Tesla Analysis

The History of Electric Cars

William Morrison, an Iowa chemist was the first to create an electric car in the US. His vehicle traveled 14 miles per hour and thus garnered an interest in electric vehicles. During this same time, gasoline vehicles were also rising in popularity. Gasoline vehicles, however, proved to be unpleasant due to the smell and noise. They also required a lot of man power to start, change gears, and operate all around. Electric cars on the other hand were quiet, easy to drive and didn't emit any odors. Electric cars became popular around the country when people began to gain more access to electricity in their homes. When the affordable Ford Model T gasoline car came about in 1908, the popularity of electric cars took a huge blow. As oil became more accessible and technology improved, gas cars continued to become obsolete. Between the 1960s and 1970s, when the United States began to experience gas shortages and became more environmentally conscious, the interest in electric cars began to grow again. Toyota presented the world's first mass-produced hybrid electric vehicle in 1997, the Prius. It was a major hit with the elite of the world. Other car manufacturers took heed and began the mass production of electric cars.

Background

Tesla, Inc. is the leading manufacturer of electric vehicles in the United States. Tesla, named after electrical engineer, Nikola Tesla, was founded in 2003, by a team of engineers, Martin Eberhard and Marc Tarpenning. Eberhard and Tarpenning wanted to prove that consumers didn't have to compromise the environment to drive a luxury vehicle. Tesla is focused on being a leading force in the world's transition to sustainable energy. Their mission is mission "to accelerate the world's transition to sustainable energy." The first Tesla vehicle, the Roadster, was released in 2008. They later designed the world's first ever premium all-electric sedan, the Model S. Tesla manufactures all of their vehicles in Fremont, California. In addition to vehicles, Tesla also manufactures other energy solution options that gives its consumers access to renewable energy generation, storage, and consumption. This paper will go on to outline Tesla's place in the automotive industry and what their financial future looks like based on current events.

Current CEO

Current CEO Elon Musk found himself in the center of a controversy following a tweet. Elon posted the following information from his verified Twitter account on August 7, 2018. "Am considering taking Tesla private at $420. Funding Secured", "Shareholders could either [choose] to sell at $420 or hold shares and go private." That series of tweets resulted in the SEC, the Securities and Exchange Commission, filing a complaint against Musk for "false and misleading statements." They reached a settlement two days following the original complaint. Per terms of the resolution, Elon Musk must pay a fine of $20 million dollars. And while he may stay appointed as Tesla's CEO, he is required to step down from his positon as chairman on the board.

2018 Model 3

Tesla recently released their new 2018 Model 3 vehicle. This vehicle was created to be an affordable electric option for consumers, but still luxury. The base MSRP (Manufacturers Suggested Retail Price) for the 2018 Tesla Model 3 is $35,000. Compared to Tesla's other models whose MSRPs start between $72,800 and $85,000, this lower price point makes it comparable to other luxury vehicles, such as the BMW 3 series. Tesla intention was to make it affordable for not only the wealthy, but also the middle class consumer. Its innovative design features leather seats, Bluetooth capabilities, a touch screen, and two independent motors. Model 3 owners can even use their smartphone as a key. The Model 3 has also proven to be at the top of its safety class receiving a perfect 5-star rating from the National Highway Traffic Safety Administration. Its structure consists of aluminum and steel making it crash-resistant to its own mass. It also has advanced autopilot and all-around cameras to prevent collisions.

Tax Break

In an effort to reduce environmental pollution, one of the incentives to buying an electric vehicle is your eligibility for a federal tax deduction. Purchasing a Tesla can earn you a $7,500 federal tax deduction. Certain states also offer an additional rebate up to $3,500. A major advantage of this tax incentive is to lessen the financial hit many new owners experience by purchasing a high-price electric vehicles. However, many see the tax credit as just putting money back into the rich's pockets, because considering their price point Tesla's were typically only purchased by the wealthy.

All states

$7,500 income tax credit (subject to phase out schedule above)

Arizona

Reduced Vehicle License Tax, Carpool lane access and reduced rates for electric vehicle charging

California

$2,500 rebate (based on income eligibility)

Connecticut

$3,000 rebate for new vehicles with a base price under $60,000

Colorado

$5,000 tax credit for purchase of a new vehicle

$2,500 tax credit for lease of a new vehicle

Delaware

$1,000 rebate for new vehicles with a base price over $60,000

$3,500 rebate for new vehicles with a base price under $60,000

Hawaii

Carpool lane access and reduced rates for electric vehicle charging

Louisiana

$2,500 income tax credit

Maryland

$3,000 Excise Tax Credit for new vehicles with a total price under $60,000

$700 rebate on wall connectors and installation

Massachusetts

$1,000 rebate for new vehicles with a base price over $60,000

$2,500 rebate for new vehicles with a base price under $60,000

Nevada

Reduced rates for electric vehicle charging

New Jersey

Sales tax exempt

New York

$500 rebate for new vehicles with a base price over $60,000

$2,000 rebate for new vehicles with a base price under $60,000

Pennsylvania

$1,750 rebate for new vehicles with a base price under $50,000

(500 rebates available between January 1 and June 30, 2018)

Washington DC

Excise tax exempt

As theorized by the IRS, as sales volume increases, the high initial cost of adding new technology to a vehicle will come down as economies of scale improve. When a manufacturer reaches 200,000 units sold, its new owners are no longer eligible for the tax incentive. With that being said, the tax credit offered to Tesla owners will be phasing out soon. It is expected that Tesla would have reached the 200,000 threshold by the end of 2018. Tesla saw a huge increase in profits in the second half of 2018. More than likely by consumers who were eager to claim the high tax credit.

Strengths

Considering it has only been a brand for 15 years, in comparison to other automotive companies like Ford who has been around for 115 years, Tesla has certainly created a strong name for themselves in the automotive industry. Tesla's brand is built around innovation, which may be its core strength. They are the manufacturer of the first electric luxury sports car and continuously use the best technology to ensure vehicle safety and comfort. Also a great strength, the Tesla brand is also built on environmental responsibility. Their focus on moving towards a cleaner environment for the world is what makes the company sustainable and really sets their anchor in the automotive industry.

Weaknesses

Tesla, however, does have weaknesses that can prove to be damaging to the brand. As discussed earlier, the high price point of most Tesla manufactured vehicles makes them accessible to a limited group of consumers, the wealthy. These vehicles are typically more expensive than the competitions'. Tesla generates most of its profits from the United States. It has very little presence overseas. This could be seen as a limit to their business growth potential. Another internal weakness that Tesla is currently experiencing is their own CEO, Elon Musk. Musk has made headlines lately with his tweets regarding the finances of the company and his controversial statements on a podcast. If Musk continues to shed negative light on himself, that also sheds a negative light on Tesla and can alter the public's opinion of the brand. So many have been speculating, "Is Elon Musk doing more harm than good for the future of Tesla?"

Opportunities

Counteracting one of its main weaknesses this year, Tesla took the opportunity to launch its 2018 Model 3 vehicle this year with a lower price point. The base MSRP of $35,000 makes it more affordable for middle class consumers. This was definitely great growth potential opportunity. Taking a look at the financial statements, we can see the sale of this model increased profits by more than 200% in the second half of 2018. Tesla may also benefit from expanding its sales and market globally. There is a huge market for renewable energy overseas in Asia, so it could be a great business opportunity for Tesla. While Tesla already has a great corporate environmental responsibility background, they can benefit from adding on a social or environmental campaign. Campaigns are a key factor in a brand and public relation development.

Threats

External threats to the Tesla brand are mainly its competitors in both the electric and luxury arenas. Tesla models are at such a high price point that BMW models can be more favorable in terms of affordability. If a consumer is considering an electric vehicle without the luxury, they can even consider makes by Chevrolet, Ford, and many others.

2018 Nissan Leaf 2019 Chevrolet Volt 2018 BMW i3 2018 Tesla Model 3

Average Price Paid $28,914 $33,101 $42,422 $50,200

Those makes can also be more accessible which brings up another threat- Electric vehicles by other automotive manufacturers are more accessible than Tesla. Tesla has no dealership involvement. They sell their vehicles directly to their customers to prevent pricing up of their vehicles. Some states actually require dealership involvement, so this can be a threat to the company's growth if not reconsidered.

Conclusion

In conclusion, as the future of electric vehicles looks more promising, Tesla definitely has the strength to remain successful in the automotive industry for years to come. However, there are some issues that the company must address to maintain its competitiveness and continue to increase its profits. Tesla must expand its global presence. There is the potential for diverse growth in Asia for renewable energy. Tesla has already tapped into those markets in the US, and should expand them overseas. Considering the competition, Tesla should consider becoming more accessible both from a price standpoint and a location standpoint. They have already proven that a lesser MSRP has significantly increased profits. If they won't consider dealership involvement, maybe they can consider more Tesla locations. Finally, in order to combat the possibility of their public image being ruined at the hands of the CEO, a social or environmental campaign should be started to improve their brand and help support their mission "to accelerate the world's transition to sustainable energy."

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