that makes cars. With the expansion of the company into secondary markets such as solar energy and electric batteries, it seems to be tending towards the latter.
Irrespective of the answer to this question, the company has positioned itself as the face of the future of the auto-industry and sustainable technology, both within the U.S. and worldwide. This is truly amazing when you consider the fact that the company spent virtually nothing on branding and marketing, rather letting its reputation speak for itself.
Strong Innovative Capacity
Tesla has also built a reputation for itself as a powerhouse for innovation and an early adopter of groundbreaking new technology, especially in the areas of green energy. Some key examples include:
- Their range of mid-to-high-end electric vehicles, which are some of the best in the industry;
- Supercharging stations that offer rapid charging times and make long-distance transport with electric vehicles not only feasible but convenient;
- The Tesla Solar Roof, which allows users to reduce their carbon footprint while also tapping into the limitless abundance of solar energy;
- The Tesla Powerwall can be installed into users’ homes and allows them to store energy either from off the grid or via solar panels; and
- The revolutionary Tesla advanced driver-assistance system (commonly known as Tesla autopilot) may be the first step in achieving truly driverless vehicles.
Almost Near-total Market Dominance
Despite the fact that Tesla has a higher market capitalization than popular automakers such as General Motors, Toyota, Ford, Volkswagen, and so on, it does not produce nearly as many vehicles as they do. However, in the area of electric vehicles, Tesla by far outpaces all its competition, establishing itself firmly as the top manufacturer of electric cars anywhere in the world. The company sold over 900,000 electric vehicles in 2021, with the Tesla Model 3 being its most popular product.
Its Charismatic CEO
Even though Elon Musk has been so much of a polarizing figure in recent years, it is impossible to deny his revolutionary vision and transformational leadership style which has helped him build one of the most successful companies in history, as well as achieve the status of being the world’s richest man.
In the opinion of numerous analysts, Musk is one of the driving forces behind the popularity of the Tesla brand and the confidence of investors and consumers alike in what the company represents. Despite the challenges thrown at him (both business-wise and technologically), he has been able to overcome many of them through a mixture of visionary leadership, impeccable work ethic, and an almost manic obsession with achieving his objectives.
Shift In Consumer Sentiment Towards Greener Technologies
Tesla has been able to capitalize on the general shift in market sentiment toward developing greener technologies such as electric vehicles, solar roofs, and electric batteries. This has allowed the company to make this an integral part of what their brand represents, code for the present and future.
Tesla Weaknesses
Despite all its strengths, there are still some areas the company is lacking in. They include:
Frequent Manufacturing Delays
Despite the large number of highly skilled individuals who work for the company, as well as their innovative technology and revolutionary manufacturing process, Tesla is commonly plagued with frequent manufacturing and distribution delays. This is likely because the company deals with the production of highly sophisticated technologies which have a diverse supply chain network and complex logistics.
This issue is commonly seen with their range of electric vehicles, with the company being mandated at certain times to stop taking orders for new deliveries due to multiple supply chain delays. The Tesla Solar Roof is also not immune to this issue, delaying installations for months.
Setting Overly Optimistic Targets
Even though the Tesla brand is known for regularly producing revolutionary technologies, they have at times been accused of being overconfident and even outright deceptive by promising technologies which are not ready or which simply do not exist. For example, Musk has been caught promising battery capabilities that were found to be inconsistent with the laws of physics.
Other times the company has had to backtrack from claims such as fully self-driving cars, their failed attempt at fully automating their production process, numerous delays with the much-awaited Tesla semi-truck, and of course, the controversial Tesla bot. These controversies only serve to dent the company’s reputation and reduce its reliability to investors.
Unusually High Employee Turnover Rate
Despite the effectiveness of Elon Musk’s leadership strategy and his ability to spot talents, his tendency to prioritize results and profits over the well-being of his staff as well as his somewhat abrasive nature, have led to an unnaturally high employee turnover rate, especially amongst executive staff. Some workers have even gone so far as to describe Tesla workshops as sweatshops and abusive, with the average employee spending just 3.7 years with the company.
According to MarketWatch, the executive turnover rate of the company was estimated to be about 27% in 2019. While this was found to be higher than the 15% cohort average, it was not abnormally high when compared to figures found at several other top tech companies. However, the executive turnover rate of staff reporting directly to Musk was found to be 44%, much higher than the industry average of 9%. This shows that Musk has a penchant for letting go of employees who displease or disappoint him, even to the detriment of the company.
A Controversial Chief Executive Officer
Musk is undoubtedly an integral part of the Tesla brand and projects the image of a visionary CEO dedicated to driving the world toward a better future (literally and figuratively). However, this does not come with certain drawbacks.
A string of recent controversies has put Elon Musk and, by extension, his company in the limelight for the wrong reasons. His $44 billion takeover of tech giant Twitter, recent controversial political views, and several lawsuits from both investors and consumers are starting to convince a growing number of people that a prominent CEO may not be the best thing for a public company. Despite the general slump in the tech industry towards the end of 2022, many shareholders view the recent controversies and distractions surrounding its CEO as an important factor behind Tesla’s losses.
The Cost of Their Products
Tesla has positioned itself as one of the foremost drivers of future technology. The prices the company charges for its products show that the future certainly isn’t cheap. Despite the fact that Musk has claimed that the ultimate aim of the company is to make sustainable technologies such as electric vehicles affordable to a broader range of buyers, the base models of their cars are sold for between $43,990 to $129,990, a significant investment for any buyer.
There are several key factors behind the high prices the company charges for its products. For example, the cost of the electric batteries within the car makes up more than 50% of its cost. Also, despite being one of the most prolific sellers of electric vehicles in the world, the company has struggled to keep up with demand for its products, further exacerbating the problem of high prices.
Restricted Output Leading to an Inability to Meet Demand
As we mentioned earlier, Tesla has a hard time keeping up with the demand for its products. This leads to frustratingly long waiting times for buyers, as well as seemingly artificially inflated prices. While some people consider this to be a deliberate strategy to create a sense of exclusivity around their products, it may end up backfiring as other companies ramp up production of electric vehicles and similar technology, giving consumers a cheaper and more accessible alternative to Tesla products.
Another similar issue the company has struggled with is the limited line of products they offer, especially with regard to its electric vehicles, which function as its flagship technology. The company only offers four basic models of electric vehicles plus a semi-truck. This is quite unusual within an industry where most companies pride themselves on being able to provide a vehicle for nearly any type of buyer.
Open-Source Patents
In contrast to most tech companies, Tesla has been famous for using open-source patents on a wide range of its technologies. While there may be several advantages to the strategy, such as being able to capitalize on any improvements that third parties make to existing Tesla technology, there are drawbacks as well, such as Tesla losing exclusive proprietary rights to innovations it invested heavily in producing.
Tesla Opportunities
Let’s explore some areas the company could invest in, in order to further expand its dominance in the market.
Introducing Its Products to New Markets
While the sale of electric vehicles has risen astronomically over the last few years, in many parts of the world, they are still vastly outnumbered by traditional fossil fuel-driven automobiles. This cruise has been driven mainly by seals in Europe and China, with the United States representing a surprisingly low percentage of new electric vehicle sales.
Therefore, the company can significantly improve its customer base by investing heavily in promoting the sale of electric vehicles in regions like the United States as well as other regions like Asia and Africa.
Improving the Affordability of Their Vehicles
While Tesla cannot bear the entire blame for the high price of their products, the company can make significant strides in reducing this cost for customers. One way of doing this is shifting the company image away from a brand selling high-end electric luxury vehicles to one offering a broader range of products to a more diverse consumer base.
Suppose the company wishes to maintain its dominance in the electric vehicle market. In that case, it may need to consider this seriously as it has to contend with both cheaper fossil fuel alternatives offered by well-known brands such as Toyota and General Motors, as well as other electric vehicle manufacturers who are focused on rolling out a line of affordable electric vehicles. To his credit, Musk has identified this issue and promised to roll out a $25,000 Tesla model. However, plans for this mid-range price electric vehicle have failed to materialize.
Improving Their Autonomous Driving Technology
The promise of driverless technology has always been one of the primary value propositions of the Tesla business strategy. Even though the company initially set some overly optimistic goals with regard to its advanced driver-assistance system, the company rolled out a full self-driving beta program in 2020.
While this is an obvious success for the brand, it was not without several controversies, such as using untrained consumers as “test subjects’’, several issues with the software which were uncovered during testing, and backlash when independent studies showed that the autopilot system was not as safe as the company had initially claimed. While a lot of this controversy has died down and significant improvements have been made to the technology, being the first company to provide truly driverless vehicles would be an accomplishment that would further establish its dominance in the market.
In-house Battery Production
Despite what most people believe, Tesla vehicles and many other products are not manufactured from scratch within the warehouse. Third-party tech companies produce many vital components before being incorporated into Tesla products. Among these include one of the most vital components of any Tesla product…the battery.
Of course, by outsourcing several vital components of its supply chain, the company is exposing itself to an increased risk of supply chain disruptions and delays, something for which they already have a negative reputation. Therefore, by making batter production in-house, Tesla will be able to achieve better control over the essential components of their manufacturing process.
Maintaining Its Reputation as the Champion of Innovation
Tesla has always been at the forefront of innovation and the development of new technology. A significant portion of its brand image is leveraged on its position as the champion of innovation. This means that the company must continue striving to ensure that it remains in this position through the collective efforts of its leadership, strong financial backing, and a large pool of talented workers.
Supporting the Shift Towards Renewable Energy
Many prominent companies are making a concerted effort to shift their manufacturing process and business practices towards a more sustainable model. Tesla is a radio company well known for supporting this trend. However, it can still do more by using its high brand equity and unique selling proposition to position itself at the very forefront of the drive for a green future.
Tesla Threats
Let’s examine some of the potential challenges to the Tesla business model.
Increasing Competition from Other Top Automakers
Tesla is certainly not the first company to invest in the electric vehicle market. Still, it is the first to capture the attention of the general public. This unique brand position, plus the technological advances the company has historically had over other manufacturers of electric vehicles, has helped Tesla sell its closest competitors for years.
However, with the entry of other automaker giants such as Ford, Chevrolet, Hyundai, and Kia, Tesla has started losing some of its market dominance. The company still outpaces other electric vehicle manufacturers in terms of pure sales. Still, the question has started creeping in about how long it can maintain this advantage in the face of rising competition, growing customer dissatisfaction, and cheaper alternatives to its products.
The Distraction Posed By Its Very Prominent CEO
Elon Musk is, without a doubt, a crucial part of the Tesla success story, as well as one of the core pillars of its brand image. However, recent events may suggest that having such an outspoken CEO with celebrity-like status may be detrimental to the business in the long run.
An increasingly large number of investors and even customers are suggesting that Musk step aside. At the same time, the company employs a more traditional CEO who will work behind the scenes to steer the ship straight. In response to this, Musk seems to have taken a step back from the limelight, but if history is to suggest, it is only a matter of time until he finds himself embroiled in another public controversy.
The Uncertainty Surrounding Rare Earth Metals
Every industry has to deal with supply cuts and constraints which are unique to its manufacturing process. In regard to electric vehicles and solar panels, (two of Tesla’s primary products), rare earth metals like cobalt, nickel, and neodymium are some of the most vital components of these technologies.
Supply shocks, trade wars, and wild fluctuations in pricing may pose a significant risk to the ability of tech companies to obtain these materials. Tesla is not immune to the supply shocks and recent trade wars between the United States and China (which represents the source of a large percentage of these raw materials in terms of mining and processing), which constitutes a significant threat to the continued supply of these raw earth metals.
The Legal Intricacies of Self-driving Vehicles
While the thought of driverless cars may seem exciting, it is still a novel and largely untested technology. Like virtually all new forms of technology, it will need to be thoroughly tested, vetted, regulated, and most importantly, the legal ramifications must be fully understood. Concerning this last point, there are specific legal issues concerning the widespread use of electric vehicles. These include:
- Testing the capabilities of these vehicles in critical situations. Obviously, driverless cars have been designed to deal with a variety of crises. However, testing these contingencies in real-life situations may involve endangering the lives of test subjects;
- Setting the standards for driverless car safety. Most proponents of driverless cars quote figures stating that they are a safer alternative to current vehicles. However, no consensus has been made regarding what level of safety is required before mainstream adoption of this technology can be encouraged;
- Most conventions are not prepared to deal with driverless vehicles. The various legal conventions which outline international law regarding driving regulations, such as the Geneva convention, were designed based on the assumption that people would drive all vehicles. Therefore, there is no international law regulating the use of self-driving cars;
- Determining civil liability. In a situation where a driverless car causes damages while fully autonomous, the manufacturer will likely bear the associated civil liabilities. However, if the driver was in control of the vehicle, they would be held liable. Therefore, determining the level of autonomy at which the manufacturer or the driver will wear liability is quite important;
- Determining criminal liability. In the same manner, it is important that a consensus is reached regarding the liability of both the driver and the manufacturer when it comes to criminal offenses such as reckless driving. It should be expected that in the fully autonomous mode that this liability will be borne by the manufacturer, except in cases of hardware or software tampering by the driver;
- The issue of insurance. Discussions will need to be had concerning how insurance claims, as well as vehicle insurance, will be handled between the driver and the original manufacturer of the vehicle. Also, it is to be determined by how self-driving technology will progress, either as fleets of publicly or privately owned vehicles;
- User data protection and privacy. Data protection and use your data privacy or key issues which have been in the limelight for several years. How tech companies handle their users’ private information has serious legal, moral, and safety ramifications. Therefore, these issues will have to be properly dealt with before driverless vehicles can achieve widespread adoption;
- Cybersecurity. Cybersecurity is one of the primary concerns of fully autonomous vehicles. If the software controlling one or more vehicles is compromised, it could lead to significant harm, including a potential loss of life and property. It can also become a matter of national security in the event of widespread cyberattacks involving hundreds or even thousands of vehicles.
Changing Government Policy and Public Opinion on Green Energy
While the general consensus has long been reached about the need for the world to shift towards more sustainable forms of energy, such as renewables and the use of electric vehicles, certain global shocks have caused both governments, citizens, and even corporations to reconsider the exact manner through which the schools will be achieved.
Many of the technologies developed and distributed by Tesla are heavily subsidized and supported by various government programs targeted toward promoting green technology. Shifts in public sentiments may lead to a significant drop in funding and support for these projects, ultimately harming the company.
Conclusion
From niche automaker to technological innovator, the journey of the Tesla company has been anything but straightforward. Marred with both breakthroughs and scandals, the company has risen against all its obstacles to become the undisputed market leader in the electric vehicle industry, as well as a force to be reckoned with in other forms of sustainable technology. Only time can tell what the future holds for the company; however, it is safe to say without a doubt that Tesla (just like the famous inventor for which the company was named) has forever left its mark on the world of tech.