Tesla is the leading electric vehicle firm in the United States. Headquartered in Palo Alto, California, Tesla was the US’s largest Electric Vehicle(EV) provider with over 79%of the market share1.
Tesla recorded a revenue of USD $10.389 Billion in Q1 2021, an increase of 74% over the previous quarter. It also recorded a profit of USD $2.215 Billion in the same quarter, an increase of 79% and also its highest ever quarterly profit. Tesla delivered a total of 184,877 vehicles, an increase of 109% over the previous quarter2. The US automobile market witnessed a decline of 15.83% in FY 203. However, it is expected to bounce back sharply in FY 21. The EV sector on the other hand witnessed a growth of 11.1% in 20204, indicating a strong future growth trajectory for Electric vehicles. In the past few years, many traditional automotive manufacturers have upped their EV R&D and launched similar products into the market. It remains to be seen whether Tesla can still maintain its monopoly even after direct competition.
Environmental Analysis (Exhibit 1)
The demographic trends point to increased ownership of Teslas among high-income groups. Tesla Model X owners had an average household income of $143,177 per year and that of model S owners was even higher at $153,313 per year. The median age of a model S and X owner was 54 years5. This shows significant interest in Tesla even among the middle age groups. From a socio-cultural point of view, the population has become more environmentally conscious. With over 83.4% of a survey population taking steps to be environment friendly and 77% wanting to learn more about living sustainably.6 Elon Musk, the CEO of Tesla, has the image of an innovator which in turn gives more spotlight to Tesla.
The Tech landscape has been evolving and customers have welcomed electronic improvement in vehicles with open arms. Tesla also has a huge operating fleet that means the availability of huge amounts of data for its autonomous vehicles program. Innovations in battery tech and Tesla’s own supercharger network further helps Tesla. Also, rapid electrification in countries like India7 makes them a potential market for Tesla in the future. Strong economic growth and median household income widens Tesla’s user base and so do falling unemployment rates(pre-pandemic)7. With the contraction in the automotive industry in the previous year, there is pent-up demand for automobiles.
Tesla receives subsidies from the government and the total subsidy value as of 2021 is $2,441,582,590($2.44 Billion). It has also received $0.4 billion of federal loans and bailout support via the Advanced Technology Vehicles Manufacturing Loan program. Tesla faced some heat due to the US-China Trade war, China being the biggest EV market in the world. The import duty for US cars going into China was raised to 25%8. The global EV market is concentrated in Europe, the US, and China with a 90% share9. Markets like India and Vietnam are also potentially huge markets.
Industry Structure Analysis (Porter’s Five Forces – Exhibit 2)
The automotive industry has traditionally had low barriers to entry due to huge amounts of infrastructure and capital required. Tesla and the other existing players also make use of economies of scale to drive down costs. There is also the added technology barrier, especially in the automotive industry. This also applies to newer concepts such as autonomous vehicles which present a huge technological barrier to newer entrants. Tesla’s supercharger network of 25000+ stations also gives it a distinct advantage10. The threat of substitutes was low but is rapidly increasing as traditional players realize the need to put EVs in the market. There are also other threats like public transport, cab aggregators, other autonomous vehicle projects like robo taxi. The bargaining power of buyers remains low as Tesla is still the dominant player. The buyers are also not concentrated. This power is expected to increase, however.
The Bargaining power of suppliers is low to medium. Since Tesla is a vertically integrated company with most production happening in-house, its major concern is the supply of Lithium which it imports from China & Australia. Since lithium prices are on the increase, they might affect Tesla. Although Tesla has secured a good chunk of its requirement for the next 5 years11. Rivalry among competitors has heated up with traditional players entering the EV market. Companies like NIO, Google(Waymo), and Uber are giving Tesla a good fight in the autonomous vehicle space. Others like Ford & BMW have committed to spending huge amounts of money on R&D for EV and autonomous vehicles12.
Competitor Analysis (Exhibit 3) –
Tesla currently has a 79% market share in 2020 in the EV segment, but its share in the normal cars segment is just 2%. In 2018, Tesla’s market share was above 50%13. While currently, it might seem that Tesla has a monopoly, other players are fighting back with increased R&D spend. Tesla’s stock tumble in 2021 shows that it is not an easy road ahead for Tesla. The current major competitors in the EV space are Chevrolet, Toyota, BMW, and Honda.
Strategy Map (Exhibit 4) –
The map clearly shows 2 things – Tesla’s dominance in EV space and EVs being a minuscule part of the total automotive vehicle scale. Tesla stands as an outlier in the map which is indicative of its strategy of differentiation. While 10 years earlier Tesla may have been cast into the niche category, today we cannot call this segment a ‘niche’. It has in fact become the dominant market in Norway14. Tesla has different products & different sales styles. After building a premium vehicle, Tesla has also moved into producing a (comparatively) lower-cost vehicle.
SWOT Analysis (Exhibit 5) –
Tesla’s major strengths are its strong brand value, R&D, and amazing supercharger network(25000+ locations)15. It also produces EVs with the longest ranges and is expected to be the leader in autonomous vehicle segments as well. Tesla’s major weakness is the fact that its range, while good for an EV, suffers in comparison to traditional vehicles. This is made worse by slow charging, charge loss in cold climates, etc. Musk’s involvement in other companies might also prove to be an issue in the future. Also, the long-term reliability of EVs is unknown.
The major opportunity for Tesla is the fact that EVs are expected to dominate ICEs in the near future. It also has product diversification opportunities – with Tesla Truck and the Cyber Truck. Growing markets like India could also be a big opportunity for tesla16. Tesla is also a renewable energy and battery provider and demands for those are also expected to rise. The major threat for Tesla would be a slow transition to Electric Vehicles, as that would take away a chunk of its early mover benefit. It also faces increasing competition both from existing(Ford, Honda) and new(Google Waymo, NIO) players. Rollback of tax benefits and green subsidies might also harm Tesla. Then there is also the rising popularity and cost-effectiveness of cab aggregators like Lyft and Uber.
Capability Analysis (Exhibit 6) –
Tesla’s dedication to being the disruptor of the automotive industry and tackling climate change has drawn huge attention all around. It has been able to build a strong team around its core principles, with a huge spend in R&D. Tesla currently has 3 factories with 2 more under construction. Tesla relies heavily on word of mouth and spends little to nothing on advertisement17. Tesla also prides itself on being a workaholic company, with a culture of ‘Moving fast’, ‘Doing the impossible’ and ‘we’re all in’18. Tesla’s internal processes are aligned well and its growing market share and capitalization indicate external alignment as well. Tesla’s business is sustainable and is a leader in R&D, it is expected to continue innovating.
Conclusion –
Tesla, a pioneer in the Electric vehicles segment is the largest automobile manufacturer by Market Cap as of June 202119. While its total market share in the automotive industry is a mere 2%, its market share in EV vehicles is a whopping 79%. Its revenue has increased from $7 Billion to $31 Billion in the past 4 years, and it has also become profitable. Its supercharger network gives it a very distinct competitive advantage and its technology, R&D, and gigafactories provide a huge barrier to entry. In the coming years, Tesla is expected to scale massively, and its aim would be to capture the market share of traditional automotive companies. It also needs to vary of the rising competition, as the players and capital in the EV market are on the rise.
References:
[1]: “Electrek”, https://electrek.co/2021/02/16/tesla-owns-electric-car-market-us/.
[3]:“Goodcarbadcar”, https://www.goodcarbadcar.net/usa-auto-industry-total-sales-figures/
[4]: “Insideevs”, https://insideevs.com/news/487969/2020-us-electric-car-sales-tesla-share/
[5]: “Hedgescompany”, https://hedgescompany.com/blog/2018/11/tesla-owner-demographics/
[6]: “Forbes”, https://www.forbes.com/sites/jamesellsmoor/2019/07/23/77-of-people-want-to-learn-how-to-live-more-sustainably/?sh=33dd76892b01
[6]: “Saubhagya”, https://saubhagya.gov.in/
[7]: “Economic report of the president”, https://www.govinfo.gov/content/pkg/ERP-2020/pdf/ERP-2020.pdf
[8]: “Cleantechnica”, https://cleantechnica.com/2020/08/03/tesla-subsidies-how-much/
[9]: “McKinsey”, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/mckinsey-electric-vehicle-index-europe-cushions-a-global-plunge-in-ev-sales
[10]: “Tesla”, https://www.tesla.com/supercharger
[11]: “Reuters”, https://www.reuters.com/article/us-yahua-group-electric-tesla-lithium-idUSKBN293132
[12]: “Stockdividendscreener”, https://stockdividendscreener.com/auto-manufacturers/ford-research-development-rd-spending/
[13]: “EVadoption”, https://evadoption.com/ev-sales/evs-percent-of-vehicle-sales-by-brand/
[14]: “Theguardian”, https://www.theguardian.com/environment/2021/jan/05/electric-cars-record-market-share-norway
[15]: “Tesla”,https://www.tesla.com/supercharger
[16]: “Autocarindia”, https://www.autocarindia.com/car-news/india-bound-tesla-model-3-spied-on-test-421115
[17]: “CNBC”, https://www.cnbc.com/2018/08/18/elon-musk-tesla-could-produce-a-25000-car-in-3-years–.html
[18]: “Panmore”, http://panmore.com/tesla-motors-inc-organizational-culture-characteristics-analysis
[19]: “Companiesmarketcap”, https://companiesmarketcap.com/automakers/largest-automakers-by-market-cap/
Leave a Reply