Aldo Toledo MGMT 475Case Study:Tesla, Inc.(TSLA)Executive Summary:Tesla, Inc. which was formerly known as Tesla Motors is an American corporation that specializes in electric vehicles, energy storage, and solar panel manufacturing. Tesla was founded in 2003 in Palo Alto California. The founders were Martin Eberhard and Marc Tarpenning. Co-founders were Elon Musk, JB Straubel, and Ian Wright.
They were influenced to start the company due to GM recalling and stopping production of their EV1 electric cars in 2003. Co-founder Elon musk Joined the board of directors as its chairman. Musk was then the controlling investor in Tesla, providing $7.5 millions of his own personal funds. Original CEO, Martin Eberhard was asked to resign in August 2007 by the board of directors. Eberhard stayed in Tesla and took the title of “president of technology “before leaving the company in 2008 along with Marc Tarpenning who served as CFO.
Musk converted 8 million preferred shares into common in order to control enough votes to remove Martin Eberhard as CEO. Musk was also the sole investor of their $40 million series E round. This helped Musk arrange a bridge loan that saved the company from bankruptcy in 2008 after this Musk became CEO.
Tesla released its first car, the Tesla Roadster in 2008. It was the first production automobile to use lithium-ion battery cells and the first production EV with a range greater than 200 mi per charge. Between 2008 and March 2012, Tesla sold more than 2,250 roadsters.
On June 29, 2010, Tesla launched its IPO on NASDAQ. Starting price was $17.00 per share with 13,300,000 shares of common stock issued to the public. In June 2012 Tesla began shipping its Model S sedan and in 2015 Its model X SUV.
Global sales of the Model S reached 100,000 in December 2015. In March 2016, Tesla unveiled the Model 3. The following week, global reservations totaled 325,000. On March 2017 Tencent Holdings Ltd had purchased a 5% stake in Tesla for $1.8 Billion. Tesla has also surpassed Ford Motor Company and General Motors in market cap for a couple of months.
This made Tesla the most valuable American automaker. Tesla has also appeared in the Fortune 500 list for the first time in June 2017. Tesla has also been in the news recently, in November 2017 they unveiled their new vehicles, the updated roadster, and a new semi-truck.
The roadster will start at $200,000 with $50,000 deposit upfront and can do 0-60 mph in 1.9 seconds. The semi-truck has a maximum payload of 80,000 pounds over 500 miles at highway speeds, which is double what rivals Cummins and Daimler’s truck prototypes offer and can also do 0-60 mph in five seconds. In February 2018 Musk launched his own roadster into space with his SpaceX’s Falcon Heavy rocket.Current Situation:Company’s Current PerformanceLooking at Tesla’s 2017 fourth quarter financials, they have $3.2 Billion in revenue for the quarter and a net loss of $675 million. When comparing to previous quarters Tesla’s losses are increasing while revenue is also increasing. Some factors that could be leading to the continuous losses is SG;A (selling, general and administrative).
When looking at their yearly balance sheet starting from 2014, they had a long-term debt balance of $1.8 billion and through 2017 their long-term debt has increased to $9.4 billion. This shows that Tesla is funding a lot of their operations with debt.
With debt continuing to increase this puts Tesla at a high risk of bankruptcy. If they keep the same strategy Tesla will continue to have losses if long-term debt keeps increasing at a fast rate. The production of the model of 3 has had some delays and many people who ordered their cars still haven’t received it by their set date.
Musk had intentions for the company to make 2,500 model 3s per week by the end of March 2017 and 5,000 per week by the end of the second quarter. The production of the model 3 ended up being worse than what Musk anticipated. Estimates of the car being delivered are in late 2018, customers placed their orders back on March 31st, 2016.
Strategic PostureMission: “Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible. If we could have done that with our first product, we would have, but that was simply impossible to achieve for a startup company that had never built a car and that had one technology iteration and no economies of scale. Our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that seemed like it had the best chance of being competitive with its gasoline alternatives.” (Tesla,2016)Objective: “With Tesla building its most affordable car yet, Tesla continues to make products accessible and affordable to more and more people, ultimately accelerating the advent of clean transport and clean energy production. Electric cars, batteries, and renewable energy generation and storage already exist independently, but when combined, they become even more powerful – that’s the future we want.” (Tesla,2016)Strategies/Policies:While Tesla is trying to make affordable cars with their model 3, it took a unique approach to getting its first vehicle on the market. It sold a high-end performance electric luxury sports car, this was to establish its brand. Tesla has a direct sales strategy, unlike other car manufacturers who sell through franchised dealerships.
They have created company-owned showrooms and galleries inside malls. Their reasoning for this was to create a better customer buying experience and unlike dealerships, there is no conflict of interest. Customers only deal with Tesla employed sales and service staff. Their policy is to give their consumers the best experience possible. They have service and sales centers but with increasing customer demand they have a feature called Tesla Rangers. These are mobile technicians who can service your vehicles from your house.
Technicians can also view the problem without having to be at your home. The vehicle’s information can be wirelessly uploaded so technicians can view and fix the problem.Strategic Managers:1839433203376Elon muskChairman, Product Architect and CEO00Elon muskChairman, Product Architect and CEO39765771296589994601296584529469225706JB StraubelChief Technical Office00JB StraubelChief Technical Office-414670236337Deepak AhujaChief Financial Officer00Deepak AhujaChief Financial OfficerBoard of directorsElon MuskChairman, Product Architect and CEOBrad W. BussDirector Robyn M. DenholmDirectorIra EhrenpreisDirector Antonio J. GraciasDirectorSteve JurvestsonDirector James MurdochDirectorKimbal MuskDirector Linda Johnson RiceDirectorExternal Environment:Many automobile brands are in plans for releasing fully electric cars in the future.
Brands like Jaguar, BMW, Porsche, and Nissan are few of the many. This could affect Tesla with sales as competition increases, this also doesn’t give Tesla the uniqueness it currently has as an all-electric car. Tesla Is currently struggling with production on its Model 3, other companies with more efficient supply chain management will also cause trouble for Tesla. Consumers will realize why to wait so long for a Tesla when they can get another similar alternative the same day at a dealership. The Model 3 is the cheapest model in the Tesla line up, competition could also produce cheaper alternatives and it will turn more people away from Tesla.
Current Talks about a trade war with China is also negatively affecting Tesla. China has mentioned of placing an additional 25% import tax. Internal Environment:In a recent interview, Musk admits that Tesla has become too heavily dependent on robots for its production of the Model 3 and it’s actually causing a huge delay. While it is more efficient and less expensive in the long run, it’s not reaching its production goals. When Tesla launched the Model 3 in July, Musk said the company would produce 20,000 a month by the end of 2017. In the fourth quarter, it made just 2,425. Musk’s main goal is to increase production of the Model 3 and it is reported that he even sleeps in the factory to be there at all times in order to fix any issues along the way.
One of Tesla’s senior engineers has taken a break from the Model 3 production. This indicates how stressful the environment is at the moment as they need to find ways to improve the efficiency of the production. The current stock price as of 5/11, is $301.06 per share. This is low compared to their all-time high of $389.
61. Many factors come into the volatility of the stock price. Many articles of Tesla facing bankruptcy in the future has put many investors uneasy. Musk even joked about bankruptcy on April fools saying “Tesla Goes Bankrupt Palo Alto, California, April 1, 2018 — Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can’t believe it.”. This tweet from musk made the stock drop 7%.
During an earnings call on May 2018, Musk would exchange with analyst calling their question “boring bonehead questions”.Problem Analysis: Tesla’s main problem at the moment is reaching their target goal in the production of their model 3 vehicles. Other issues are also hurting and their image.
Recent fatal crashes appeared on the news of drivers crashing while using a Tesla with their autopilot feature engaged. This type of news turns away investors and potential consumers. More news of this will have people thinking that Tesla’s aren’t as safe and will rather go to a brand their more familiar with and trust. Investors also look away from Tesla when Hedge fund managers like, John Thompson of Vilas Capital Management says Tesla will go bankrupt in a couple of months. Also, news of big investment banks like Goldman Sachs saying Tesla needs Billions to survive hurts investor confidence. All this negative news has made Tesla beat Apple when it came to which stock is being shorted the most.
Identification of Alternatives: One-way Tesla could achieve its production goal is if it focuses on just the production of the model 3 and holds off making their semi-truck and updated roadster. Tesla set the model 3 as their main objective but they still fall short of their weekly goals. Some cons to this are their competitors might take advantage and catch up with Tesla and produce better alternatives. To improve the production speed of their model 3 they need to reduce the number of machines and hire more people.
While that is a good way to improve production, it will be more expensive in the long run and Tesla can’t afford to keep losing money. Another alternative would be to lower their prices for their higher end models like the Model S and Model X. This will attract a lot more buyers, but it will lower Tesla’s profit margin and take away the image they have a luxury brand.Implementation:Once Tesla adds more people to the production of their Model 3 they will make the proper adjustments and only use machines in areas where people struggle during the production.
Having a balance of machines and people will improve the speed and help Tesla with future productions when they release more Cars to the public. Not only will consumers get their car quicker it will also improve investor confidence as Tesla starts reaching their production goal. This is now especially important when it’s time for production of their semi-trucks and roadsters. Tesla has done well with many companies preordering their semi-trucks but if they can’t deliver on time, it will prevent any future business. Tesla would also need to figure out how to continue growing without raising its debt. Tesla recently acquired the solar-panel installer, Solar City founded by Elon Musk’s two cousins.
The $2 billion purchase came with a $2.9 billion debt load and put a strain on Tesla’s finances. Musk should focus on eliminating a big portion of their debt before acquiring other companies. While the Solar city isn’t the main cause of their debt problem, it doesn’t help solve the problem either.Conclusion:In conclusion, Tesla is well known for their fully electric cars, with Their most popular model being the Model S. Tesla has always had problems with their finances but recently they have developed a new problem. Tesla announced their newest vehicle the model 3 back in 2016.
It is their most affordable Tesla, starting at $35,000. This attracted a lot of consumers who were interested in Tesla but couldn’t afford the higher end Model S. While a high number of reservations seems like a good thing, it was more than what Tesla expected. Tesla originally had a goal of 2500 of model 3’s to be built per week but couldn’t achieve it due to many issues with production. They realized that their production plant was relying too much on machines and it was actually slowing it down. Using machines saves more for the company but it slows production. Some consumers who reserved their Model 3’s back in 2016 still haven’t received their cars due to the production. This will continue unless they decide to add more people to the plant to replace in areas that machines perform the slowest.
This can improve their production speed and bring back their investor confidence. Tesla also needs to stop acquiring companies and focus on their current issues if they plan to stay in business longer. It already has a debt problem and continuing to add to this will lead Tesla to bankruptcy. Once Tesla gets their production up to speed they can start production of their upcoming models like the roadster and Semi truck. If Tesla continues to stay the same, it will struggle more when they need to fill the orders from their reserved roadsters and trucks.Reference pageGamble, J.
E., Thompson, A. A., ; Peteraf, M.
A. (2017). Essentials of strategic management: The quest for competitive advantage.
New York, NY: McGraw-Hill Education.The Mission of Tesla. (2013, November 19). Retrieved from https://www.tesla.com/blog/mission-teslaRandall, T. (2018, March 12).
Tesla’s Production Problems Spawn a Legion of Model 3 Stalkers. Retrieved from https://www.bloomberg.com/news/articles/2018-03-12/tesla-s-production-problems-spawn-a-legion-of-model-3-stalkersThe leading electric car maker’s struggles to ramp up production of its first mass-market car. (n.d.).
Tesla has a problem. Maybe a big problem. Retrieved from http://money.cnn.com/2018/03/28/news/companies/tesla-model-3-cash-crunch/index.htmlMatousek, M. (2018, May 19).
Tesla’s Autopilot used to be a huge advantage for the company- but now it’s becoming a problem. Retrieved from http://www.businessinsider.com/teslas-autopilot-faces-scrutiny-after-accidents-2018-5