Speculation and predictions of Tesla's demise are rampant. Some people here as well as a number of "experts" in the auto media believe that the mainstream car makers are on the verge of killing Tesla with their own BEV. Tesla may still fail, their success is not guaranteed, but I don't believe any failure will be for the reasons the experts believe.
There are a number of sites out there with analysis of why startups fail, many cite a study of failed start ups that came up with 20 reasons. Such as this:
The Top 20 Reasons Startups Fail
I'll go through each reason for failure and how much it applies to Tesla, or not. For some of these, Tesla is beyond the stage where companies fail. Tesla is into the late entrepreneurial stage at this point. On to my analysis...
1) No Market Need - This is the biggest reason for start ups to fail. "Need" is a term that is open to interpretation, but in this case I think a good case can be made that there is a need for long range BEVs. At least as much need as there was for a number of other start ups that succeeded. Even if you aren't concerned about the environment, battery technology has been inching to the point where long range BEVs were going to get competitive with ICE cars on price and there are a lot of economic advantages to BEVs.
2) Run Out of Cash - Tesla has almost run out a couple of time, though this is less likely now than with many start ups. Tesla has the advantages of a strong stock price in combination with a product that is selling close to expected numbers with a good profit margin per product. Tesla did have to raise some cash earlier this year to get through to the Model X launch, but as long as the stock price remains strong, Tesla has an ATM to tap if they need to.
With mismanagement, Tesla could run out of cash, but with their spending patterns up to now and the X going from a money burner to an income source, the odds of them running out of cash are low.
3) Not the Right Team - This was an issue up to the Roadster launch and it is the reason Elon Musk is now CEO. By the time the Roadster was close to ready, Tesla was headed for failure from running out of cash, problems with the team, and mismanagement. Musk stepped in and pushed out a number of people who were more trouble than help, and streamlined the operation. Since then the team may not have been completely happy all the time, but they are pretty effective.
4) Get Outcompeted - This is the one so many people are wringing their hands over, but it is one of the least likely at this point. The odds of this are very small though. The key technology for electric cars is the batteries, and there are two factors: quality and price. For quality, batteries need high capacity, charge time, whether it has a memory or not, and how many charge cycles it can take without degrading. The ideal battery would have ultra high capacity, never degrades with infinite charges, and has ultra fast charge times. In the real world, all the battery technologies we know of right now have limitations in all these areas and every chemistry has trade offs with other chemistries. As for price, the price of batteries has been dropping somewhat steadily for many years.
As for price Elon Musk is a numbers guy, he ran the numbers and came to the conclusion that a large vertically integrated factory located as close as possible to the source of raw materials could make batteries cheaper than anyone else, hence the Gigafactory. It is possible he's wrong, he is not infallible, but even if he's wrong, it's unlikely he will be wrong in such a massive way the competition will have a major advantage. Even if the Gigafactory doesn't beat the competition on price by a wide margin, it is almost certainly going to be competitive.
The only scenario I can think of where Tesla gets out competed on price is if another car maker got a solid patent locked down on a killer battery chemistry that is way ahead of current chemistries AND they are able to get their batteries into production and into cars about 10X faster than anyone else. Current wisdom is that any major breakthrough in battery technology is going to take at least 10 years to get from the lab into cars. Possibly longer.
This is such an unlikely scenario that getting outcompeted in anything less than the next 10 years is unlikely. The potential market for pure EVs is massively larger than it is now, on the order of at least 100X bigger. Right now consumer demand isn't huge because there is no affordable long range BEV on the market. Tesla has the range, but at a price, and the rest of the market is just getting ranges up over 100 miles. Most BEVs are also small vehicles that are often weirdmobiles, which doesn't appeal to the core of car buyers.
Once there is a long range (better than 200 mile) affordable BEV available, the public will start paying attention and demand will likely go up. It's highly likely that demand will end up stripping supply once people realize they can have a BEV that meets most, if not all their driving needs. Once that point it reached, the bottleneck to mass marketing of BEVs will be batteries.
Tesla is the only company that will be in a position to build a large number of long range BEVs. LG Chem supplies a lot of companies with batteries, but they supply small battery packs to a lot of low production vehicles and in a few cases they will be supplying larger battery packs to a few limited production vehicles. Most car companies are scared to commit to a given battery chemistry for fear it will be obsolete in a few years. Tesla is taking the strategy of building the best they can with what is available today, and they will switch chemistries as needed. Unless there is a radical change in chemistry, it is unlikely the Gigafactory is going to need too dramatic a change to adapt to the next generation of chemistry. A major change is going to have a lot of lead time too because of the 10+ years between lab and production. So Tesla is going with good enough for today and we'll adapt as needed for tomorrow instead of sitting on the sidelines paralyzed by the possibility the chemistry they commit to today won't be used in a year or two.
People just can't grok how much world battery production has to increase and how much it will be a bottleneck when BEVs take off. If the Chevy Bolt turns out to be a mega hit with customers and lots of people want one, they can't have one because Chevy won't have the ability to build more than the planned 35,000 a year for some time after introduction (at least a year or two). On the other hand, even if the Model 3 is delayed, Tesla has a road map to get to 500,000 cars a year in a short time. And critical to this calculation is Tesla will not be battery limited in this ramp up. They will be the only car company with the battery capacity to build 600,000 BEVs a year by the early 2020s (even if they aren't building that many cars).
So even if other car companies come out with a BEV that gets customers salivating even more than people salivate for Teslas (hard to imagine, but maybe somebody will hit on some killer feature everyone else has missed), Tesla will be the only car company in any position to deliver on a higher demand for BEVs. The competition also has to overcome resistance from dealers who don't want to sell BEVs. That can be overcome, but it's an extra obstacle Tesla doesn't have to contend with.
5) Pricing/Cost Issues - Tesla has been very careful in this regard. The plan from the beginning was to come out with a full electric vehicle that had good range and was fun to drive, but was expensive (the Roadster), then come out with a more affordable car (the Model S and X), and finally come out with an even more affordable car. Tap the well heeled who are early adopters and are willing to accept teething problems in somewhat limited production cars, and then once they knew how to build cars AND the public's appetite was whetted, deliver a car for the masses that a large percentage of new car buyers could afford.
This plan almost came unraveled with the massive cost overruns on the Roadster. This was partly due to inexperience at all levels, but most critically it was a problem with upper management. When Elon took over and started running the company more competently, the cost overruns came way down. They still have them to some extent, but it's more on scale with typical engineers being overly optimistic about schedules than the waste that was going on during Roadster development.
6) Poor Product - Some people make noises about this based on things like the Consumer Reports reliability report, but overall it really isn't a problem. The bulk of problems were on early cars and while not all problems have been completely resolved, the cars coming off the lines today are much better than 2013 models. The fact Tesla is aiming to produce more cars in Q4 2015 than ever before is an indication that any reports of quality problems are not hurting sales all that much. Tesla has the highest owner satisfaction rating in the car business, and this is despite the problems.
So ultimately this one is probably one of the lowest probability failure scenarios.
7) Need/Lack of Business Model - Elon has the advantage of running 4 start up companies in his life. He is very good at putting together business models and has a clear and detailed roadmap for Tesla out to 600,000 cars a year with a decent strategy for the next steps beyond that.
8) Poor Marketing - So far this has not been a problem at all. They spend no money on media ads, yet the world beats a path to their door. Something almost every other company in the world is envious of.
9) Ignore Customers - There have been some complaints here about this, however, they have the best customer satisfaction in the industry for a reason. If more than 90% of owners say they are happy with customer service, then they probably aren't ignoring their customers very often.
10) Product Mis-Timed - This almost killed Tesla in the 2008 economic crash, but they survived and grew through the worst recession in 80 years. At this point this doesn't apply anymore.
11) Lose Focus - This could happen, especially if Elon steps down to concentrate on SpaceX, which there are rumors he may do when the Model 3 is launched. I think they did lose a little with the Model X. The car ended up being more complicated than it should have been, but overall I think they are focused enough to make a few mistakes and survive.
12) Disharmony on Team/Investors - This is related to #3 and did almost happen back in the Roadster days. It's unlikely now.
13) Pivot Gone Bad - They are pivoting to the Model 3 in the next few years and it is possible they will make a major mistake there. This is a possibility if the Model 3 is poorly designed, but the likelihood of that is relatively low. This is probably the most likely failure scenario, but I still think it's unlikely.
14) Lack Passion - This is definitely not the case.
15) Bad Location - This is the opposite of a problem. They lucked into the largest car factory in the West for pennies on the dollar and it was still full of equipment left over from the GM/Toyota days. And the factory was not far from their head offices in Palo Alto. They have access to all the talent in Silicon Valley with the factory a short drive away, few Silicon Valley companies of any size can claim that.
They have had some problems breaking into some states, but it hasn't dramatically hurt their business.
16) No Financing/Investor Interest - This was a serious problem in 2008 when the company almost went under. However they have the benefit of a very healthy stock price, which gives them access to cash if they need it. Something most start ups don't have.
17) Legal Challenges - This is one of those wild card things that could hurt them. Some people predicted problems with auto pilot, but thus far the company has been amazingly free of legal challenges. There have been a few lawsuits, but none have threatened the future of the company. It's always possible somebody may come up with some kind of product liability lawsuit that puts the company in danger, but the probability is probably lower than a pivot gone bad and, as I said, I think that one is pretty low.
18) Don't Use Network/Advisors - They seem to utilize intellectual resources pretty well. I haven't seen any serious problems here.
19) Burn Out - This could be a problem for Elon especially, but also for a lot of their people. People are expected to work 60 hours a week and basically live there. This became a problem at Microsoft. Too many Microsoft employees burned out and went to work somewhere else, taking their expertise with them. It hasn't killed Microsoft, but they have lost some of the edge they once had. I could see Tesla losing its edge from employee burn out and turn over, and they are having a brain drain to other car companies in California, but I don't see it as an imminent threat to the company unless the brain drain gets much worse.
20) Failure to Pivot - So far this hasn't been a problem, but they are in a space right now with no comparable competitors. Considering how flexibility and ingenuity are woven into the company's DNA, I doubt this will ever be a problem. It's much more likely they will pivot badly and fall on their face than fail to pivot.
All in all, I don't see a likely scenario where Tesla fails at the moment. It is still quite possible they might fail, another big economic crash could kill them, so could a badly executed Model 3 launch, or a major lawsuit from a currently unknown vector. There are ways the company could fail, but I don't see them on a failure trajectory today, despite what the hand wringers like to say.
There are a number of sites out there with analysis of why startups fail, many cite a study of failed start ups that came up with 20 reasons. Such as this:
The Top 20 Reasons Startups Fail
I'll go through each reason for failure and how much it applies to Tesla, or not. For some of these, Tesla is beyond the stage where companies fail. Tesla is into the late entrepreneurial stage at this point. On to my analysis...
1) No Market Need - This is the biggest reason for start ups to fail. "Need" is a term that is open to interpretation, but in this case I think a good case can be made that there is a need for long range BEVs. At least as much need as there was for a number of other start ups that succeeded. Even if you aren't concerned about the environment, battery technology has been inching to the point where long range BEVs were going to get competitive with ICE cars on price and there are a lot of economic advantages to BEVs.
2) Run Out of Cash - Tesla has almost run out a couple of time, though this is less likely now than with many start ups. Tesla has the advantages of a strong stock price in combination with a product that is selling close to expected numbers with a good profit margin per product. Tesla did have to raise some cash earlier this year to get through to the Model X launch, but as long as the stock price remains strong, Tesla has an ATM to tap if they need to.
With mismanagement, Tesla could run out of cash, but with their spending patterns up to now and the X going from a money burner to an income source, the odds of them running out of cash are low.
3) Not the Right Team - This was an issue up to the Roadster launch and it is the reason Elon Musk is now CEO. By the time the Roadster was close to ready, Tesla was headed for failure from running out of cash, problems with the team, and mismanagement. Musk stepped in and pushed out a number of people who were more trouble than help, and streamlined the operation. Since then the team may not have been completely happy all the time, but they are pretty effective.
4) Get Outcompeted - This is the one so many people are wringing their hands over, but it is one of the least likely at this point. The odds of this are very small though. The key technology for electric cars is the batteries, and there are two factors: quality and price. For quality, batteries need high capacity, charge time, whether it has a memory or not, and how many charge cycles it can take without degrading. The ideal battery would have ultra high capacity, never degrades with infinite charges, and has ultra fast charge times. In the real world, all the battery technologies we know of right now have limitations in all these areas and every chemistry has trade offs with other chemistries. As for price, the price of batteries has been dropping somewhat steadily for many years.
As for price Elon Musk is a numbers guy, he ran the numbers and came to the conclusion that a large vertically integrated factory located as close as possible to the source of raw materials could make batteries cheaper than anyone else, hence the Gigafactory. It is possible he's wrong, he is not infallible, but even if he's wrong, it's unlikely he will be wrong in such a massive way the competition will have a major advantage. Even if the Gigafactory doesn't beat the competition on price by a wide margin, it is almost certainly going to be competitive.
The only scenario I can think of where Tesla gets out competed on price is if another car maker got a solid patent locked down on a killer battery chemistry that is way ahead of current chemistries AND they are able to get their batteries into production and into cars about 10X faster than anyone else. Current wisdom is that any major breakthrough in battery technology is going to take at least 10 years to get from the lab into cars. Possibly longer.
This is such an unlikely scenario that getting outcompeted in anything less than the next 10 years is unlikely. The potential market for pure EVs is massively larger than it is now, on the order of at least 100X bigger. Right now consumer demand isn't huge because there is no affordable long range BEV on the market. Tesla has the range, but at a price, and the rest of the market is just getting ranges up over 100 miles. Most BEVs are also small vehicles that are often weirdmobiles, which doesn't appeal to the core of car buyers.
Once there is a long range (better than 200 mile) affordable BEV available, the public will start paying attention and demand will likely go up. It's highly likely that demand will end up stripping supply once people realize they can have a BEV that meets most, if not all their driving needs. Once that point it reached, the bottleneck to mass marketing of BEVs will be batteries.
Tesla is the only company that will be in a position to build a large number of long range BEVs. LG Chem supplies a lot of companies with batteries, but they supply small battery packs to a lot of low production vehicles and in a few cases they will be supplying larger battery packs to a few limited production vehicles. Most car companies are scared to commit to a given battery chemistry for fear it will be obsolete in a few years. Tesla is taking the strategy of building the best they can with what is available today, and they will switch chemistries as needed. Unless there is a radical change in chemistry, it is unlikely the Gigafactory is going to need too dramatic a change to adapt to the next generation of chemistry. A major change is going to have a lot of lead time too because of the 10+ years between lab and production. So Tesla is going with good enough for today and we'll adapt as needed for tomorrow instead of sitting on the sidelines paralyzed by the possibility the chemistry they commit to today won't be used in a year or two.
People just can't grok how much world battery production has to increase and how much it will be a bottleneck when BEVs take off. If the Chevy Bolt turns out to be a mega hit with customers and lots of people want one, they can't have one because Chevy won't have the ability to build more than the planned 35,000 a year for some time after introduction (at least a year or two). On the other hand, even if the Model 3 is delayed, Tesla has a road map to get to 500,000 cars a year in a short time. And critical to this calculation is Tesla will not be battery limited in this ramp up. They will be the only car company with the battery capacity to build 600,000 BEVs a year by the early 2020s (even if they aren't building that many cars).
So even if other car companies come out with a BEV that gets customers salivating even more than people salivate for Teslas (hard to imagine, but maybe somebody will hit on some killer feature everyone else has missed), Tesla will be the only car company in any position to deliver on a higher demand for BEVs. The competition also has to overcome resistance from dealers who don't want to sell BEVs. That can be overcome, but it's an extra obstacle Tesla doesn't have to contend with.
5) Pricing/Cost Issues - Tesla has been very careful in this regard. The plan from the beginning was to come out with a full electric vehicle that had good range and was fun to drive, but was expensive (the Roadster), then come out with a more affordable car (the Model S and X), and finally come out with an even more affordable car. Tap the well heeled who are early adopters and are willing to accept teething problems in somewhat limited production cars, and then once they knew how to build cars AND the public's appetite was whetted, deliver a car for the masses that a large percentage of new car buyers could afford.
This plan almost came unraveled with the massive cost overruns on the Roadster. This was partly due to inexperience at all levels, but most critically it was a problem with upper management. When Elon took over and started running the company more competently, the cost overruns came way down. They still have them to some extent, but it's more on scale with typical engineers being overly optimistic about schedules than the waste that was going on during Roadster development.
6) Poor Product - Some people make noises about this based on things like the Consumer Reports reliability report, but overall it really isn't a problem. The bulk of problems were on early cars and while not all problems have been completely resolved, the cars coming off the lines today are much better than 2013 models. The fact Tesla is aiming to produce more cars in Q4 2015 than ever before is an indication that any reports of quality problems are not hurting sales all that much. Tesla has the highest owner satisfaction rating in the car business, and this is despite the problems.
So ultimately this one is probably one of the lowest probability failure scenarios.
7) Need/Lack of Business Model - Elon has the advantage of running 4 start up companies in his life. He is very good at putting together business models and has a clear and detailed roadmap for Tesla out to 600,000 cars a year with a decent strategy for the next steps beyond that.
8) Poor Marketing - So far this has not been a problem at all. They spend no money on media ads, yet the world beats a path to their door. Something almost every other company in the world is envious of.
9) Ignore Customers - There have been some complaints here about this, however, they have the best customer satisfaction in the industry for a reason. If more than 90% of owners say they are happy with customer service, then they probably aren't ignoring their customers very often.
10) Product Mis-Timed - This almost killed Tesla in the 2008 economic crash, but they survived and grew through the worst recession in 80 years. At this point this doesn't apply anymore.
11) Lose Focus - This could happen, especially if Elon steps down to concentrate on SpaceX, which there are rumors he may do when the Model 3 is launched. I think they did lose a little with the Model X. The car ended up being more complicated than it should have been, but overall I think they are focused enough to make a few mistakes and survive.
12) Disharmony on Team/Investors - This is related to #3 and did almost happen back in the Roadster days. It's unlikely now.
13) Pivot Gone Bad - They are pivoting to the Model 3 in the next few years and it is possible they will make a major mistake there. This is a possibility if the Model 3 is poorly designed, but the likelihood of that is relatively low. This is probably the most likely failure scenario, but I still think it's unlikely.
14) Lack Passion - This is definitely not the case.
15) Bad Location - This is the opposite of a problem. They lucked into the largest car factory in the West for pennies on the dollar and it was still full of equipment left over from the GM/Toyota days. And the factory was not far from their head offices in Palo Alto. They have access to all the talent in Silicon Valley with the factory a short drive away, few Silicon Valley companies of any size can claim that.
They have had some problems breaking into some states, but it hasn't dramatically hurt their business.
16) No Financing/Investor Interest - This was a serious problem in 2008 when the company almost went under. However they have the benefit of a very healthy stock price, which gives them access to cash if they need it. Something most start ups don't have.
17) Legal Challenges - This is one of those wild card things that could hurt them. Some people predicted problems with auto pilot, but thus far the company has been amazingly free of legal challenges. There have been a few lawsuits, but none have threatened the future of the company. It's always possible somebody may come up with some kind of product liability lawsuit that puts the company in danger, but the probability is probably lower than a pivot gone bad and, as I said, I think that one is pretty low.
18) Don't Use Network/Advisors - They seem to utilize intellectual resources pretty well. I haven't seen any serious problems here.
19) Burn Out - This could be a problem for Elon especially, but also for a lot of their people. People are expected to work 60 hours a week and basically live there. This became a problem at Microsoft. Too many Microsoft employees burned out and went to work somewhere else, taking their expertise with them. It hasn't killed Microsoft, but they have lost some of the edge they once had. I could see Tesla losing its edge from employee burn out and turn over, and they are having a brain drain to other car companies in California, but I don't see it as an imminent threat to the company unless the brain drain gets much worse.
20) Failure to Pivot - So far this hasn't been a problem, but they are in a space right now with no comparable competitors. Considering how flexibility and ingenuity are woven into the company's DNA, I doubt this will ever be a problem. It's much more likely they will pivot badly and fall on their face than fail to pivot.
All in all, I don't see a likely scenario where Tesla fails at the moment. It is still quite possible they might fail, another big economic crash could kill them, so could a badly executed Model 3 launch, or a major lawsuit from a currently unknown vector. There are ways the company could fail, but I don't see them on a failure trajectory today, despite what the hand wringers like to say.
