Tesla Business Case Analysis PDF

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Tesla Business Case Analysis...

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Name: Course: Tutor: Date: Strategic Management Report of Tesla Executive Summary Tesla Motors, Inc. (TSLA) deals in the development, design, production and sales of superiorperformance entirely automated vehicles as well as products of energy storage. Its automobiles are manufactured principally in The Netherlands, California as well as at a new Nevada Gigafactory in proximity to Reno. The company, on the 29th of June, 2010, had its IPO. With its latest launch of the Model 3, it is one step ahead technologically, relative to other automobile manufacturers like Nissan and Toyota. However, the company is currently facing a lot of challenges pertinent to the production line. The levels of automation are clearly below the expected standards, translating therefore to a huge number of employees still running machines along the production and assembly lines. The operations at the production stage additionally have to be stopped occasionally for eminence inspections, which affects the success of the product as explained by in another instance as proof by Lachnit (2016), at the UK Sunderland plant, this Nissan facility, considered as among the most effectual globally, approximates that a mere downtime of 6 minutes on the production path pushes the hammers the operations. Investors in the company are thus experiencing also delays in returns but still have some faith in the company’s ability to solve the production problem given its previous success with the roadster model. This paper focuses on a strategic analysis, through SWOT analysis to critically examine the status of the company as per the current reports on the production challenges is facing, like inability to meet production targets; looking at the available strategic options that can lead to change and then recommending the most appropriate alternative for the company. Some of the proposed strategies are to automate the robotic aspects of the production line as they should be as well as boosting their efficiency, production speed and design flexibility. Finally, the paper concludes with a proposed implementation plan. Key words: Tesla, Production, Production line, Demand, Batteries, Model 3 SWOT Analysis Strengths Inimitable Status in the Auto Market: Tesla is not merely in the commerce of cars sales. It is changing the manner in which we drive as it delivers innovative novel technologies like the Model 3 which is fully electric and this eco-friendly. It might not be the sole auto producer that offering electric cars but, it has established, and conquered, the trade on long-range, opulence, electric vehicles, (Dalvagas, 2016). Healthy Sales Development: Tesla has been developing at a brisk pace within the past few years, and this can be attributed in larger portions to the public’s enthusiasm towards its

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automobiles. In 2015, its sales jetted up to 27 percent, subsequent to the previous year’s jump to 59 percent. The astonishing development has been motivated by sturdy worldwide demand for the Model S. 1st Qtr 2016 Model X orders, a model conceived in 2015’s 3rd Qtr, augmented up to 5 times on a sequential ground. Nonetheless, Model 3, the latest model, has stolen the spotlight with a much affordable 35,000 dollars price tag. Weaknesses Production Challenges: With the current lapse in the production effectuality that does not meet the demand of the Model 3, this is a very potential loophole for more losses to be recorded. The efficiency of the production line is wanting with most of the machines not automated; this accompanied by the fact that it is also not fast enough and has to be halted occasionally for standard checks. This has made pro tem manufacture targets slip by as much as 6 months. The slow speeds of production can also be associated to the battery production delays by its Nevada Company. Burning over Cash: Tesla, has been burning across notable levels of cash with time. This is by far owing to the momentous ventures it has placed on research as well as growth for transformative car technologies. It is additionally the result of the brisk development the company has witnessed in a few years following its establishment. The progressive auto producer recorded in 2011 revenues of just above 200 million dollars, whilst recording sales above 4 billion dollars in 2015. The company is additionally investing for the structuring of its Nevada’s Giga factory that has by now commenced production of battery packs and is probable to produce lithium cell batteries soon. These ventures have led to tremendous cash outlays. Tesla thus has posted free cash flows that are negative, same to earnings for close to each year following its IPO. The company has consequently been obliged to seek more debt as well as trade more shares. High Debt Load: Tesla has a comparatively elevated debt load. It has close to 2.5 Billion dollars of longstanding as of 31st of March, 2016. It also by then had capital leases upon its balance sheet, or approximately 72 percent of total capital. This relates to merely 1.4 billion dollars of available cash. Interest remittances on this debit are quite momentous, and will probably carry on tasting into its revenue earnings. Because Tesla is incapacitated to gratify its debt responsibility, owing to deficient cash flows, the company has been obliged to cut down or holdup investments as well as capital expenditures that are threatening to impede prospective expansion. Opportunities Cost-Reduction Programs: For Tesla to eventually commence posting revenues on Model 3, cutting down costs is a necessity. It is crafting advances to attain this objective. The company is underway in its initiative to build a Giga factory that will capacitate it to manufacture batteries for its autos at lesser costs, perhaps by 30 percent lesser as compared to its present pays. This plant should assist boost capacity, chiefly imperative because of the high Model 3 demands. The company’s aptitude to cut down costs and reinforce economies of scale whilst achieving better efficacies in manufacture and distribution ought to assist to cut on unit expenditures and better the fundamentals in future quarters.

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Model 3: Tesla’s latest brand was newly conceived to unexpected enthusiasm as well as fanfare in 2017 March. The Model is priced very affordable at 35,000 dollars lower than the previous models S and X costs-100,000 dollars each. Even though this might still seem expensive for some consumers, the price tag places the automobile in a similar price category as Audis and Mercedes-Benz’s lower-ends. The CEO of Tesla, Elon Musk, explained that “you will not be capable of buying a better car for at this amount…..” Model 3 is also among the safest autos on the road. The car could change Tesla from productions of 70,000 up to 80,000 cars, its current approximates to 10 times no sooner. Threats Funding Production Ramp; there are anxieties that the company may not be capable of finance its grand manufacture ramp in the months to come. Whilst Tesla astonished when it stated that it anticipates producing in 2018, 500,000 autos, 2 years ahead of plans, most questioned how precisely it planned to accomplish this. Whilst it had close to 1.5 billion dollars of cash available, as of 31st March, 2016, the capital ventures for the initiative exceed this. Tesla requires raising a noteworthy quantity of finances, by means of debt funding or maybe equity offerings. Competition: Automotive trade is by far very aggressive, even though Tesla has found itself in an exceptional position. Because of the lofty price of its present offerings, many of its antagonists are fellow luxury autos that are all presently relying on engines with typical internal combustion. Whilst other eminent auto organizations have experimented in entirely electric autos, none have actually made any noteworthy advance to slot them into their commerce. Now that Model 3 has hit the market, it faces competition from BMW, Audi as well as DDAIF (Daimler). It additionally faces competition from lesser priced electric autos like the the Chevy Bolt and NASNY-(Nissan Leaf). Each of these rivals has been in commerce years as compared to Tesla, and possesses better financial, production and promotion aptitudes. Tesla thus needs to confirm that it is up to the task of contending on a wider scale and at advanced volumes. Strategy Analysis and Options Strategic Goals 1. Penetrate the mass market with novel Model cars 2. Be at the forefront of building a wide network of stations for mass charging of electric cars 3. Trade original electric power train elements to fellow auto producers Tesla’s Differentiation and Rigorous Growth Stratagems Market infiltration (Principal Strategy): Currently, Tesla relies on market penetration as its principal rigorous growth stratagem. This empowers commerce development by boosting sales profits from its present markets. For instance, with aggressive promotion Tesla targets to rollout and trade more of its electric autos in the US. By this, the company maximizes its returns from the markets that it presently operates. This rigorous growth stratagem associates with Tesla’s generic stratagem by building on competitive advantage founded on increased share of the market. Product Improvement (Resultant Strategy): Product improvement is Tesla’s derivative intensive expansion stratagem. In this rigorous strategy, Tesla expands by coming up with new

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merchandise that produce fresh sales. The corporation utilizes this stratagem by crafting new products with superior technologies for reduced ecological effects. For instance, the company provides solar panels, and came up with the Model 3, a fully electric auto. This rigorous strategy backs up Tesla’s differentiation generic aggressive stratagem by centering on exceptional hightechnology vehicles and associated products that lure target consumers. Similarly, a strategic goal for this intensive expansion strategy is to uphold widespread investments in R & D -research and development. Diversification: Tesla utilizes diversification. However, this is so, just as a simply important intensive expansion stratagem. This assists in the growth of the company by virtue of new business establishment. For instance, the firm targets to craft new battery merchandise for an array of non-auto functions. Nevertheless, this intensive expansion strategy at present has irrelevant influences on Tesla’s financial performance. The company centers most of its attempts on market infiltration and product improvement to better it’s automotive as well as energy product commerce. Tesla can put to practice the differentiation generic aggressive stratagem to augment the probability of achievement in implementing this intensive expansion strategy. A strategic target associated to diversification is to augment the company’s R&D venture to spot new commerce exploits. An additional strategic target founded on this intensive stratagem is to buy other corporations or enter mutual investments to craft fully new produce. Market Expansion: Tesla, Inc. relies on market development as a tertiary rigorous expansion strategy. This approach entails penetrating new markets to create more trade and expand the global commerce. For instance, Tesla steadily expands its trade reach globally by setting up new offices as well as facilities. Currently, Tesla trades in merely handful of nations, but auxiliary international development is predictable. This approach backs up Tesla’s Vision and Mission statements that underpin worldwide leadership in the auto industry, with energy products for the transport as well as other segments. The differentiation generic stratagem capacitates market development by establishing exclusive products that lure consumers when a company penetrates into a new market. Founded on the market expansion intensive strategy, a tactical aim would be to expand Tesla Inc.’s international commerce by setting up alliances with other organizations that make it cheaper to penetrate fresh markets. Suggested Strategic Options Option 1: Work on improving the Giga factory so as to solve the issue with battery production delays and to help cut down on the costs of production. Since the major problem facing Tesla at the moment is linked with the production of its 35000 dollar Model 3, this would be one of the most paramount fields in which the company can venture so as to curb the already threatening levels of demand for the new model. This project is already underway and focuses on developing it and building on its efficiency can assist greatly in returning the almost lost faith of investors in the company. However, this should also not be at the expense of the company’s workers workplace safety as the latest news have indicated that the Felmont factory was shut down owing to injuries incurred by some of its workers. This should thus be part of incorporation in the production line upgrade. Automate the robotic components of the production line where needed so as to boost speeds of production and quality standards of the vehicles produced per week can also form part of this alternative. Pros: (1) Increased production capacity able to meet current demand (2) Increased quality standards of the Model 3 (3) Tesla Workers’ workplace Safety and Security (4) A chance to focus on further developments and designs (5) Will help solve the most pressing issue of the company at the moment-Production Inefficiencies

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Cons: The Company, which is already at great debt, may run into more debt as it would need to get funding in the form of debt so as to implement the production upgrade. Option 2: The Company requires considering a multinational approach through partnerships with strong brands that have already penetrated into wider markets and share a common goal in technological advancement for instance Apple. The marketing segment of Tesla needs to conduct an intensive social, culture and income factors so as to facilitate smooth implementation of this strategy. This would help grow Tesla’s market as well as boost the company sales of the much affordable and promising Model 3. Pros: (1) Market expansion (2) Increased sales of Model 3 as well as other brands from the company (3) Ease with growth (4) New ideas and ventures from partnerships Cons: Even though a necessity, this is not a priority to the company now and ventures into this may just lead to misplaced investments. The company needs to work on its production capacity to be able to tap into this strategy and opportunity. Best Alternative (Choice) From the above stated options, efforts to improve the production efficiency (Option 1) is the best alternative as it is the root of most problems that the company is facing at the moment and solving it will help to open doors for solutions into the other challenges that the company might be facing like small markets currently under its jurisdiction. The venture might however, imply more debt but the recovery rates from this is bound to be fast from the sales of the new Model 3, helping to settle out the debt with time.

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Strategy Implementation Model 3, Tesla’s electric vehicle delays are profound, all the way to the corporation’s personal earnings records as well as quarterly order delivery counts. A recent report CNBC established that Model 3 manufacture was even increasingly delayed than it seemed to be, with particular constant problems revolving about battery production taking place at its Nevada Plant. In another report, it has also been indicated that Tesla is “not getting anywhere near” to mass-manufacture of the batteries necessary for the production demands of the 35,000 dollar Model 3 trim level. So as to solve the issues on production, below is an implementation strategy of the proposed option in the previous section summarized in table format. The table illustrates on the Key activities required, the objectives of these specific activities, the materials that are required to facilitate the actualization of the objectives, the timeline over which the objectives are expected to have been met and finally the indicators of progress or achievement to the objectives stated. Action Plan: Upgrade of the production capacity Key Activities Change Management

Objective (SMART Objectives) 1. Through an seminar, educate Tesla staff on the intended change and the need for change as well as encouraging discussions and suggestions 2. Produce a proposal clearly stipulating the changes intended, the resources required and the manner in which it will be implemented. 3. Submit a copy of this to executive and a copy to the finance team 4. Formulate a change management team with

Resources Required     

Memo sent through mail to all Tesla staff A Meeting Room Schedule/Agenda Refreshments Typing and Printing Resources

Timeline 15th May, 2018 9:00 am – 5:00 pm with 2-30 minutes v Breaks for the meeting 16th May-17th May, 2018-Submission of copies to the executive and finance unit

Evaluation Efforts (Indicators) Minimal or no opposition analyzed from feedback material (Survey Forms) circulated online to all staff of the organization.

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Source Funding for proposal and project

Realize the goal of the Giga factory

Automate robotic components of the production line

a leader and various dockets to help him or her drive the change objectives 1. Through a proposal request investors to finance the intended change plan 2. Source for equity offerings 1. Establish this plant so as to solve the issue of battery production challenges being experienced at Nevada Plant(Plant construction and set up)

1. Automate all the robotic components of the California plant 2. Boost production capacity to 30% 3. Increase precision of the production line to ensure quality standards and reinforce the quality standards team 4. Reduce the quality standards check intervals

Communications equipment and team as well as the finance unit to organize how the money will be received and banked in readiness

19th May to September 19th , 2018

The amounts in cash and pledges received towards the end of this activity, i.e. the month of September

-Expert Industrial Construction experts and engineers -Raw materials for the production of lithium ion batteries -Management team and Workforce to run the plant in segments unautomated -Operating costs for the plant

21st September 2018, to February 21st, 2019

-Expert consultants to inspect the production line and recommend the necessary changes along the line according to the change plan specifications -Purchase of electronic equipment required to make the various upgrades -Expert engineers to implement the recommendations by the consultant team

23rd February 2019 to April 23rd 2019

-Progress in the construction of the plant -Production of the first lithium ion batteries -Production efficiencies as well as quality in production -The levels of automation of the production line -The quality standards of the Model 3 produced -Ability of the line to additionally assemble previous Tesla models like the S and X models -Percentage Increase in production

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Improve Occupational Health and Safety standards

5. Increase flexibility of the production line to new models yet to come 6. Work hand in hand and communicate frequently with sub contractors to ensure that the right kind of additional supplies are designed and delivered in a timely manner -Occupational Health Safety expert 1. Reduce exposure to -Safety kits and gear sharp ends and moving -Safety signs parts along the production line 2. Provide workers with protective gear for example aprons, helmets as well as ear plugs and welding goggles 3. Educate the pertinent staff on the necessity of minding safety at the workplace 4. Increasing more safety symbols at the work place to keep the workers always alert

capacity towards the target 30%

April 24th 2019 to April 30th 2019

-Levels of injuries involved at the work place -Levels of acceptance of the idea of workplace safety-Do the employees observe for e...