Many of the organisations face issues for the decisions taken by the management. Management always takes result-oriented performance management process so that the organisation can easily grab the profit. However, if the management’s decision leads to the wrong way; the organisation may obviously fall into the issue (Finkler et al. 2016). In this report, Tesla Inc. is chosen and Tesla has been facing the issue of financial management. Elon Musk, the co-founder of Tesla is considered responsible for the financial crunch of the organisation. The purpose of the report is to highlight the Tesla’s management issues which have led towards a financial crisis of the organisation. In the first part of the report, Tesla Motors’ management problem is highlighted and the research question is formulated. In the following part of the report, a secondary research is carried out in order to analyse Tesla’s management problem and in the final part of the report, an alternative way to find the success for Tesla is provided.
Tesla Inc. was founded in the year 2003 and it is an American Multinational organisation based in California. Tesla Inc. is known for manufacturing electric vehicles, solar panel and a lithium-ion battery. The CEO of the organisation is Elon Musk and Tesla Inc. is famous for offering electric cars at an affordable price. Production output of Tesla Inc. is 101,312 till the year 2017 and revenue of the organisation touched US$11.75 billion (Tesla.com 2018). Tesla Inc. has been enjoying various types of State subsidy and this organisation is named after the electrical engineer Nikola Tesla. The mission statement of Tesla Inc. is to accelerate the world’s transition into the sustainable energy and the objective of the organisation is to produce electric cars better than the gasoline-powered cars.
Tesla had the history of making every doubter’s fool; however, in the last few months, Tesla management has been facing the issue of mitigating the financial crisis. Tesla has been facing challenges in meeting the production target and critiques are asking a question that Tesla may be at an inflection point. As published in Business Insider (2018), Tesla Inc. continues to burn through cash at the staggering rate and Tesla Inc. may run out of cash before ending of the year 2018. Elon Musk published the balance sheet of the organisation’s financial performance and it clearly showed an ugly reality glamorous image of the organisation. Bloomberg’s report stated that Tesla is burning through $6,500 in a minute and Bloomberg’s report also stated that Tesla has not made the profit since the year 2010 (Money.cnn.com 2018). The management of Tesla is taken care of by Elon Musk and he is ambitious; his wrong management decision regarding the future of the company leads to a financial crisis. First of all, Tesla failed to meet the production target of mass-market Model 3 sedan. Tesla involved in the assisted-driving feature and one of the employees died for that. Musk entered into the public dispute because of the federal safety issue (Kessler 2017). Tesla’s flying-stock has been dropped almost 27% and this 15 years old company may lead to the bankruptcy. Free cash-flow of the organisation is negative for the six consecutive quarters. Tesla started its journey with only 899 employees and today it had more than 40,000 employees. The on-going hiring process and management’s failure to see the future leads to Tesla’s financial straits.
This report is expected to find out the reasons behind the financial crunch of the organisation Tesla Inc. and the management’s role in leading towards the financial issue of the organisation. Elon Musk is ambitious and his managerial decision is heading towards Tesla’s issues.
In this report, secondary data is gathered to understand the managerial decision-making issue of Tesla. Secondary data are collected from the websites, journals, online articles, online magazines, government reports, blogs published by Tesla and newspapers. The topic of the report is very recent and there is a limit to gather the data from the published journals. Therefore, this particular research is focused on collecting the data from the online sources. This research is followed by the qualitative data analysis process. Qualitative data are mainly observable (Jarrett and Burton 2017). This research is followed by an experimental research type and it mainly focuses on the research problem. In this research, the researchers have followed the thematic data analysis process. The gathered data have been segregated into a few themes so that the managerial problems and financial crunches of Tesla can be easily understood.
Tesla has always been taken a kitchen-sink approach to shaping the fiancé of the organisation and the decision of the organisation has been largely taken by Elon Musk. Tesla has always used public face to raise the money and the first few years of the organisation were scraped by the venture and private capital funds. From the Series A, Tesla raised 7.5 million and Elon Musk contributed $6.3 billion. Tesla also got $40 million deal on when they have been struggled to survive during the recession of 2008 (Bbc.com 2018). Since its $225 million first sale of stock in June 2010, Tesla has fund-raised by offering stock and convertible securities, monetising leases and floating junk bond- the kind of thing any automaker may do (Motors 2018). Tesla has additionally been phenomenally fortunate in financial management. Tesla’s spotless vitality mission additionally separates it. The U.S. Bureau of Energy granted Tesla a $465 million credit in 2010, which Tesla satisfied early and in full in 2013.
No other automobile manufacturer has so far possessed the capacity to persuade stakeholders regarding fans to put store cash behind a progressive plan or exploit government sponsorships for emanation free vehicles to the extent that Tesla has (Moritz et al. 2017). Tesla finished 2017 with $3.4 billion in real money available and $9.4 billion in exceptional obligation, a demonstration of Musk’s obtaining ability. Numerous examiners trust that Tesla should fund-raise once more. At the point when Musk previously presented the lower-valued car in March 2016, fans remained in long queues at Tesla stores (Money.cnn.com 2018). After two years, the slower-than-anticipated pace of creation implies that the greater part of the in excess of 450,000 reservation holders are as yet pausing. There’s an extra wellspring of free cash from faithful believers: an obscure number of clients have paid up for vehicle highlights-$3,000 for “Full Self Driving” capacity, for instance- that Tesla hitherto hasn’t made sense of or discharged to anybody.
Financial Management is the use of general standards of administration to the money related belonging of an undertaking. Legitimate administration of Tesla Inc.’s fund gives quality fuel and standard administration to guarantee proficient working (Stringham et al. 2017). Tesla funds are not legitimately managed Tesla Inc. will confront obstructions that may have extreme repercussions on its development and advancement.
Theme 1: Tesla is facing loss
The concerned organisation Tesla is facing its financial loss due to the insufficient management of financial practices that stimulate the company to face loss in annual profit in comparison to the expectation. Tesla the electric car innovators burned through around US$ 739.5 million that can be counted as AUD $ 999 million in cash in the last three months and it reaches to around $727.5 million net loss as the company continues to crank more vehicles in the last few years (News.com.au 2018). The hyper-ambitious electric-vehicle and the renewable-energy business enterprise which is struggling to solve the production issue of Model 3 electric sedan reported to face a loss of around 4784,6 million in the year 2017 which is deeper than that of the year 2017. In the report of Financial Times (2018), it can be stated that the company targets to develop around 6000 Model 3s a week by the end of the June. However, due to the lack of control over the management which can be considered as one of the reasons of breaking down the target, the company develops only around 5000 cars a week in about two months. It can be stated that the lack of a total number of working hours is lower than the targeted one and thereby, it can be considered as the prime reason for the financial loss of the company. This loss and cash burn raised the question about the future of the aforementioned organisation.
Figure 1: Tesla net loss (2008-2016)
(Source: Bloomberg’s report 2018)
Hence, it can be questioned that, whether the company would be able to resolve all the debt without borrowing more cash from the market or not. Hence, as stated that, the main reason for this kind of loss is entirely due to the lack of efficiency in management.
The loss in financial profit of the hyper-ambitious electric vehicle company is the huge amount of debt that comes due in the year 2018 while developing the electric car concept Model 3 sedan. The needs for cash are so dire that the concerned company Tesla has reportedly asked suppliers for partial refunds so that, it can be possible for the organisation to recover some of the losses due to the insufficient management of employees (Businessinsider.com 2018). However, it is common for car makers to suppliers in the existing market for discounts with the accelerating output, however; the outright refunds of Tesla are definitely concerning. The revenue per employee of the concerned organisation is very low and thereby, the debt condition of Elon Musk’s is certainly alarming.
Figure 2: Tesla ended 2017 with $3.4 billion in cash on hand and $9.4 billion in outstanding debt
(Source: Bloomberg.com 2018)
Further, from the above-held discussion, it can be stated that one of the reasons for the company’s lack of employee management is the negotiation issue. It is required for the company to improve the negotiation with the suppliers for the sake of lowering the costs of the resources and hence, it can be stated that, to improve the competitive advantage it is required for the company to improve the employee management so as to improve the use of resources in the market.
The vision of the company ‘to accelerate the world’s transition into sustainable energy’ collide the reality when the company faces a huge loss while developing an electric car which is completely an innovative idea of Elon Musk in comparison to the normal gasoline cars. Hence, the share price can be considered as the mark of pride for returning to the reality. However, for Mr Musk the share price can be considered as the personal vindication as it may help the perennially loss-making company to keep returning to Wall Street for the purpose of gaining more cash so as to reach the target effectively (Money.cnn.com 2018). From the record of company’s main data schedule, it can be stated that the management performs only 110 hours per week in the last quarter of the year and this insufficient duration can be considered as one of the prime reasons that stimulate the aforementioned organisational entity to meet the target effectively and significantly.
From the above-held discussion, a range of recommendations can be provided in the following section so that, it can be possible for the aforementioned organisation to meet the key operational financial targets efficiently.
Recommendation 1: The change in Elon Musk’s leadership
One of the first attempts to reach the mass market is the change in Musk’s leadership. It is worth noting that, one of the reasons for Musk’s failure is the ineffective leadership while managing employees for meeting the financial target. Hence, on prior decision making, it is required for Elon Musk to stimulate rational approach so as to predict positive reckoning from the employees including other stakeholders.
Recommendation 2: Improvement in per-week working hours and follow cash-flow minutely
One of the reasons for crunching the financial condition is the insufficient working hours. Hence, it can be stated that it is required for the organisation to improve the working hours (more than 110 hours per week) so as to improve the production of Model 3 sedan. Cash flow is important which makes the business run.
Recommendation 3: Recruitment of competent employees
From the above-held discussion, it can be observed that the reason behind financial loss is the quality of the electric vehicles and the recruiting of extra employees. Hence, in prior to improving the sale of production requires the improvement is product quality and this can be achieved through competent employees. The management of the company needs to recruit more strategically so as to improve more employee engagement and hence the production.
Conclusions
It can, therefore, be concluded that the proper management of employees and appropriate leadership is required on prior to reaching the target and gaining financial profitability in the existing and target market. The study has shown how the lack of management decision-making reduces the efficiency of Tesla’s ability and hence the financial leadership initiative of the company. Hence, the rational approach of Elon Musk and more working hours can help the company to pay the debt and reach the financial target significantly.
Reference List
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