Tesla, Inc. initially known as Tesla Motors is an American Company that majors in electric automotive, storage of energy and the production of solar panels. Additionally, the company also manufactures batteries known as Tesla Powerwall and Powerback. The company headquarters is in California, and it was founded in 2003 by four people namely Marc Tarpenning, Jeffrey Straubel, Elon Musk, and Martin Eberhard. The organization’s name is owed to the engineer Nikola Tesla (Lehtinen, 2015). The company like any other must be facing risks in its day to day operation (Bai, 2014). The company was involved in an investigation by the United States government in 2016 after two accidents were linked to the failure of the autopilot of their car. The same happened in China in August the same year and the sales representative for the company in Beijing defended his organization and said that currently there is no car autopilot system in the world that can offer absolute safety. This risk assessment report will discuss the risks and vulnerabilities of the Tesla Company as well as their possible impacts. The report will also give recommendations on how the company can deal with the threats so that it can thrive in business. Risk analysis is very important as it helps a company identify any potential threats and come up with how they can eliminate or reduce the threats to negligible status.
Tesla Inc. has adopted a functional organizational structure which involves corporate function as the primary significant factor. The global hierarchy is the most significant one, followed by the worldwide centralization and lastly the minimal regional divisions. The international structure consists of operational offices that supervise domestic and global operations (Nisar, Palacios, & Grijalvo, 2016).
The purpose of the company is to initiate and develop public interest in electric vehicles and to replace the traditional fuel consuming vehicles. Tesla Inc. does this by manufacturing and marketing high-performance electric cars that are technologically advanced in addition to powertrain components (Lehtinen, 2015). The company currently operates 265 stores and service locations globally out of which 60% of the sales is attributed to the US with Norway and China accounting for 5% and 15% respectively and is the leading producer of electric cars in the worldwide.
The scope of this risk assessment includes all the operations of Tesla and are categorized into five groups namely, ecological outline, society associations, workers affairs, organizational governance, and threats associated with product-portfolio (Van Den Steen, 2014). The objective of this risk assessment is to ascertain the threats and vulnerabilities associated with Tesla Inc. Next, the relative likelihood and severity of the effect of the discovered threats and vulnerabilities would be identified in case they occur. Then recommendations to mitigate the identified risks and vulnerabilities will be made.
This research assessment will adopt the standard risk assessment methodology that is allowed under the U.S federal government (NIST, 2002). Risk assessment of Tesla Inc. will be undertaken using various methods such as risk assessment questionnaire, and assessment tools (Marhavilas, Koulouriotis, & Gemeni, 2011). The researcher will use a personalized version of the online self-assessment questionnaire. The questionnaires will be distributed to the selected employees and managers via e-mail after permission is granted for the same. This questionnaire will help the researcher in ascertaining the risks. The information sources for risk assessment will consist of the identified research articles that will be accessed online. The research will also focus on journals, articles, press releases and the proven document published on the company’s official website. The data collected from all the various sources will be subjected to a validation process before it can be analyzed thoroughly to come up with comprehensive findings that can be proven. This risk assessment is going to look at the economic risks, social risks, environmental risks and even legal risks that the company may be involved in.
Tesla Inc Company is mostly known for the manufacturing of cars that run on electricity. They don’t have a gas tank and they totally don’t emit any gases since they run on their chargeable batteries. They may seem to be the cleanest and environmentally friendly cars on earth but the question of how clean the cars are will always remain. The environmental impact of any vehicle is not just measured by considering what comes out as exhaust or emission, there is more to that (Kain, 2016). The Tesla Cars do not run on air but on electricity that is obtained from the battery. Applying systems thinking approach, we can assume that the electricity used to run the Tesla is generated through several sources consisting of natural gas, nuclear fission, wind and even coal which is a dirty energy source. The environmental risk on the vehicle may not directly arise from the car but on the source of electricity. Looking at the electricity generation in the United States, forty-five percent of the national grid is supplied from coal, natural gas supplies 25 percent, nuclear power supplies 20 percent and the remaining 15 percent comes from renewable energy sources with hydroelectricity being on top of the list. This implies that the increase in demand for Tesla cars will directly increase the demand for electricity and coal being the major source of electricity it means its demand will also shoot. Coal burning does not only emit a lot of carbon dioxide but it also emits other deleterious fumes such as sulfur dioxide and nitrogen oxides. The Tesla Company acknowledged this perspective but still defended that their car are far much cleaner compared to their counterpart running on fuel. This is because the cars are more efficient in converting their stored energy.
The environmental impact the vehicle can have mainly depended on the combination of energy sources supplying the grid. According to Tesla’s own emissions calculator, if you’re driving your Model S in West Virginia—where the power mix is 96 percent coal—you’re spewing some 27 pounds of CO2 in a typical 40-mile day, which is comparable to the amount you’d emit in a conventional Honda Accord. However, if you charge your car battery at California, Washington or Idaho where more than half of the total electricity comes from renewable sources and natural gas, then your car will be having very minimal environmental impacts. The other environmental concern is that their manufacturing process is more destructive to the environment because of the amount of energy used in lithium-ion batteries production. The batteries are huge, bulky and extremely expensive to manufacture. The minerals used in the manufacture of these batteries are also very rare and hard to come by and their extraction is destructive to the environment. The environmental impacts of the environmental risk associated with the company are going to drastically affect the local and international climate conditions and will increase the global warming challenges.
In the late July last year, Elon Musk who is the chief executive officer at Tesla Inc he made a post in social media, Twitter to be specific, and he said, “The reality is great highs, terrible lows and unrelenting stress”. This statement shows that even the very top business officers recognize the fact that they do business amidst uncertainty and challenges. The Tesla Inc Company faces several economic risks that threaten the operation and growth of the organization. The company gave a report of the several risks they face and I am going to go through about ten risks associated with the economy in order of their severity.
The first economic risk the company is facing is the failure to sell, produce and service their vehicles especially if they fail to manage their international growth. The company is among the leading firms producing electric vehicles and it is rapidly becoming the one stop for renewable energy appliances such as batteries (Thibierge & Beresford, 2015). The company has expanded its operations to go beyond the United States to others countries such as China and therefore the market has increased its sales. There is a risk that the company may not be well organized to manage the rapid growth in business.
The company’s dependent on suppliers which most of them are the single source is a big risk to the company. If the suppliers fail to deliver to the company or don’t deliver on time then the company has to face challenges in meeting the demands of the customers. The dependence on the supplier is not a good thing to any organization since they can compromise the quality of the delivered products and also they can increase the price and this will negatively impact the company (Brown, 2017). The operation of the company is mainly dependent on the suppliers and this is a major risk whose impact can be very destructive to the company’s operations.
The other risk is the ability of the company to sustain their current production or any planned increase in the production. According to the questionnaires distributed to workers, the workers don’t have faith in the company’s ability to sustain their intended future production and this is a big blow to the company. To sustain their current and future production the company will need huge financial capital due to the high costs involved in the manufacturing process. An increase in the production of the electric cars will require a corresponding increase in the electric power needed for manufacturing as well as running the cars. Is the currents grid having the potential to supply the estimated energy? This raises a lot of sustainability concerns. There is no need for the organization to expand its operations if it cannot sustain product production.
The other economic risk faced is the fluctuations in the international exchange rates that may cause disruption in prices as well as cause raw material shortages. The international business is not constant and very many factors can disrupt the normal operations of an organization. Political, social and even natural factors can come in and increase the costs or the supply of raw materials and this is going to negatively affect the company. The raw materials required by Tesla especially those used to manufacture the lithium-ion batteries are very rare to find and a slight disruption in the supply or cost is going to have a huge negative impact on the company.
The inability to incorporate innovations that address the new market opportunities is a big economic risk. The company should be able to design, manufacture and sell products that meet the market requirements of their customers. The business, its prospects and operating results will suffer if the company does not tackle this risk appropriately. The market demands are always changing and the company has to possess the innovation capabilities to cope with the continuous changes and maintain their competitive advantage over their competitors. The other economic risk the company is facing is the fact that Tesla has a history of losses as shown in its past annual financial reports and this will affect its sustainability. Investors need a good record in order for them to invest in the company and not just prospects and therefore this bad record is going to drive away investors. Ensuring short-term profitability of the company is one way of promoting the long-term success of the company.
The volatile nature of motor vehicle demand in the United States and all over the world, in general, is another risk the Tesla Company is facing. The volatile nature of this company may cause a reduction in the car demand hence the number of car units and accessories sold will reduce and this has a negative impact on the company income. The other potential risk the company may face is recalling its products. Some few cases have been in the public domain concerning Tesla products such as the autopilot failure and this has really affected the public image of the brand. This has the great potential in negatively affecting the company’s operations.
The uncertainty on the effects of disasters or any event that is not predicted is a risk. This will disrupt the company operations and mostly the impacts are negative. The other risk the company is facing is losing their competitive advantage over their competitors. There are other companies producing similar products to the market and the company has to employ and retain qualified employs to ensure they maintain their competitive advantage. The ability to compete in the market affects the stock price and this determines the potential investors the company can attract to boost their financial capital needed to expand the business.
The company is also experiencing several risks that are associated with the products they deliver in the market and this is likely going to affect their business operations and future prospects. The products of their models have been faced with delays and complications in the past. The company in its official risk report in 2014 it announced that in 2012 it faced challenges in the delay of the ramp and launch of Model X as well as the All-Wheel Dual Motor Model S. The company also stated that, “We may experience delays in realizing our projected timelines and cost and volume targets for the production, launch and ramp of our Model 3 vehicle, which could harm our business, prospects, financial condition, and operating results” The company acknowledged the fact that they lack the experience in manufacturing the Model 3 vehicle according to the high volumes expected to be produced. The organization has to develop and maintain low-cost, automated and efficient manufacturing capabilities to facilitate the large-scale production of the Model 3. The supply chain requirements in the production and supply of the products should also be able to support the large-scale production (Power, & Simpson, 2016). The other risk related to the products produced is the fact that the company completely relies on the consumer’s willingness to adopt renewable energy devices especially the electric cars. The adoption of electric cars has received so many challenges and the cars are not gaining popularity as the company expected. If for instance, the public does not accept the Model 3 the business prospects of the company cannot be attained.
The Tesla Inc Company is also dealing with several threats that are associated with how the organization treats its workers. The health and safety issues have been raised concerning the working environments of the staff. The manufacturing of the company’s products such as the lithium-ion batteries is associated with heavy metals and other elements that can be very harmful to the employees if not properly handled therefore the company is putting its employees at a risk. The employment conditions and paying rates have also been a matter of concern considering some of the responses from the employees. The organization is likely to lose its competitive advantage over their competitors if their qualified staff members decide to stop working for them.
The company is facing serious corporate risks and the society is blaming it for extortion, failed compensation, corruption and misleading communication such as “Greenwashing”. Several organizations have come out, including the Federal Motor Transport Authority (KBA) which is a Germany leading transit agency, to condemn the Tesla advertising of their autopilot technology. The technology has caused accidents and they believe the company is giving misleading information about what the technology can perform. This is going to negatively impact the organization if proper public relations mechanisms are not put in place to safeguard the reputation of the brand.
The risks the company is facing can be mitigated if the company becomes committed to studying them and applying creative and innovative mechanisms to alleviate the situation. The strategies to solve the risks have been classified into short-term solutions and long-term solutions.
Short-term measures are very critical since there success determines how the long-term solutions will be implemented. The first recommendation is that the company should establish or restructure an integrated public relations department. Customer satisfaction is very important for the business and in order to measure this aspect, the organization should have an interactive communication with the customers to understand their needs and this will help in producing products that meet the customers’ demands (Teece, 2016). The company should also come up with a crisis management plan that is composed of qualified members and experts who will guide the company appropriately regarding the various risks they are facing. The company should also ensure that they put in place a key executive insurance that is going to safeguard the company from the most likely risks such as natural calamities or accidents that may occur.
Long-term measures include doing a stakeholder analysis, risk and crisis alignment and establishing enterprise risk management. The shareholders’ interests and expectations should be reviewed and analyzed since they will determine the company operations. Is there an enterprise risk management in places? The company should establish one and if it is there, they should check how the management is proposing to deal with the risks. The risks that are more likely to manifest and those having a destructive impact should be comprehensively looked into.
Conclusions
In summary, the Tesla Inc Company is a large international organization dealing with the production of energy friendly appliances and mainly specializes in electric cars and lithium-ion batteries. The company is facing several risks in its operations that threaten its expansion and even its existence. This includes all the operations of Tesla and are categorized into five groups namely, ecological outline, society associations, workers affairs, organizational governance, and threats associated with product-portfolio The executive team of the company has the responsibility of coming up with mechanisms that will eliminate the risks or reduce them to negligible status. The company should have a good communication plan that will incorporate the employees, customers, investors and all the shareholders since proper communication is a key ingredient to the success of any organization (Smith, 2017). However, there are other risks that are out of their rich such as the electricity production in a country and all the can do is encourage the respective governments to invest in clean energy sources.
References
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Smith, L., Liang, Q., James, P., & Lin, W. (2017). Assessing the utility of social media as a data source for flood risk management using a real?time modeling framework. Journal of Flood Risk Management, 10(3), 370-380.
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