Tesla’s charging station installed on a street. (Source: www.pixabay.com)
When you think of search engines, the first name that your mind goes to is Google. The same is the case for Facebook in the social media realm and Jio in the Indian telecom industry. However, can you think of something similar in the automobile industry? When you go out to buy a car there are many automobile brands competing. But this orthodox pattern is changing, with the rise of the automobile giant, Tesla Inc.
In July 2020, Tesla became the most valuable car company in the world when it overtook Toyota Motors. According to NASDAQ, in July, Tesla was worth $206 billion surpassing Toyota’s $203 billion, becoming the most valuable automobile maker in terms of market capitalization. The current stock price for Tesla Inc stands at $2,238.75 per share compared to that of $211 per share in August 2019. But the ironic part in this scenario lies in the sales of these giants. In 2019, Toyota sold just under 11 million vehicles while Tesla sold less than 300,000. A possible explanation lies in what the investors think about the future.
Investors are betting that Tesla, in the future, will continue to grow giving huge profit margins while the growth days for the old pal may be over. All this can be attributed to the current obscure circumstances created by the novel coronavirus which has raised questions about our concern for the environment. Here’s the part where Tesla comes into the equation, promising electric cars at affordable prices for the general public. Electric cars being more environment friendly is obviously a winner for our race in the search for a better alternative for petrol and diesel cars. Tesla’s current car models include Model S, Model 3, Model X and Model Y.
Tesla’s S Model electric car (Source :- www.pixabay.com)
However, do electric cars really hold a better future for us? Surpassing expectations, electric cars are becoming economical and practical like conventional cars. Prices for lithium batteries are going down. Technological advances are ensuring increased driving ranges and lesser time for charging.
But there are still some palpable challenges. Firstly, some crucial raw materials for such cars are scarce. Three quarters of the world reserve of lithium, a crucial ingredient for electric car batteries, lie in Argentina, China and Chile, according to a US geological survey. Secondly, there are not enough places to recharge the units.
Car companies are racing to overcome these obstacles, with Tesla leading upfront. Founded in 2003, the company is named after the inventor and electrical engineer Nikola Tesla. Visionary entrepreneur Elon Musk, who served as the chairman and is the current CEO, has said in many interviews that he envisions Tesla Inc eventually offering electric cars at affordable prices to the average consumer.
Predicting the future of any company is usually far from precise. Nevertheless, Tesla could remain the industry leader in what may be a bigger market in five years, provided that it is able to effectively execute its plans. In order to do so, it needs to attract a robust demand, augment international expansion and propound diversification in other markets. Tesla has the potential to wield influence within the growing automobile market given the popularity of the automobile giant within the environmentally conscious and tech savvy consumers.
Though the current market for electric cars is tiny, it is expected to flourish extensively in the coming years. According to Allied Market Research, the electric vehicle market was valued at around $118 billion in 2017 and is forecasted to grow to $567 billion by 2025, representing a CAGR (compound annual growth rate) of 22.3% from 2018 to 2025.
In terms of diversification, sky's the limit for the company with its acquisition of SolarCity enabling it to enter the energy market. With climate change reaching crisis levels and now a top concern for millions of people, the demand for alternative energy sources is expected to only grow. If Tesla can deliver products that meet the prospective demand, it could be an unparalleled opportunity for the company to expand its global footprint. Its solar roof tiles haven't taken off with consumers yet, but there are bourgeoning signs of the business finding its footing.
Solar roof tiles installed in a house (Source:- www.pixabay.com)
Considering the current trajectory, it wouldn't be wrong to predict that Tesla is on its path of become a monopoly. However, forging a monopoly and sustaining it are two different challenges. As mentioned in Zero to One, Peter Thiel opines that escaping competition will give you a monopoly, but even a monopoly can only be a great business if it can endure the challenges and sustain in the future. A great business is defined by its ability to generate staggering profits, a formidable leadership and a proactive strategy. Does Tesla have it all? The future holds the secret.
Kunal Bhardwaj
Kunal Bhardwaj is a third year Physical Science with Electronics student at Hindu College and a member at The Symposium Society. Apart from binge watching TV Shows, he enjoys fiction and non fiction books of varied genre, with Jane Austen as his all time favourite. He is passionate about Physics and obsesses over science mysteries.