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About Tesla Inc.

Tesla is an automotive company based out in the USA and run by Elon Musk, the chief executive officer of the company. The company mainly manufactures electric vehicles and their batteries. It is one of the largest automotive companies with a market capitalization of over $1 trillion and the largest maker of electric vehicles (Companiesmarketcap.com 2022).

Tesla was once a start-up in America named after Nikola Tesla as a tribute to the successful scientist and inventor. Tesla as a company is known for its innovations in the electric vehicle and renewable energy sector. It has been able to occupy a dominating position in the world market through its innovation and business strategies. The company launched its initial public offering in 2010, and since then, it has generated enough wealth for its investors. Elon Musk, the largest single individual shareholder of the company, has benefited most from the success of the company (Frank 2022). There have been various analysts questioning the business model of Tesla who betted against the stock but were proved wrong by the company. The company has successfully launched its electric vehicles in most of the developed nations around the world, the US being its largest market. It has launched various car models, out of which four are in production, and three models are in progress. The company has been a pioneer in the electric and renewable energy department through its innovative technology.

The report is focused on analyzing the performance and way of operating of Tesla Inc. The method of operation of the company and its CEO will be discussed in detail. The report will also discuss the performance of the company and recommend improvements that the company can implement.

Tesla started in the year 2003, when electric vehicles were rare and expensive for any person to buy (Tesla.com 2022). It came up with the idea to offer electric vehicles to the world. In 2006, Elon Musk strategized that the company would first focus on building cars that were low in volume but high in price, like the sports car segment. It would help them survive in its initial days and allow it to make advancements in technology and bring down its cost. The company’s ultimate aim was to offer high-volume, low price electric vehicles to the public at large. The first vehicle of Tesla was the Roadster, of which only 2500 cars were produced (Brown 2016). It was offered to the sports car-loving segment of consumers who are less sensitive to the price. The company then produced the Model S and Model X, which were still luxury vehicles but less expensive than the previous models. The recent cars were the Model Y and Model 3, which were priced much lower, and the cars sold more than one lakh units per quarter (Electrek 2022). It was the first company to manufacture a reliable and inexpensive electric vehicle.

The company also has adopted a different method of selling to the customers. Instead of the traditional method of an auto dealership, the company sold the cars directly to the customers. It is the first car manufacturing company in the USA to sell the car directly to customers (Sec.gov 2021). It has faced problems in some areas with the idea of selling directly to customers, for which it had set up its own stores or galleries through which it reaches the customers. These are located in areas with high footfall as there are no transactions taking place in these stores, but only set up to educate their customers about their products.

Tesla's Method of Operation and Innovation

It is one of the companies with such a high degree of vertical integration where it handles almost 80% of all the operations and processes in the business. It has built the battery for its cars; the charging stations were set up for the users to charge their cars, and most parts of the car are manufactured by Tesla. It has built an environment for its product where it is offering all the services to the customers themselves. In terms of technology, the company was the first to use lithium-ion batteries in its cars and successfully operated the design. Tesla has invested a huge sum of money in battery research. In 2016, it started a new 5-year research program for developing new technology for batteries. The effect of electric batteries is high on the environment. To solve this issue, the company had set up a battery recycling facility that would lessen the impact on the environment. The autopilot technology used in the Tesla cars is an advanced feature that allows the car to drive with little supervision from the driver (Tillman 2020). In 2019 it provided this feature in all its cars, and by 2021 it updated this feature to recognize the signals and stop automatically. The company has been an engine of innovations and new business ideas, breaking the traditional norms. This makes the company a suitable organization for the assessment in this report.

Analyzing Tesla Inc as per the SWOT analysis model, the company has various strengths and weaknesses that are internal to the company and opportunities and threats that are external (Jiang 2022).

  • It is the most valuable car company, with a market capitalization of more than $1 trillion, which is much more than the market cap of the companies in the top five list.
  • It is one of the best employers in the US with its approach to diversification and innovative culture. Its employees have become one of the main reasons for its success.
  • Tesla has surpassed every other company in terms of car performance in the electric vehicle segment. Its Model S can travel up to 600 km in a single charge; the competition offered by other brands is a maximum of 520 km (Reid 2019).
  • It doubled the delivery of its vehicles in 2021 compared to 2020 figures, with deliveries of 936,172 cars which is an increase of 87% (Business-standard.com 2022). The world was faced with supply chain issues and chip shortages, but still, Tesla achieved this performance.
  • It is a highly innovative company and always comes up with newer technologies in terms of hardware and software both. The recent launch of the Cyber Truck was the first electric truck manufactured by any company (Electrek 2022). This has made the company trustworthy to investors.
  • The company has been following unconventional business strategies but has been hugely successful. The company followed a no-nonsense approach and set clear and precise targets for its employees and held them accountable for it.
  • The company has to invest highly in research and development due to the continuous innovations. This increases the complications in the production process of the company, sometimes causing delays.
  • The failure of the company in meeting the demands will affect the brand value of the company, which can be possible in a situation of unbalanced demand and supply.
  • It has been facing challenges in manufacturing high-volume cars and also faced an issue with producing large units of the already in production models of the cars offered.
  • In a meeting with the shareholders, the CEO Elon Musk admitted to the shortage of batteries due to the limited supply (Hamilton 2021). This affects the sale of the company directly.
  • The company can be described as being run by only one person Elon Musk. It has a full dependency on him to decide the future of the company. The involvement of Elon Musk with his other companies makes it riskier for Tesla Inc.
  • The company has a large debt book of $5.38 billion which is there to support its growth. It needs to generate large amounts of cash regularly to repay the debt failing, which will reduce investments and slow down the pace of growth.
  • The company is yet to expand in many countries like the Asian market. The company has huge potential to expand and grow its business in most countries as the markets are new and unexplored.
  • Tesla has to work on making cars more economical by reducing its cost of manufacturing. The innovation in the company consumes the most part of the cost for the company. It has to find a balance between innovation and business to increase its market penetration and reach all customers.
  • Tesla has been outsourcing the manufacturing of its batteries which it intends to do the house. It can be a critical step in changing the future of the company as the cost will be cut by a large proportion.
  • The pickup trucks segment in the USA is 17.6% of the total market (Richter 2019). The launch of the Cyber Truck will help the company in tapping into this segment and grow the company.
  • Tesla has been maintaining high product quality in its cars, but the claims against the company have been high. The claims are a huge concern for the company as it has to face claims for accidents due to the failure of its autopilot technology. The high complexity of the vehicles makes the risk of defects in the vehicles high.
  • The competition in the automotive industry has been very high, which Tesla has to face from the alternative fuel vehicles and the technology of self-driving. Various brands like BMW and Audi in the premium segment and Toyota and Ford in the economy segment have put a fierce competition for the company. These brands have also started manufacturing their own electric vehicles, which will shortly catch up with the technology of Tesla and will compete at the same level.
  • Tesla uses lithium-ion batteries, which have a huge negative impact on the environment. The public image of the company is at risk due to the questions about the sustainability of the product. The batteries are also highly risky as they contain explosive elements that can risk the life of the users. The incidents of fire in the car is a concern that Tesla has to solve.

As per the annual report for 2021, the company has been profitable in the financial years 2021 and 2020. The company’s financial performance has been analyzed using the ratio analysis of the company for the two years 2021 and 2020. The ratios used for this purpose are the profitability, liquidity, and activity ratios.

In the profitability ratios, the profit-generating capacity of the company has been assessed through the use of ratios like the gross profit, operating profit, net profit margin, and return of assets and equity (Husain and Sunardi 2020).

Profitability ratios

Tesla’s gross profit in 2020 was 21%, which improved to 25.3% in 2021. The company has shown growth in the gross profit margin. It is the amount of profit that the company is able to retain after paying for the cost of goods sold. After this, the operating margin for the company has almost doubled from 6.3% in 2020 to 12.1% in 2021. The company increased its sales in 2021 by almost 87%, which has helped the company to achieve this operating profit margin. This is a healthy figure and indicates the operations of the company are profitable. The company’s net profit margin was extremely low in 2020 that have improved in 2021 to 10.3%. The debt cost of the company is high, due to which it has to pay most of its profits in the interest expenses. The return on assets and equity of the company has seen a huge improvement from 2020 to 2021. This ensures that the company is able to generate returns for its investors, which might not have been possible due to the impact of Covid-19 in 2020.

Tesla's Car Models and Sales Strategy

The liquidity ratios of a company are a measure of its liquidity or ability to meet its short-term obligations. The liquidity ratios used for the report are the current ratio, quick ratio, and working capital (Madushanka and Jathurika 2018).

Liquidity Ratios

The current ratio is the ratio of the current assets and the current liabilities that is a measure of the company’s ability to pay its short-term liabilities from its current assets. On the other hand, the quick ratio is indicative of the ability of the company to pay its short-term obligations from the quick assets without selling its inventories. Both the ratios fell in 2021, which shows that the company’s liquidity has gone down. It is due to the capital-intensive nature of the company as it is in the automotive industry. The current ratio of 1.38 times and a quick ratio of 1 time show that the company may face a liquidity crunch if the working capital is not managed properly (Rashid 2018). The current situation of the company is such that it has just enough to pay its current liabilities.

The activity ratios are the measure of the company’s efficiency in utilizing its operating assets to generate sales and earn profits (Lomidze 2016).

Activity Ratios

As per the receivable turnover ratio, the company is receiving cash from its credit customers within 13 days and 28.14 times in a year. The ratio shows that the company is efficient in receiving cash from its receivables. The payables turnover ratio of 4 times shows that the company delays in paying its suppliers. This is beneficial for the company as it can use the money somewhere else. The total assets turnover ratio of the company is 0.87, which has improved from its previous 0.60, but the ratio is still low, which indicates the inefficiency of the company in utilizing its assets to generate sales.

The Tesla stock has been a huge wealth creator for the investors of the company. The share has returned returns much more than the market returns (NASDAQ). The stock has returned almost 2000% return to its shareholders in the last five years, as of April 2022. The price of the stock is trading at a price range of $1000 to $900 and remains one of the highly analyzed tickers in the world. The following chart represents the price of Tesla in the last five years and the comparison of its returns with the market index (NASDAQ).

 Tesla Price Chart

(Source: Finance.yahoo.com 2022)

The company is performing well in the markets that it has occupied and remains unbeaten in the electric vehicle segment. The company should focus on improving its liquidity conditions as the liquidity ratios indicate that the company may face problems with repaying its obligations at any time. The company has huge market opportunities that it can utilize and expand the business. It should look out for markets that can accept its product and help in growing its market share around the world. The company has been aiming to enter the Asian market, but the major challenge for the company is understanding the market. The technology of the company is comparatively new to the developing nations, and it requires large investments for entering such markets (Cox 2016). This will mean raising funds, but the returns from these markets will help the company to reach new levels. One of the issues that it is facing in entering the Indian market is the high import duties on the luxury cars that discourages it from expanding to such countries. It has to take up steps to talk with the Governments around the world to bring their technology to the target countries and its benefits to the country. The early entry into these markets will help Tesla in capturing the market share and having the early mover advantage.

Tesla's Vertical Integration and Battery Research

The second recommendation is regarding the environmental issues with the lithium-ion batteries that it uses in its cars. The batteries, once they reach the end of the life cycle, will cause a huge impact on the environment (Digital.hbs.edu 2017). Tesla has to invest in technology research to develop a much cleaner version of the batteries keeping in mind the environmental hazards. The company has to win the trust of the people with its commitment to environment-friendliness and trustworthy products. Lastly, the company’s focus should be on producing high-volume cars that are less expensive and appeals to the larger mass.

Conclusion

Therefore, from the above discussion, it can be stated that Tesla is an innovation-driven company that is focused on innovating new, cleaner modes of energy to be used in transportation. The leader of the company, Elon Musk, is an innovator himself and works hard to take the company to new heights. The company’s aim is to provide clean, renewable energy and technology to the world and to be more sustainable. The company also allows other companies to license the technology that it is using but not straight away copy the technology (Morris 2020). The style of entrepreneurship of Elon Musk has been revolutionary and motivates the younger generation, and is idealized by them. The company has performed well in the recent past, driven purely by its innovation and high-quality products and out-of-the-box thinking. This has helped the company to cross the market capitalization that is more than the combined market capitalization of its top five competitors. The company has the potential to capture the other emerging markets and become the largest automotive company in the world. It is a good example of the importance of innovation in business to stay in the competition and grow.

References

Brown, A., 2016. Here's a look back at the Tesla car that started it all. [online] Business Insider. Available at:

<https://www.businessinsider.in/transportation/cars/heres-a-look-back-at-the-tesla-car-that-started-it-all/articleshow/51622597.cms> [Accessed 16 April 2022].

Business-standard.com, 2022. Tesla delivers close to 1 million vehicles in 2021, an 87% increase. [online] Business-standard.com. Available at:

<https://www.business-standard.com/article/international/tesla-delivers-close-to-1-million-vehicles-in-2021-an-87-increase-122010300248_1.html#:~:text=Tesla%20has%20delivered%20a%20record,deliveries%20Tesla%20made%20in%202020.&text=13%3A21%20IST-,Tesla%20has%20delivered%20a%20record%20936%2C172%20vehicles%20in%202021%2C%20an,deliveries%20Tesla%20made%20in%202020.> [Accessed 16 April 2022].

Companiesmarketcap.com, 2022. Tesla (TSLA) - Market capitalization. [online] Companiesmarketcap.com. Available at:

<https://companiesmarketcap.com/tesla/marketcap/> [Accessed 16 April 2022].

Cox, N., 2016. Tesla Facing Both Challenges And Opportunities In Asia (NASDAQ:TSLA). [online] SeekingAlpha. Available at: <https://seekingalpha.com/article/3999759-tesla-facing-challenges-and-opportunities-in-asia> [Accessed 16 April 2022].

Digital.hbs.edu, 2017. Tesla and the environmental impact of lithium-ion batteries. [online] Digital.hbs.edu. Available at: <https://digital.hbs.edu/platform-rctom/submission/tesla-and-the-environmental-impact-of-lithium-ion-batteries/> [Accessed 16 April 2022].

Electrek, 2022. Tesla Cybertruck: Release date, News, Pricing, Range, More - Electrek. [online] Electrek. Available at:

<https://electrek.co/guides/tesla-cybertruck/> [Accessed 16 April 2022].

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<https://electrek.co/guides/tesla/> [Accessed 16 April 2022].

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Frank, R., 2022. Elon Musk unloaded $22 billion of Tesla stock — and still owns more now than a year ago. [online] Conbc.com. Available at:

<https://www.cnbc.com/2022/02/15/elon-musk-unloaded-billions-of-tesla-stockand-still-owns-more-than-last-year.html#:~:text=Musk%20owns%20172.6%20million%20Tesla,its%20single%20largest%20individual%20shareholder.> [Accessed 16 April 2022].

Hamilton, I., 2021. Elon Musk says Tesla can't make enough Powerwall storage batteries to meet demand because of the chip shortage. [online] Business Insider. Available at:

<https://www.businessinsider.in/tech/news/elon-musk-says-tesla-cant-make-enough-powerwall-storage-batteries-to-meet-demand-because-of-the-chip-shortage/articleshow/84405960.cms> [Accessed 16 April 2022].

Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.

Jiang, T., 2022, March. A Business Model to Analyze the Tesla Based on SWOT Analysis and POCD. In 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) (pp. 2896-2899). Atlantis Press.

Lomidze, N., 2016. Upgrading the liquidity and activity ratios for the residential real estate development business. Preparation for the Future Innovative Economy, p.47.

Madushanka, K.H.I. and Jathurika, M., 2018. The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), pp.157-161.

Morris, C., 2020. Elon Musk offers to let automakers license Tesla’s tech (again) - Charged EVs. [online] Charged EVs. Available at: <https://chargedevs.com/newswire/elon-musk-offers-to-let-automakers-license-teslas-tech-again/> [Accessed 16 April 2022].

Rashid, C.A., 2018. Efficiency of financial ratios analysis for evaluating companies’ liquidity. International Journal of Social Sciences & Educational Studies, 4(4), p.110.

Reid, A., 2019. Tesla Model S, Model X get a bump to almost 600 kilometres of range | Driving. [online] Driving.ca. Available at: <https://driving.ca/auto-news/news/tesla-model-s-model-x-get-a-bump-to-almost-600-kilometres-of-range#:~:text=from%20our%20team.-,Tesla%20Model%20S%2C%20Model%20X%20get%20a%20bump%20to%20almost,efficiency%20above%2093%20per%20cent.> [Accessed 16 April 2022].

Richter, F., 2019. Infographic: Why Tesla's Cybertruck Makes Sense. [online] Statista Infographics. Available at:

<https://www.statista.com/chart/20071/share-of-us-light-vehicle-sales-by-segment/> [Accessed 16 April 2022].

Sec.gov, 2021. FORM 10-K | Tesla, Inc.. [ebook] Available at:

<https://www.sec.gov/Archives/edgar/data/1318605/000095017022000796/tsla-20211231.htm#consolidated_balance_sheets> [Accessed 16 April 2022].

Tesla.com, 2022. About Tesla | Tesla. [online] Tesla.com. Available at: <https://www.tesla.com/about> [Accessed 16 April 2022].

Tillman, M., 2020. What is Tesla Autopilot and how does it work?. [online] Pocket-lint. Available at:

<https://www.pocket-lint.com/cars/news/tesla/135584-what-is-tesla-autopilot-features-what-does-it-do> [Accessed 16 April 2022].

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[Accessed 23 February 2024].

My Assignment Help. 'Tesla Inc. Essay: Innovations In EVs And Renewable Energy.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/cupu046-business-management-and-leadership/market-capitalization-file-A1E2D12.html> accessed 23 February 2024.

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