Identified Problems – Too many competitors

With many states in the U.S. adopting zero emission vehicle regulation, every auto maker is forced to produce electric vehicle to meet future compliance. Tesla must compete with traditional auto makers who are profitable, financially sound, and have more experience producing automobiles. Furthermore, Chinese companies have been particularly eager to enter this electric vehicle market. Besides newcomers such as LeEco and BYD who have already showcased their vehicles, Chinese technology companies such as Baidu, Alibaba and Xiaomi have funded more than half a dozen electric vehicle start-ups. As shown on the chart, competitors for Tesla’s model 3 include General Motors, Nissan, BMW, Renault, BYD, Hyundai, and Volkswagen. Besides competing in price, these automakers also offer better performances such as longer drive range and faster charge time.

Too many competitors

Identified Problems – Unprofitable, cash-strapped, and heavily in debt

Since its founding days, Tesla has been losing money and had only two profitable quarters. The company lost $294 million in 2014, $889 million in 2015, and $553 million year to date in 2016. Tesla relied on borrowing money and selling equity to finance its operations. To satisfy its ambitious production goal and grand capital expenditure plan, the company has been burning through large amount of cash. Since 2011, Tesla has drained an accumulated total of $7.4 billion of cash. To make matter worse, the cash burn is accelerating from $2.2 billion in 2015 to 2.9 billion over the last twelve months. Its stockpile of cash dipped to $1.2 billion at the end of 2015 before climbing back to $3.1billion after selling more equities in 2016. Meanwhile, its long-term debt has been steadily increasing from $411 million in 2012 to $2.4 billion as of today. With the construction of the $5 billion Gigafactory, the model 3 production ramp up, and the $2.6 billion acquisition of the money-losing SolarCity, Tesla will need to raise even more capital soon.

Too many competitors