Electric Cars SWOT – 5/4/16

Some Strengths, Weaknesses, Opportunities, Threats analysis for Tesla and their electric cars.

Fortunately for Tesla Motors it benefits from a good reputation, attractive cars, first mover advantages, and more as strengths. Unfortunately, it also has many weaknesses such as posting near constant quarterly losses, massive cash outflows, production delays, reliance on Elon Musk as an irreplaceable leader and financial support, and others

It also benefits from unprecedented opportunity as people seek green alternatives to gasoline-powered vehicles and an energy sector on the verge of an electrical revolution.

With the power grid losing its dependence on fossil fuels as the costs of wind and solar power plummet, electric cars may trigger changes in the way all electricity is produced. Since electric cars could wreck oil markets and carbon prices tend to be closely correlated, the inevitable shift away from fossil fuels could happen much faster than anticipated. According to the video explanation from Bloomberg, the electric car could severely damage the oil industry.

The oil industry is sensitive to price fluctuations and changes in demand. Even a temporary price drop can mean massive busts in oil-based economies, as one can plainly see in the number of shale-oil companies and communities going bankrupt since China’s oil demand growth declined. In fact, the initial reluctance of OPEC to prop up prices for oil was at least partially based on the idea that low prices would mean the collapse and slow recovery of U.S. oil production. Electric cars adopted on even a relatively small scale could have a massive impact on demand. And, as the video notes, the ripples through economies and geopolitical dealings based on oil will be massive.

Naturally, a shift away from volatile, insecure oil would mean a shift towards the electric vehicles Tesla provides.

Tesla also suffers from many external threats. Besides the political threat of strong oil and dealership lobby groups to Tesla’s business model, it also has some less obvious issues to face abroad.

Electric vehicles in Hong Kong may indirectly be the cause of 20% more CO2 emissions than gasoline-fueled motors. Hong Kong relies on coal for more than half its power generation, according to Neil Beveridge, a Hong Kong-based analyst at Bernstein. The city will have to shift its power mix toward natural gas and renewables before encouraging the use of electric vehicles through incentives like tax breaks, he said.

“Electric vehicles only make sense in countries where the carbon intensity of electricity generation is low,” Beveridge wrote in a report published Wednesday. “In Hong Kong, and more broadly China, electric vehicles are increasing rather than reducing pollution, with taxpayers effectively being asked to subsidize this.”

Accounting for the carbon intensity of the city’s power generation and the production of the car battery, it is clearly possible for electric cars to add to pollution problems reducing their intangible value, as well as creating a significant threat to expansion in areas with highly carbon intense power like China and India. The loss of the “green” value of electrification is a threat that must be addressed as cars become more affordable for such populous markets.

Another threat comes from Europe, as Germany, the country known for its auto industry, is facing something of an existential crisis with the rise of the Silicon Valley automaker. Earlier this year, a top aide to Chancellor Angela Merkel questioned German auto chiefs about their electrification plans. As a result of the discussion, the German government and the chief executives of Volkswagen AG, BMW AG and Daimler AG agreed to an incentives program offering a rebate of $4,531 on the purchase of a new battery-electric car and financing a network of public charging stations. Car makers agreed to paying half the costs of the subsidies and increasing investment in R&D of related technology.

The auto industry is Germany’s most important, providing one in every seven jobs, so it understandable that the rise of electric and self-driving cars as competitive threats would frighten its government and businesses. Some analysts see the Model 3 as a serious threat for Germany’s car makers since its relatively low price of $35,000 will be affordable for a large group of German consumers, and so the German plan was rushed through to begin before Tesla’s Model 3 started shipping.

“The goal is to move forward as quickly as possible on electric vehicles,” Finance Minister Schaeuble told reporters in Berlin, adding that the aim is to begin offering the incentives in April. “With this, we are giving an impetus.”

Merkel, who hinted in February that she was ready to back subsidies to reach her goal of 1 million electric cars on German streets by 2020, sealed the agreement with automotive CEOs late Tuesday after weeks of discussions over how to divide the funding. The industry originally offered to pay 25 percent of the total.

German auto producers lobbied hard for the incentives. They pointed to support in other European countries like France’s 10,000-euro rebate to drivers trading in older diesel-powered cars or Norway’s electric cars tax breaks, free battery charging, free parking, and an exemption from congestion charges.

“The government has put in place the right steps to give e-mobility a boost in Germany, which the country needs to catch up if it’s to become a leading market for e-cars,” Matthias Wissmann, president of the German car-manufacturers’ association, or VDA. “That’s why construction of a nationwide charging network in step with increased sales should happen fast.”

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