- Global Automobile Industry
- Performance of Tesla
- Tesla Risks in 2017
Global Automobile Industry
The automotive industry requires significant economies of scale to cater to the research and development essential in the manufacturing and release of new car models to stay competitive. The global automotive industry is highly competitive and is dominated by companies from Japan, Europe, the United States, and South Korea. As of 2019, the “big three” auto manufacturers of passenger cars in the global industry include Toyota Motor Corporation, Volkswagen Group, and Ford (Wagner, 2020). The automobile market can be regarded as oligopolistic, in that a limited number of carmakers dominate the sector.
Even though automobiles are designed for transport purposes, their product specifications and price vary so does their target market. Eventually, this would have an impact on their market share and revenue. The ranking of car-manufacturing companies is based on market shares and income. For instance, according to Wagner (2020), Toyota had the largest market share of 10.24%, and following closely behind was Volkswagen with 7.59%, and lastly, Ford with 5.59%. On the other hand, Toyota and Volkswagen were deemed to be among the most successful automakers globally when it comes to revenue. Toyota generated profits exceeding 280 billion U.S. dollars in 2019 (Wagner, 2020).
Performance of Tesla
During the first quarter (Q1) of 2017, Tesla distributed over 25,000 vehicles, including 13,450 Model S and 11,550 Model X cars. This was regarded to be a 69% increase as compared to the first quarter of 2016 (Tesla Inc., 2017a). At the end of the second quarter (Q2), approximately 3,500 cars were in the process of being delivered to the customers; therefore, they were included in the third quarter’s results. Nevertheless, the company successfully delivered 22,000 vehicles, of which 10,000 were Model X and 12,000 Model S (Tesla Inc., 2017a). This represented a 53% increase as compared to the same quarter in 2016 (Tesla Inc., 2017a). In summary, the total number of vehicles delivered to customers during the first half of 2017 was about 48,500. Nevertheless, the primary factor influencing the Q2 deliveries was a significant decrease in the production of 100 kWh battery packs that were being manufactured using new technology via new production lines. Thus, until early June, production fell to 40% below demand; however, production spiked after the battery issue was solved.
Tesla experienced both positive and negative milestones in 2016. Some of the positive milestones include the increase in production volume by 64% although the company faced delays in the manufacturing of component parts. Moreover, it began with its merger with SolarCity, which if successful, then Tesla will be a carmaker, a battery maker, an energy storage company, and a solar finance firm. Nevertheless, the company faced its first major identity crisis in which one of its Model X drivers, tragically died in a fatal accident while on autopilot mode.
In the third quarter (Q3), Tesla delivered approximately 26,250 out of which 11,865 were Model X and 14,065 were Model S, and 220 were Model 3 (Tesla Inc., 2017a). This was among the quarters in 2017 that the company performed best, and it was comparatively greater the Q3 of 2016 than 4.5% and Q2 of 2017 by 17.7% (Tesla Inc., 2017a). Finally, in the fourth quarter, the company delivered about 29,870 automobiles, of which 1,550 were Model 3, 15,200 were Model S, and 13,120 were Model X. Overall, this presented to the quarter that Tesla performed best, both in comparison to the Q4 of 2016 (27% increase) and Q3 of 2017 (9% increase). Based on the before-mentioned statements, during the Q4, the carmaker addressed the Model 3 production bottlenecks, which led to deliveries increasing from 220 to 1,550.
Tesla Risks in 2017
In 2017, Tesla’s stock price had attained its all-time high; nevertheless, the stock price has been on the downward trend because of Model 3 manufacturing details and a disastrous autopilot crash. Several risks have been identified in Tesla’s 2017 Annual Report. These risks include those related to manufacturing, customer adaptation, legal, cash flow, and government regulation. In terms of manufacturing, Tesla was facing single-source supplier challenges for its vehicle components (Tesla Inc., 2017b). It has only one qualified battery cell supplier for its vehicle battery packs; therefore, the company will have to seek additional suppliers to cushion it against future production delays. Furthermore, this results in the second-related risk, which was the problem of unrealized production timelines. On the other hand, in terms of cash flow risks, Tesla requires substantial capital to invest in growing its service centers, delivery centers, supercharger stations, stores, giga-factories, and the improvement of manufacturing productions. By the end of 2017, the company had also accumulated $10.17 billion in aggregate principal debt (Tesla Inc., 2017b).
Customer adaptation risks are dependent on the fact that Tesla has a wide array of factors that affects the perception of their target customers. These comprise driving performance, battery range features, access to charging facilities, safety, defects, economic incentives, cost, and the availability of other electric vehicles in the market (Tesla Inc., 2017b). Additionally, Tesla’s future growth depends on rapid mass-market adaptation to electric cars. Legal risks are associated with potential liability and warranty claims, the probability of lithium-ion batteries to combust, and possible product recalls. Lastly, government regulation risks consist of the potential for the government to regulate the autopilot driving technology that is central to Tesla’s technology (Tesla Inc., 2017b). Furthermore, labor laws, local and international regulations, and political climate might impact growth.
Tesla. (2017). United States Securities and Exchange Commission. Web.
Tesla Inc. (2017a). Tesla Q1 2017 vehicle production and deliveries. Web.
Tesla, Inc. (2017b). 10-K annual report. Web.
Wagner, I. (2020). Leading carmakers worldwide – global brand market share 2019. Web.