Analysis of Tesla Motors
Analysis of Tesla Motors
Introduction
Organizations must use any strategy that will enable the organization to stay competitive and to also learn about any processes within the organization that could be changed in order to increase proficiency and efficiency. One such process is a critical analysis of the microeconomic and macroeconomic environment as well as any challenges that the organization may be encountering. This essay will perform an analysis of Tesla Motors to include the history of the organization, organizational regulations, factor markets, global pressures and foreign competition, cost structure, economies of scales; a critical analysis, practices of economic theory to create profit maximization of the Tesla Organization, analysis of economic implications of operating in global markets, assessment of the impact of ethical and regulatory considerations, analysis of the macroeconomic environment of corporate operations, and the report will conclude with recommendations that will enable the continued success of the organization. A SWOT and PESTLE analyses of Tesla Motors is also included within this report.
Tesla Motors
Tesla Motors began in 2008 with the manufacturing of advanced electric vehicles and electric powertrains known in the world. The Tesla Roadster was introduced in 2008 (Successstory.com, 2016). At this time the organization has 3 models on the road to include Tesla Roadster and Tesla Model S with a third car Model known as Model X which was introduced to the market in 2015 as well as a battery product for home use called the Powerwall.
The company was originally founded in 2003 by Martin Eberhard and Marc Tarpenning with Elon Musk, JB Straubel, and Ian wright joining the organization at a later time. The name of the company was inspired from an electrical engineer and physicist. The AC induction motor was patented in1888 by Nikola Tesla.
The organization’s main office is in Palo Alto, California. The company operates over company owned showrooms worldwide. The company’s European headquarters is located in Amsterdam, the Netherlands and the company is growing. From the beginning of the company, over 50,000 vehicles were sold and the company successfully launched the Model X which is a crossover vehicle that entered the market in 2015. The company launched its Initial Public Offering (IPO) on NASDAQ in June 2010 at a price of US$17.00 per share with over 13,000,000 shares of common stock being issued to the public. Over $226M US dollars was raised via the IPO with Tesla being the first American car maker to go public since Ford Motor Company IPO occurring in the 1950s. In the first quarter of 2013, the company posted profits for the first time since its beginning. The financial information for the organization for the year 2014
(Successstory.com, 2016)
Organizational Regulations
The Code of Business Conduct and Ethics was adopted by the Board of Directors in May 2010 including a large range of business practices and procedures requiring that all employees, directors and officers conduct themselves according to the code. This code covers compliance with laws, rules, and regulations with the company holding training sessions to promote compliance with the laws, rules, and regulations; conflicts of interest with every officer, director, and employee being aware of the laws relevant to conflict of interest; insider trading with employees respecting confidentiality of the client; corporate opportunities with Tesla being charged with outperforming the competition by being fair and honest; ensuring that there is no discrimination and harassment within the organization as the diversity of the employees is viewed as an asset; and reporting any illegal or unethical behaviour (Ir.tesla.com, 2016). While there are more clauses within the code of business conduct and ethics, these are the most stringent.
Corporate Governance
The Corporate Governance Guidelines have been established by the Board of Directors of Tesla Motors, Inc. and provide the needed structure within the organization allowing the directors and management to effectively pursue the objectives for the benefit of the stockholders. This process sets a flexible framework allowing the Board to conduct business in an honourable manner versus binding legal obligations (Ir.tesla.com, 2016). The organizational charter document and other governing legal documents take precedence should there be a conflict relative to the guidelines.
Factor Markets
When viewing economics, a factor market refers to the marketplace for the services of a factor production. This process facilitates the purchase and sale of services of factors of production which are viewed as inputs to include labor, capital, land and raw materials that are used by a firm to make a finished product (Picardo, 2015). Tesla Motors desires to fulfill its vision to provide a complete sustainable energy solution to its customers with The US Federal Trade Commission announcing in August 2016 that Tesla was granted permission to acquire solar-panel company SolarCity. Tesla is interested in SolarCity as this company has already produced energy storage products (Sparks, 2016). The merger of these two companies will allow Tesla and SolarCity to create fully integrated residential, commercial, and grid-scale products that will have the ability to improve the way that energy is generated, stored, and consumed.
Global Pressures and Foreign Competition
International expansion is crucial for Tesla Motors as the global market is needed to enable an organization to be experience maximum business success. When viewing the organization’s international operations, the company made its first delivery in Europe in 2013; its first car in Asia in 2014; and expects China to be one of its biggest markets in the future (O'Hara, 2016). Tesla has stated that its orders have increased by 50% in Europe in the 2nd quarter of 2015 in comparison to the growth of US orders that were approximately 30% over the same period. This is one reason that expansion into international markets is crucial for the organization as Tesla plans to follow the example of US automakers Ford and General Motors who also expanded into the global market reaping revenue increase for their perspective organizations (O'Hara, 2016).
Cost Structure
All organizations are concerned with cost structure as it concerns the expenses that the organization must consider in the manufacturing of a product or providing a service. These costs range from transaction costs to fixed costs as the cost structure is the ratio of fixed costs to variable costs. One way that Tesla Motors has improved its cost structure is by cutting factory cost to enable the generation of profit (Ohnsman, 2012). The company was able to make this happen by designing an assembly floor that can be reconfigured based on the change in production patterns which is a very smart move for the businesses low production volume. The company no longer invests in a fixed conveyor line to carry vehicles to different production stations but uses automated carriers that follow a magnetic tape strip that guides the car through the production process. Tesla also has a short indoor test track which cannot be copied with gasoline cars as well as a rain-testing booth (Ohnsman, 2012).
Economies of Scale
Economy of scale is the proportionate savings in costs gained by an increased level of production. Tesla Motors seeks to grow the business within the global market and must view economies of scope in international strategies to include (1) gaining access to new customers as well as the organization’s current products/services; (2) gain access to low-cost factors of production; (3) develop new core competencies; (4) leverage current core competencies in new ways; and (5) manage corporate risks (Draughon, 2014). Tesla is already exploring this strategy thereby making their move in increment steps thereby enabling the success of the plan.
Critical Analysis
(Dalvagas, 2016)
How Tesla Motors can Create Profit Maximization
The organization can create profit maximization by gaining an understanding of lean enterprise as the full potential of lean can be experienced by the entire supply chain. Just as Toyota’s aftermarket parts distribution system is still viewed as the global benchmark supply chain that delivers almost perfect availability with about 1/10th lead time and inventory in the pipeline from the point of production, Tesla Motors can use this process to enable a rapid response distribution system that can be effective (Jones, 2014). Research has proven that focusing only on maximizing profits has the paradoxical effect of reducing the rate of return on investment. The Tesla Organization must be concerned about the long term of business by developing the company capacity to continue to innovate and adopt the strategy of being focused on the employees, customers, and the products. This process will create profit maximization that will endure enabling the sustainability of the organization.
Ethical behaviour by an organization and regulatory considerations affect the company in several ways to include reputation, brand, and leadership ethical behaviour. Tesla Motors has been successful in both of these areas and must continue to do so to ensure the continued success of the business. It is now time to review the impact of ethics and Tesla Motor Company and the impact of regulatory considerations.
Impact of Ethics and Tesla Motor Company
Tesla has been tested relative to the ethical behaviour of the organization by having to respond to a Model S Fire. The incident occurred in October 2013 when the driver of the Model S ran over a large metallic object that was in the middle of the highway. A warning light came on telling the driver to exit the car. The car exploded into flames; however, no fire entered the cabin. After an investigation it was found that a piece of metal had fallen off a tractor trailer and had punctured a hole in the quarter inch thick ballistics grade aluminium underbody shield thereby allowing debris to damage the battery causing the fire. Mr. Musk, the CEO of Tesla personally released a statement concerning the incident on Tesla’s website two days after the crash with the release providing a full explanation of the event as well as email correspondence between Tesla and the involved car owner (Salazar, 2014).
There were several other incidents with the Department of Transportation confirming that the fires occurred after debris penetrated the bottom battery shield thereby creating damage to the car’s battery. Further investigation revealed that no defects were found in the shielding or the batteries that were used in the Tesla Model S. The company made the decision to test the shielding on over 150 level tests with Mr. Musk informing the public in the first quarter of 2014 of the implementation of the shield on all future S model cars. Mr. Musk release a statement to the press giving detail about the incidents providing information and test videos revealing information concerning the new shield technology and explaining why the organization made the decision to implement the shield even though there was not a recall. Mr. Musk also stated that any S Models that were on the road could receive the upgrade at any time in the future free of charge (Salazar, 2014).
This is a perfect example of ethical behaviour being practiced by leadership. The CEO took the initiative to voluntarily research as well as address the issue without being forced to do so. The action of the CEO also appeared to be genuine and was also immediate. Tesla’s actions improved the company’s financial performance due to the positive implications for the company brand. Ethical behaviour led by leadership is a good example for employees, the community, and the reputation of the organization.
Impact of Regulatory Considerations and Tesla Motor Company
With innovation comes the need to overcome regulatory hurdles. Tesla Motors has encountered regulatory opposition in the states of Texas, Arizona, and New Jersey as the organization attempts to move forward in selling directly to consumers bypassing conventional dealerships (Solman, 2014). Tesla Motors has stated that the company does not desire to avoid dealers but desires to sell directly to the customer as the cars introduce new technology with the consumer needing to be educated about the product. This is a process that takes time with dealers not being interested in investing the needed time to educate themselves or the customers especially since only a small number of cars would be sold each year. Tesla Motors also believes that states are blocking the direct sales of the cars while also impeding consumer freedom of choice and acting to hinder the free market (Solman, 2014). This is a challenge that must be overcome for the organization to grow successfully domestically before having the ability to give focused attention to reaching the global market.
Analysis of the Macroeconomic Environment of Corporate Operations
The macroeconomic environment factors are the national and global events that are not in the control of the organization. This can include acts of terrorism, increases in the cost of supplier products, and things of this manner (Sun, 2016). There can also be negative downline effects. As an example, when the terrorist attacks occurred in 2011, airline travel was halted causing a domino effect that was felt throughout the world. Please review the PESTLE Analysis of Tesla Motors listed below.
(SpherePress, 2016)
This information can guide the organization in creating a strategic plan that will allow for quality decisions relative to the macroeconomic environment of corporate operations.
Analysis of the Microeconomics Environment of Corporate Operations
Microeconomic factors involve company specific trends and are factors that keep the business operating. Revenue, earnings and margin are key micro factors at the company (Sun, 2016). Micro factors are part of Tesla Motors business and can be adjusted to meet organizational need by management. Tesla Motors must ensure a very stable relationship with suppliers and vendors, the location of the business and financing. These are concerns that must be included within the strategic business plan thereby allowing the organization the ability to make any needed changes that will assist in the continued success of the organization.
Conclusion
Within this report is information concerning Tesla Motors to include the company history, financial information, and organization regulations. The organization has a code of business conduct and ethics that are practiced and corporate guidance that guides the day to day operations of the organization. Understanding factor markets allows the organization to fulfil its commitment to the business as well as the customers, and the employees.
The organization has a plan to grow its business within the global market; however, in order for this process to be successful, there must be an understanding of the global pressures and foreign competition. While learning from the successes of Ford and General Motors who successfully moved into the global market, there must also be consideration for the cost structure and an understanding of economies of scale. The critical analysis process included a SWOT analysis revealing the strengths, weakness, opportunities, and threats of the organization. From this information Tesla Motors can create a strategic plan that will enable profit maximization. The company is ethical and proved this to be true with the way in which the newest car, the Model S experienced some issues relative to the under carriage and battery issues. The CEO took charge and was vocal not only to the press but to the customers who encountered the issues. This act proved to the consumer that the company is not just interested in making profit but is also genuinely concerned about the customer.
Tesla Motors has been impacted by regulator issues within the US and must find ways in order to reach a resolution that will enable the company to grow. An analysis of the macroeconomic environment of corporate operations included the PESTLE analysis that revealed the political, economic, social, technological, environmental, and legal concerns for the company. With the information gained from this study, Tesla Motors can form a strategic business plan that will enable growth within the global market. This information is most beneficial to the organization allowing the ability for quality decisions to be made that will strengthen the organization for the long haul of doing business.
Recommendations
Tesla Motors is a very successful company that is stable and that has an understanding of its future. The company is innovative and believes in its product. The company has a leading advantage based upon good leadership/management and understands how to be creative with solutions that solve issues based upon new technology. The company has a differentiated business that will continue to grow as long as there is the continued respect of employees and a concern for the customer. These are recommendations that will allow the company to continue on the path to success with innovation leading the way.
References
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Ir.tesla.com. (2016). Code of Business Conduct and Ethics | Tesla Motors. [online] Available at: http://ir.tesla.com/corporate-governance-document.cfm?documentid=7159 [Accessed 28 Aug. 2016].
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Ohnsman, A. (2012). Tesla Motors Cuts Factory Cost to Try to Generate Profit - Bloomberg. [online] Bloomberg.com. Available at: http://www.bloomberg.com/news/articles/2012-04-12/tesla-motors-cuts-factory-cost-to-try-to-generate-profit [Accessed 28 Aug. 2016].
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Solman, P. (2014). Innovators run into regulatory hurdles - FT.com. [online] Financial Times. Available at: http://www.ft.com/cms/s/2/1b9823b0-ea5d-11e3-8dde-00144feabdc0.html#axzz4IbO9XlP2 [Accessed 28 Aug. 2016].
Sparks, D. (2016). Tesla Motors, Inc. Moves Closer to Acquiring SolarCity. [online] Fool.com. Available at: http://www.fool.com/investing/2016/08/26/tesla-motors-inc-moves-closer-to-acquiring-solarci.aspx [Accessed 28 Aug. 2016].
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