Tesla Motors (NASDAQ:TSLA) continues to be one of the most closely watched stocks on the Street. But it's arguably one of the most misunderstood, as well. Both doom and gloom and world dominance storylines find their way to the media simultaneously.
Beneath the surface, however, there are both positives and negatives, catalysts and risks. A close look at Tesla's business reveals why choosing between world dominance and doom and gloom would require irrationally skipping over the more realistic middle ground, where Tesla's situation isn't as black and white as the media portrays it. To get a better grasp on the complex competitive landscape Tesla faces, here's a look at Tesla's strength, weaknesses, opportunities, and threats.
In the typical business school SWOT analysis, the strengths and weaknesses part of the analysis looks inward at the company itself. Opportunities and threats look outward at the external environment.
Strengths and weaknesses
Tesla's greatest strength is undoubtedly its execution. Interestingly, however, many who follow Tesla stock -- particularly those who purposely look for information to confirm a bearish opinion on the company -- would probably argue the opposite. After all, Tesla missed delivery targets in 2014, it has delayed the launch of Model X multiple times, and production quality control was subpar when Model S was initially launched.
Sure, Tesla management has broken some promises. But the company has also succeeded against all odds. Sales have soared. Gross profit margins are heady -- and the solid points of Tesla's execution to date go on. Consider this bulleted list of areas where Tesla has showed excellence when it comes to execution.
- Model S vehicle sales are growing about 50% annually.
- Tesla's $5 billion under-construction Gigafactory is ahead of schedule, with the company planning to begin cell and pack production next year.
- Tesla successfully launched a dual-motor all-wheel drive version of Model S last year, which significantly improved the attractiveness of the vehicle while also paving the way for the all-wheel drive technology to be used in Model X.
- Tesla introduced an entirely new business, Tesla Energy, after piloting energy storage solutions for a few hundred SolarCity customers.
- Tesla beat initial annual guidance for 2013 vehicle deliveries, and beat quarterly guidance in eight of the last nine quarters.
- Tesla has rapidly expanded its Supercharger locations. Worldwide Superchargers increased fivefold in 2014 and are on pace to double in 2015.
On the weakness side, Tesla is burning lots of cash. This is the cost of rapid expansion. While it's the company's heavy spending that has continued to open up the doors to incrementally more growth opportunities, the company's negative free cash flow also means it may be forced to either tap into more debt or raise equity --which, in turn, dilutes shareholder ownership. One Tesla stock analyst even recently went so far as to call the company's current rate of cash burn "eye watering."
While Tesla expects to be free cash flow positive as it exits 2015, investors shouldn't get their hopes up. If the cost curve for ramping Model X production -- the vehicle is scheduled to begin first deliveries in September -- isn't as good as management expects, or if Tesla isn't able to ramp up Model X production as fast as it anticipates, the company will likely need to raise more capital again.
Opportunities and threats
Tesla's biggest opportunity is its first-mover's advantage. As the world's leader in revenue for fully electric vehicles, Tesla is increasingly looking like it has a chance of remaining the leader in this category for the long haul. A look at two catalysts on the horizon for Tesla shows how its leading position in electric cars is presenting opportunities for the company.
First, consider Tesla's upcoming Model X launch. As the first fully electric sport utility vehicle, Tesla is set to stand out in the robust SUV market with the same compelling value proposition it brought to the premium sedan market with Model S -- a value proposition Tesla has already proven is a hit with consumers. Tesla expects the Model X to eventually help the company double its sales.
Second, Tesla's currently under-construction Gigafactory -- a factory purposed to manufacture more lithium-ion batteries under one roof than was produced in the entire world in 2013 -- is setting the company up for superior economies of scale, which will make buying electric cars or Tesla batteries for energy storage more feasible than ever. While Tesla has never publicly stated the amount it pays for batteries, management has said it believes the efficiencies gained from the Gigafactory will reduce costs by at least 30%.
The biggest threat to Tesla is competition from well-capitalized auto manufacturers. While Tesla's Gigafactory is a big project, there are a handful of auto manufacturers around the world with enough financial resources to easily duplicate the factory. Further, these auto manufacturers have existing production lines and talent that could be repurposed to focus heavily on fully electric cars.
While Tesla CEO Elon Musk openly encourages competition by sharing its patents for electric vehicles and batteries, it's not clear whether more competition in the electric vehicle space would benefit or hurt Tesla.
Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.