The article was written by Jacob Saphir, a Financial Analyst at I Know First.

Tesla Motors, Inc. SWOT Analysis

Tesla Motors, Inc. is an automobile company designing, manufacturing, and selling electric vehicles and energy storage products.  Founded in 2003 and led by CEO Elon Musk, the company’s mission is, “to accelerate the world’s transition to sustainable transport.”  As Tesla aspires to be the leading manufacturer and pioneer in electric cars, the question we need to ask ourselves is how is the company faring, what does the future hold for this company, and is this a company to be part of your investment portfolio?

Here is Tesla’s SWOT analysis:

Strengths

1. Leadership: Over the years, the company has overcome many hurdles to revolutionizing the auto industry.  The employees of Tesla are among the brightest and most resourceful.  The company is led by a management team with extensive experience in start-up companies.  CEO Elon Musk founded 2 multi-billion dollar companies: SpaceX, an aerospace manufacturer and space transport service, and PayPal, a leading multi-billion dollar online payment service. Chief Technical Officer, JB Straubel, successfully co-founded Volacom, a major supplier of bird collision avoidance systems for airports worldwide.
2. Brand Recognition: Consumer Reports surveyed car owners and ranked Tesla among the top auto brands based on the cars: quality, design, value, safety, and technology.  US News ranked the company’s flagship car, the Model S, as the #1 ranked car not only among luxury hybrid and electric cars, but also large luxury cars.
3. Strong Sales Growth: In the past 5 years, Tesla has consistently increased its sales year after year from $204.24 million in 2011 to $4.05 billion in 2015.  That is an increase of over 1,800%.  Navigant Research estimates sales for the plug-in electric vehicle market will increase by 62% in North America alone for the Year 2016.  In China, the growth rate is higher, in the triple digit.
4. Tesla Dealership: Tesla offers customers a unique shopping experience.  Unlike traditional car dealership, Tesla’s stores have no inventory of cars and are situated in high traffic areas. Tesla stores are designed and the staff members are trained to educate visitors about the product and customize the vehicle of their choice.  This eases people’s skepticism of the technology.

Weaknesses

1. High Debt: Compared to its industry, Tesla is more leveraged than many of its competitors.  The company has more debt than cash in its balance sheet.  Its current debt is $3.66 billion.  If the company faces more net loss in its future, this could pose difficulty in the company’s ability repay its loans and interests.
2. Limited Number of Suppliers for Battery Cell: Tesla has only one supplier for battery cells in the vehicle’s battery pack.  Unless Tesla finds another supplier, this will make Tesla more vulnerable to production delay, should something happen to disrupt the supply of battery cells from its vendor.
3. Limited Infrastructure: Electric cars require electric charging stations.  As there are less electric cars compared to gas cars, the number of infrastructures to charge Tesla vehicles are significantly less compared to gas stations. Gas cars have the advantage of refueling much quicker than it is to charge an electric car.  Tesla cars require a minimum of 1 hour to fully charge their vehicles in a Tesla’s Supercharger.
4. Time consuming delivery: Customers purchasing cars have a longer time period of receiving the cars compared to its competitors.  For customers purchasing the Model S car, customers were not given their VIN number at least a month and a half before production. Customers with financing find it difficult to secure their finance without the VIN number of the car.  For those who pre-ordered the Model 3 cars, some may have to wait 3 years to receive the car due to the waiting list.

Opportunities  

1. Mass Market Affordable Vehicles: Tesla recently released the company’s first affordable Model 3 car on March 31, 2016.  Unlike the Model S and Model X, the Model 3 is sold nearly half the price from the Model S and Model X listing price. The Model 3 is projected to manufacture and sell more than the other two models.  Although Tesla has a niche market in the luxury electric car market, expanding its production to appeal the average driver could open itself to a more profitable market.  The Model 3 car could be more suitable to suit the markets in Europe and Asia.
2. Expanding Markets: Although the company sells most of its cars within the United States, the growth rate experienced abroad is higher. Tesla has expanded to other parts of western and northern Europe, along with parts of Asia, including China. In fact, if growth rates continue to outpace domestic growth rate, the majority of Tesla cars sales could take place in the largest passenger car market in the world, China.  The company has an opportunity to expand its market share to South Korea, India, and Ireland.
3. More Government Incentives: One of the appeal to purchasing an electric car are incentives offered by the US government.  Although the government is offering financial incentives for consumers to purchase electric cars, Tesla could work closely with the federal and/or state government to increase financial incentives.  The more incentives offered, the faster the transition for consumers to switch from combustion engines to electric motors.
4. New Automotive Technology: One way to ease the public’s hesitation is through advancements in technology.  Technology such as Tesla’s autopilot and improvements to the car’s battery would give Tesla a competitive edge from other car brands and convince the public more of its future to be the world’s leading company to transition the public to sustainable transportation.
5. SolarCity Merger: On August 1, 2016, Tesla bought solar energy company, SolarCity Corp. in a $2.6 billion dollar deal.  This vertical integration would bring expand Tesla’s capabilities in energy storage. Tesla is scheduled to unveil a new solar roof for homes on October 28, 2016.

Threats

1. Increase in Price of Raw Material: Raw materials necessary to be used to manufacture vehicles and energy storage products, such as: aluminum, steel, lithium, graphite, and many more, are subject to global demand and supply.  If costs of raw materials were to increase and profit margins would decrease.  Tesla would be pressured to increases the prices of its products to recoup the additional expenses.  Such increases would negatively affect brand image, timeline for delivery, and possible cancellation in customer orders.
2. Government Regulations: Unfavorable regulations could either delay or postpone production and sale.  For example: Tesla is in the midst of appealing the state of Michigan forbidding Tesla to sell its vehicles.  According to Forbes, the state of Michigan rules that direct sales must be conducted through a network of franchised auto dealers, or through another car company’s dealership network.
3. Competition From Others: Despite the Model S outselling the Nissan Leaf to be the best selling electric car for the year 2015, the Nissan Leaf has outsold the Model S, to claim as the best-selling electric car since both car’s release.  Competition in the automotive industry is tough.  As electric cars gain in popularity, so will entrants into the market.  As there may be more competition in the future, this could result in loss of market share and lower profit margin to compete against companies, such as: General Motors, Honda, Nissan, BMW, and Ford.  These companies have the advantage in length of experience in the car industry and more resources at its disposal.
4. Possibility of Employees Willing to Unionize: Tesla employees are not affiliated with a union. However, if the employees do decide to unionize, Tesla would experience higher employee costs and an increase in production stoppage.

Forecast:

I Know First is a FinTech company that created an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies. In essence, the algorithm generates a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts the results of these predictions are shown on a daily basis on the I Know First website.

I Know First has a bullish forecast on Tesla for the 1-month, 3-month and 1-year forecast.

In this stock forecast, we can observe that TSLA has a signal of 23.84 and a relatively strong predictability of 0.23 for the month-long prediction. For the 3-month period, the algorithm gave a signal of 65.85 and a predictability ratio of 0.33. For the year-long forecast, TSLA has a signal strength of 281.39 and predictability ratio of 0.58. These all predict bullish growth for TSLA in this time period.

Past Predictions

I Know First has accurately predicted TSLA’s movement in the past. Since Feb. 10, 2016, the I Know First algorithm gave TSLA a bullish signal for one year time period.  Since its forecast, the stock has increased over 39%.

This bullish forecast on Tesla sent to I Know First subscribers on February 10, 2016.

Conclusion:

Based on the above SWOT analysis, and the I Know First algorithm, we recommend investing in Tesla for significant returns. I Know First’s algorithmic analysis Tesla shows a bullish future.  The indicators throughout this article suggest that Tesla will increase in share value.