Discuss about the Business Environment and Strategic Management (TESLA).
Tesla was established on 1 July, 2003. The company designs and develops fully electric vehicles and energy storage systems. It was founded by Martin Eberhard and Marc Tarpenning. Tesla operates through two sections, automotive and energy generation and storage. The automotive segment includes design, advancement, manufacturing and sales of electric vehicles. The other segment that is energy generation and storage segment consist of design, production, installation and trade of energy storage products and solar energy systems to customers.
Tesla also develops energy storage products for the use in homes, commercial and utility sites. These battery systems include facility of backup power, gridiron independence, intermittency of renewable generation and wholesale electric market services. The energy product portfolio of Tesla includes systems with a wide range of applications from use in homes to large scale grid projects. The power pack system provided by company is fully integrated energy storage solution. It offers a range of grid services for utilities. It has eliminated the need to upgrade transmission. The components of solar energy system of company include solar panels. These solar panels convert sunlight into electrical current. It inverts and converts the electrical output from panels to a useable racking. Tesla offers loans for it’s vehicles in North America, Europe and Asia through various financial institutions. The company also provides financial arrangements through it’s local subsidiaries in certain areas of US, UK, Germany and Canada.
Tesla targeted high class of people through high end cars before entering in market. The company established itself with this idea and latter entered into competitive market of lower level price models. So the first model of company was launched to attain mission in the market place (Belás, et. al. 2015). The strategy of Tesla is based on three pronged approach to sale, service and charge it’s electric vehicle.
The company does not adopt the strategy of franchise dealerships. Tesla prefers selling it’s products directly to customers through it’s own showrooms. The showrooms of company are spread in many of major centres in the world. The customers can customize and purchase Tesla online (Mangram, 2012).
Tesla has combined sales with service centres. Tesla believes in opening service centres to put positive impact on customer’s demand. So the service plus retail centres provides service for cars and charge them at service centres. The company also have mobile technicians who provide service at homes, called Tesla Rangers.
The company has wide network to charge vehicle of customers. Supercharger station is place where customers can charge their vehicles in 30 minutes at free of cost. This strategy can increase the rate of the customer’s product adoption.
Tesla is truly company of future. The vehicles of Tesla are recognised as advanced vehicles ever produced. The aspects and technologies undertaken by company are:
Tesla is already leader in the autonomous car industry. The electric cars of company have semi-autonomous functionalities. The company has planned to produce fully autonomous cars by the end of 2018. These cars will have four level autonomy where humans will be just passengers. The car will be self-directed.
The cars of Tesla run on battery. The batteries need to be charged before it’s drained out. Model S of company has official range of 265 miles per charge. The company has pushed that up to 1,000 kilometres or 621 miles at the end of 2017. The company even believes that it could go upto 745 miles by the end of 2020 (Nykvist & Nilsson, 2015).
Tesla was delivering 50,000 cars in 2015 and 100,000 cars in 2016. An announcement was made by Musk that the company is planning to produce 5, 00,000 cars per year by the end of 2018. After seeing the demand of Model 3, The company have further planned to produce 1 million cars per year by the end of 2020.
The company has been working on Gigafactory project in USA. The main objective behind this project is to reduce cost of batteries. It can be done by using waste reduction and innovative methods of production under a single roof. The 5.5 square feet structure will make manufacturing of company a centralised and self-sustained project.
Tesla is a sustainable energy company and it’s vision is focused on renewable and clean energy areas. The company makes electric cars and sets to expand operations in the next few years. The company is interested in acquiring solar power company Solar city. It is the first step of company towards sustainable energy company.
The electric cars of tesla can be charged at Tesla Superchargers. These are pumps and have ability to charge car in just 30 minutes. It can last for about 200 miles. The company has plans to increase number of superchargers to 7,000 in 2018 which was 4,000 in 2016 (Endsley, 2017).
Tesla application can be added to remote, monitor and control Tesla vehicle. Tesla added Siri integration to it’s mobile app. It was added to bring access to the application’s control with voice commands. After the Siri is asked to function on car for the first time, it asks to access data on Tesla mobile app. It looks like it is very much in beta. It is because it does not work all the time. The functions available through the app cannot be activated by Siri. The company has been working on it’s mobile app as it is becoming important part of user interface. Tesla also released a new version app with new UI, touch Id integration and widgets (Choi, 2015). The company launched Powerwall and solar integration in mobile app in order. It was launched to switch between different home energy products and vehicles. The company further updated mobile app to support model 3 integration. The model 3 primarily relies on the app to access and drive the vehicle.
In this decision area, managers focus on the product influence costs, quality objectives and resources. Tesla addresses these concerns through contemporary innovation (Ceccagnoli & Rothaermel, 2016). For instance, the company continuously innovate supply chain systems to ensure productivity in manufacturing. The focus on electric automobiles optimizes organizational capacity for innovating products.
Quality management: It is the most important objective in the decision making. The company addresses this objective through regular search on the automotive market. The operations manager of company regularly conducts quality reviews. He implements improvement in the manufacturing process to maintain high standard of quality and productivity.
The decision process focuses on business along with investments, standards and resources. Tesla has automatic manufacturing process which is combined with human intervention. This situation helps company to achieve high productivity through operational efficiency (Galloway, Miller, Sahaym & Arthurs, 2017).
Logistics, resources and suppliers are considered in the decision area. The company applies it’s global reach in terms of resources. Tesla includes company’s own stores and arcades in malls and key locations to maximise sales and productivity.
The management of company is concerned with attaining optimum flow of resources and utilization. Tesla designs layout in order to maximise capacity utilization. The buildings are specially focused where manufacturing process of electric vehicles is conducted. The company also hires advanced computing and networking technologies for the internal communications (Van Someren & Van Someren-Wang, 2017).
The adequacy of effective human resources has great role in decision process. Tesla uses competitive compensation strategy to attract skilled workers. It is important in the market where companies are competing for high quality human resources (Phong & Quyen, 2017). The management of company ensures effectiveness and high productivity of personnel by imparting training and leadership development programmes.
Supply chain management: Tesla has adequate supply and global supply chain which aims at supporting manufacturing process. The manufacturing plant of Tesla in U.S. is beneficial in timely shipment of material from overseas. The operations management of company focuses on manufacturing.
The inventory decisions are based on the management’s principle which stresses quality. Tesla’s just-in-time inventory is used for higher productivity and minimising inventory costs. The inventory cost is reduced by company using just arrived material. It reduces the inventory costs.
The decision area focuses on short term and intermediate schedules to utilize resources. These concerns are addressed by Tesla through market based scheduling and automated process for the maximum efficiency. Actual market demand and resulting data is monitored by the company in market based scheduling. The scheduling activities are supported in automated process to minimize errors and delays to enhance productivity (Ivanaj, et. al. 2015).
The company ensures adequacy of resources through monitoring regular inventory. Tesla sustains excess production capacity in some facilities. Such idleness allows company to increase production rapidly (Somoza-Tornos, Graells & Espuña, 2017).
Technologies: Tesla would use technologies to enable a ride sharing platform called Tesla network. The owners will be able to rent out cars as autonomous taxis through this network. The owners will be able to recouple their investments and generate profits from cars. The cars are only in use 5-10% of the day by the owner of cars so the economic fundamental utility of car is likely to be several times that of a car which is not.
Battery efficiency: The company is way ahead on it’s battery efficiency. The cost of a model 3 of Tesla is about $8400 whereas the average price of industry’s battery for comparable vehicle is $14200 (Barron’s 2017). The company controls it’s battery production as gig factory and has more efficient powertrain. The other companies are not fully committed to electrification. The company’s constant work to improve batteries is one of the reason of cost cutting calculus but the important cause is simply scale. The scaling up production results in greater manufacturing efficiencies, improvements and cost reductions. The company is scaling up it’s production via gigafactory.
Supercharger network: Tesla has substantial advantage over competitors. The company has made a substantial network to service drivers. The company tackles all post sale challenges faced by drivers from charging stations to mobile service vans. The other automakers are not successful in keeping up with customers.
Software: The approach of company towards software is a tier which is above the competition. In the past cars were big machines with small computers in them. Now the cars are designed as computers on wheels and the company leading us there. The software team rolls out over updates like on smartphones and computers. The owners vehicles are being improved continuously (Gras, et. al. 2016).
Investor interest: The company is being behaved like a private company when it’s traded in the public markets. The potential of company is biggest asset of it. The vision of company is influential to attract investors. Now it is biggest fall for the company when it’s production cannot meet demand (Farah, Whaley & Saman, 2016).
Semi-truck: The company is working on it’s semi-autonomous truck. It could transform highways. The company promised that it will be available by the end of 2019. But it is seen that company is not able to meet it’s timetables on time and has issue of vehicles reliability.
Rating: Tesla’s credit rating reflects the major shortfall in the production rate. The company faces liquidity pressures due to large negative free cash flow. The company have been troubled and suffered from production woes and battery supply.
Tesla competes with Audi, Mercedes, BMW, Honda, Lexus, Toyota, Nissan, Ford, Fiat, General motors, Samsung, Mitsubishi, LG Chem, AES energy storage, Vivint Solar Inc and Sungevity, Inc (Reuters, 2018). There is also a Shanghai based electric car manufacturer has joined the race and it’s vehicles have enough features to compete with Tesla. The company has different identification as it is not just a car maker but is supplying solar panels, home energy storage and autonomous electric cars.
Autopilot: Tesla released Autopilot first time in October 2015. It was first time that semi-autonomous technology was used in a commercial vehicle. However, some people did not advise to use this technology in vehicles. The primary feature of Autopilot is Auto sheer. This feature keeps the car in it’s current lane once a person is on the road and manages high speed and distance from the car ahead of it.
Electrification: Tesla’s commitment to bring electrification proved to be equally significant. The success of Model S and X as well as stock valuation of company gave strong direction to the industry. The company was successful in pushing rivals to embrace electrification. The cars of company run 215 times more per charge (Stringham, Miller & Clark, 2015).
Design: The models of Tesla have sinuous look. The cars of company are still very much in infancy. The public loves designs of Tesla so much. It is beating Toyota and GM in a lot of ways. The good design and awesome naming scheme is the reason for success of the company.
Tesla has it’s own entire distribution channel to take serious distribution system. The upfront cost of company is higher than other automakers because of change in business model. The model is with no dealership network. It affords control over experience of customers which strengthens brand of company saves money in the long run.
Money woes: Tesla has been spending $8000 per minute however it is failing to turn a profit. If this practice will continue then the company will become insolvent. The company is pursuing to raise $ 2 billion by the end of 2018 (Cheat Sheet, 2018). The company is also launching models that won’t be here for several years, yet it is taking deposits on them.
Lawsuits: The most spending of Tesla of 2017 has been stuck in lawsuits. On the top a case alleging Tesla’s autopilot system have been involved in a disastrous crash in 2016 (Cheat Sheet, 2018). Other suits also allege that the Freemont, California plant is focused for racist behaviour. Another case also sued bias against LGBTQ workers. The company need to tackle these issues if it want to maintain image of it’s utopian image.
Low battery: The Model 3 of Tesla was launched in 2017. The problem faced in this model was lithium-ion battery shortage. The company claimed that it has solved the issue. But it is still a major problem.
Production trouble: The company has been building 50,000 cars per year since 2015. But with the model 3 company hoped to sell 50,000 cars on the top of model S and X sales. The company needed to expand it’s Freemont plant to meet this expectation. But according to reports production is far behind (Auto Week, 2018).
The long process of production cycle indicates to increasing demand of products in the competitive market and decrease in supply. As a result, the customers get stressed while waiting. The level of customers decreases and switches to the brand of other competitors. Tesla needs to speed up production process otherwise it can become major threat for the company. Due to the long production cycle the company is unable to meet the demand of the product forecasted in the target market. The main reason due to which company faces issue is lack of adequate human resources. It leads to increase in production and manufacturing process and considerably customers receives products late (Moritz, et. al. 2015). Such obedience should be resolved by the company on the highest priority so that sales volume of the products can be increased.
Tesla makes huge investment on purchasing massive batteries and sub parts of vehicles. For instance, if the Tesla produces 5, 00,000 cars per year then it need to purchase a large amount of lithium ion batteries. It costs a huge expense o company due to which prices of products increases. The company faces problem that if it sells products at higher prices than a few customers are interested in buying it. If the company lowers the prices then it is unable to compensate expanses of raw material. The high prices of material are concern for the company (Hardman, Shiu & Steinberger-Wilckens, 2015).
The company has gained competitive advantage in the target market. But this situation cannot last long due to presence of cut throat competition in the market. The Honda, Toyota, Nissan etc. have gained competency in producing electric vehicles. It gives power to the customers to switch on any brand available in the market. The electric car is the sole product of company which has helped company to sustain in the target market. It becomes difficult for the company to survive if customers find alternative for products (Rosenberg, 2015). The competition is a major issue as it made difficult for the company to survive in the target market.
Tesla has an incredible value as a brand. The performance of Tesla is quite encouraging. The company’s market capitalization reached to $51 billion in April, 2017 (Futurism, 2017). The company has surpassed it’s various competitors including Nissan, GM motors, BMW, Ford and more. The company is actually making profits by selling thousands of cars per year.
A steady growth in revenues balanced an adverse net income which suggests future ability to create value. The investment of company in R&D and capital expenditures has increased which explains decrease in cash flows.
Conclusion
In the limelight of above mentioned events it should be noted that the company has competence to top the target market. It just need to analyse and eliminate it’s strategic issues. The recommendations for Tesla are:
References
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