Answer.The case statement is focused on the unpredictability of Tesla’s future as a successful car manufacturer in coming scenarios due to decreasing revenues and declining stockholder expectations. The case statement is derived from the problematic fact owing to an entire lot of issues like rising expenses, lawsuits against the direct consumer approach based business model, and unsupportive response from the local markets and trade analysts because of deliberate inflation of financial performance.
Given the importance of economies of scale in the auto manufacturing and technology industries, what is your long-term forecast for Tesla?
Answer.The auto manufacturers and technology industries have higher operational costs due to more of variable costs per piece as the products are assembled using parts from different manufacturers like those of the care engine, car battery, tyres, etc. Along with these costs, there are ongoing R&D expenses which fluctuate with respect to varying demand and changing market dynamics. Thus, the economies of scale compensate for these costs and provide the scope of sustainable profits for the technology-driven business like auto manufacturers.
In the case of Tesla, the long-term forecast is positive as they have already spent significantly for their own battery manufacturing project named ‘Giga plant’. Along with the commencement of this plant, Tesla will not only be able to cut down the costs of purchasing Panasonic Lithium battery pack, as it is the costliest component in the electric car. Further, self-owned battery manufacturing will also boost the economies of scale in terms of larger production based on an uninterrupted and self-governed supply of the battery pack for cars.
What can you glean from the financials of the company?
Answer.The financials of Tesla show a consistent drop in revenues from 2002 to 2013 and more of the cash flow getting trapped in the operational activities which show the net cash flow decline from $(52) million in 2002 to $ (266) million in 2012. Further, involvement in offshore business reflects in the drop in short-term capital gains for the business. The given figures of rising revenues in first 2 quarters of 2013 proves that the business can tackle the issues of negative cash flows by maximizing income via producing and selling more units. The economies of scale can resolve the issue of negative cash flows to a greater extent for Tesla motors.
What is the status of Tesla today?
Answer. Tesla is currently underperforming with its revenues in first quarter of 2016 with an almost 200% drop in revenue when compared with that of last year’s performance leading a drop of revenue from -$107.63 million to -$320.40 (The Street Wire 1). The revenues are still not performing up to the mark because of same local market disturbances and the debt-equity ratio is close to 2.6 which is a serious concern (The Street Wire 1).
What are the “lessons learned?”
Answer.The main lessons learned are as follows:
Market diversification to offshore markets should be backed up by quicker revenue recognition for the sales and production for offshore markets should be like the ‘Just-In –Time’ manufacturing strategy adopted by Toyota motors.
Proper legal clearance for commencing an unconventional business model should be availed by any means. The resistance from the state government regarding direct approach based sales has affected the nearby markets and Tesla motors were forced to switch to offshore markets in spite of unsatisfied domestic demand.
Financials and revenue realization policies in the books should never be overestimated to convince stakeholders because disclosure of such practices can lead to severe loss of goodwill which can be disastrous for innovation based products.
Works Cited
The Street Wire. " Tesla Motors (TSLA) Rising Before The Market Opens". 2016. Web. March, 16.2016.
