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Write a case study on Tesla Inc.

- On The Road To Success ?

- Or Ruin ?

Requierement:

.Introduction
.Financial analysis
.Segmentation analysis
.Marketing
.5Ps.
.product life cycle

.HRM
.Operations
.Primary and secondary
.Strenghts and weakneses

Recent Issue

Recent Issue

Certain recent issues faced by Tesla automobile company are mentioned below:

  • Asian market for Tesla is observed to be threatened that is evidenced by strong local manufacturing in China increasing competition with Tesla.
  • Increasing competition from its rival automakers in which the company is observed to deal with huge demand and supply gap.
  • Unions, workers, wages and losing all the money

Tesla has its business locations all over the world including countries like Europe, Asia Pacific and North America. However, domestic market of the company is deemed to be most important target market for Tesla that can facilitate it in successfully tapping the European and Chinese markets. 

US are responsible for half of Tesla’s sales and China has bypassed Norway to be second largest country served by Tesla. Europe is positioned as second largest region with increased purchase rate of Model S cars. Moreover, neither land is the second largest in Europe with 365 purchased Model S cars.

Annual Income Statement (values in 000's) Quarterly Data

Period Ending:

12/31/2016

12/31/2015

Total Revenue

$7,000,132

$4,046,025

Cost of Revenue

$5,400,875

$3,122,522

Gross Profit

$1,599,257

$923,503

Profitability Ratios

Ratios

Tesla

Industry Average

Gross profit margin ratio

-2.77

78.1

Operating profit margin

-0.46

22.8

Return on capital employed

-0.04

            1.68

Gross profit margin ratio, operating profit margin and return on capital employed are observed to be negative in comparison to industry average ratios. This indicates the company is not generating enough revenue through sales of its cars in all its geographical locations. The company is not being capable to sell its new car models and conveying its assets to cash. 

Ratios

Tesla

Industry Average

Debtor days

26.02

0

Creditor days

0.81

19.35

Stock turnover period

2.61

20.91

Debtor’s days is observed to be higher than industry average. This indicates that Tesla is efficient enough to gather cash quickly from its debtors. However, creditor days and stock turnover period is observed to be less than industry average. These indicate that Tesla is not that capable in paying its creditors in a quick manner and is also not able to convert its stock into cash rapidly. 

Ratios

Tesla

Industry Average

Current ratio

1.07

1.43

Quick ratio

0.69

1.24

Current and quick ratio of Tesla Company is observed to be less than industry average but current ratio of Tesla is 1.09 and this ratio more than 1 is deemed to be preferable and can be said that the company has superior liquidity position. Moreover, quick ratio is observed to be less than 1 that indicates the company is not capable enough to address its debts.

Ratios

Tesla

Industry Average

Gearing ratio

2.75

1.67

Interest cover ratio

2.75

0

Gearing ratio and the interest cover ratio of Tesla is observed to be more than the industry average. This indicates that Tesla Company is capable enough to determine how easily it can address its interest expenses on the outstanding debt. However, an increased gearing ratio indicates Tesla is using increased debt in order to pay off its continuous operations. This ratio measured the company’s borrowed funds proportion to its equity. 

  • 2015 and 2016 both saw reductions in operating cash flows by 4%  
  • New car models launched in 2015
  • In 2013 operating cash flows grew by 2% that resulted in revenue increase
  • $3.9bn free cash flow in 2014 that continued to return all free cash flow to investors
  • $4.1bn in dividends and $2.8 in shares.

From the earrings per share analysis of Tesla that is observed to be -4.68 it can be stated that the electric car maker’s shares can weaken financial performance of the company. Shares of the company are deemed to underperform due to weak financial performance of the company. Such underperformance indicates that Tesla motors will continue to pay enough dividends than the company’s growth.

KPI (target)

2016 (actual)

KPI Met?

System wide sales growth of 4-6%

2%  

No

Operating income growth of 5-8%

4%

No

ROIIC in the high terms

12.7%

No

Tesla initiated its business Roadster with a base price of US $109000 in 2007 and then in the year 2012 the presented with Model S that is priced at US $85,000. Moreover, model 3 launched with a starting price of $35,000. Former market of the company is focused on customers those are high end affluent consumers searching for automobiles that is efficient along with being eco-friendly but also drove being a real luxury sports car. With the launch of latest model of Tesla, a new target audience segment has been added to the company’s target consumer base. This market segment is not uber rich and is deemed to manage to afford an initial level premium luxury car. Tesla has entered automotive industry with high end and expensive automobiles in consideration to target consumers that can afford luxurious automobiles along with shifting to more competitive market through decreasing price of model 3. 

SBU and Geographical Locations

Tesla’s competitive business rivals encompass most renowned German car manufacturers such as Porsche, BMW, Mercedes-Benz and Audi within the battery generated category of automobiles. Although Mercedes was considered as the last to belong to the group, however its strategies are highly effective. The company is observed to work effectively for a range of innovative electrical car models. Based on the marketing reports, Mercedes is deemed to spend more than three billion dollars in order to design and develop its innovative car models. BMW and Audi also provides a tough competition through investing increased capital in development of electrical car models that are considered as direct competitors of Tesla automobile. Porchse is also providing high competition in designing superior quality automobile models that has technology of high voltage battery storing along with certain electric motors that are quite innovative and are focused on providing Tesla Company with strong competition. The automobile company has explained its plans for developing a model version of its mission E impression. However, such competition level is not deemed to be a bigger concern for the company. The owner of the Company Elon Musk holds the opinion that a concept of battery operated car’s responsibility is focused on inspecting the previously established manufacturers. Major goal of Tesla is to promote advancement of a sustainable transport system.

Product

Product mix strategy of Tesla Inc considers identifying products sold by the company to its target consumers. The company offers profitable products that offer value that is paid by consumers. Tesla’ automotive business offers products such as automobiles, batteries and electric vehicle power train aspects. 

Price levels along with associated strategies are explained within marketing mix. Tesla Motors Inc employs premium pricing strategy that considers employing high price aspects relied on basis of uniqueness along with high value based on the company’s offerings. Consumers are observed to pay considerably increased prices for Tesla automobiles that are considered advanced in consideration to ecology and technology.

The locations that are used by Tesla in reaching consumers are considered as a marketing mix element. The company provides or sells its products through these locations that include official company websites, company-owned galleries and stores along with company-owned service centres. Additionally, Tesla offers its cars through their own stores or online medium and there are several stores that display the company’s luxurious cars. 

This aspect explains the marketing communication tactics and strategies employed by Tesla Motors Inc for promotion of its automobiles. Promotion of the company’s automobile products is conducted through direct marketing, sales promotions, personal selling, viral marketing and public relations. Marketing mix of Tesla is deemed to be exceptional within automobile industry due to its dependence on viral marketing. This marketing strategy has largest contribution in capability of the company in interacting with customers. 

Tesla Inc conducts a project for educating their employees regarding quality education on Tesla automobiles in order to enhance competitiveness along with advancement of the company and job retention promotion. The target group includes the company’s employees along with key area of education that includes development program, IT area training, language learning, soft skill development and technical training.

Tesla has a functional Human Resource Management (HRM) structure and this involves organizational function to be a major defining factor. Moreover, organizational culture of Tesla Motors is to ensure human competence that is vital for innovative products within automotive business. Different characteristics that are observed in HRM structure that is present in the company’s structure at a decreased significant extent. The below mentioned characteristics are considerable in Tesla's HRM structure:

  • International hierarchy-This includes Chairman or Chief executive officer, Chief financial officer, Chief technology officer, Vice president of vehicle engineering, Vice president of power train operations, Vice president of North America sales, chief designer, Vice president of manufacturing, Vice president of autopilot hardware engineering, Vice president of international services and deliveries and General counsel.
  • Global centralization- Focus of international centralization is to maintain control on overall company through decisions which is generated by a team or central group.In such scenario, the head person belonging to every office of Tesla of the international hierarchy from the company’s central headquarters which can directly control every operation of the company. In this HRM structure, Tesla does not support autonomy of its overseas or regional offices. Conversely, employees within headquarters of the company make most decisions for operations in international market. 
  • Minimal regional divisions- The focus of this position is to implement several strategies along with marketing campaigns in order to maintain financial reports and records. Human resources of the company are diverse and employees belong to several geographical locations including China, United States, Norway and other parts of the nation.

Value Chain

Figure : Tesla Value Chain

(Source:)

Support Activities

  • Tesla trained its employees for international assignments for developing a global pool in maintaining a common culture and language.
  • The company ensures continuous technology development in product and process designs, engineering, research and development and marketing that serves as a key for the company’s success.
  • Single vendor sourcing
  • Partners are chosen based on technology, technical support, quality, cost and delivery
  • Supplier management that focuses on generation of partnership relations with suppliers for instance, commitment to total quality and sharing of information.

Primary Activities

  • Sales and Distribution- Tesla employs DS software system 6 PLM in order to forecast sales relied on product lifecycle stages and all the car accessories are available on its website.
  • Service- Remote diagnostic for the car’s operations and its firmware is updated through plugging the car within the computer

Primary activities of Tesla Motors are focused on certain aspects based on its automobiles that include:

  • Design- Tesla is set up within Silicon Valley and has access to best software engineers. Moreover, the automobile company is deemed to use CATIA, 3DVIA and 3DLIVE for integrated designing of product along with deceasing wastes.
  • Engineering- VMS monitors its security system and communicates warnings through turning on the touch screen, computes range, operates with battery processor, develops the car and deals with driving mode.
  • Manufacturing- Employs DELMIA for stimulating and planning production process along with using solar power factory that is able to manage recent global capacity manufacturing.
  • Charging- 534 superpower stations that has numerous superchargers and these stations are indicated in Google maps on the automobile’s touch screen.

Strengths

Weaknesses

· Tesla has exceptional position within automobile market- Along with selling innovative car. Tesla is also delivering innovative technologies. Tesla is not just an auto manufacturer that provides manufactured electric vehicles but has also captured luxury market with long range electric cars.

· High sales growth- Tesla is growing rapidly that is resulting in huge aspect of consumer excitement for the automobiles. New models of the company are being successful all across the worlds. 

· Burning through cash- Tesla is observed to be in a state of burning through increased amounts of cash that is large because of its large investments in research and development for producing transformative technology cars. 

· Increased debt load- Tesla is dealing with increased debt load. Moreover, the interest payments on such debt are considerably significant and are deemed to continue to cut into the company’s earnings.

References

Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Pearson Education.

Asugman, G. and McCullough, J., 2015. Examining the role of after sales service in international marketing. In Proceedings of the 1993 World Marketing Congress (pp. 243-247). Springer, Cham.

Baack, D.W., Harris, E.G. and Baack, D., 2013. International marketing. Sage.

Brady, D.L., 2014. Essentials of international marketing. Routledge.

Czinkota, M.R. and Ronkainen, I.A., 2013. International marketing. Cengage Learning.

De Mooij, M., 2015. Cross-cultural research in international marketing: clearing up some of the confusion. International Marketing Review, 32(6), pp.646-662.

Elenkov, D., 2014. Experiential Exercise with Multinational Student Teams: Researching Together a Multinational Corporation and Developing Jointly a Strategic Marketing Plan for IT Using Blackboard. Developments in Business Simulation and Experiential Learning, 41.

Ford, D. and Leonidou, L.C., 2013. Research Developments in Interna-tional Marketing. New Perspectives on International Market-ing, edited by SJ Paliwoda, pp.3-32.

Gnizy, I. and Shoham, A., 2014. Uncovering the influence of the international marketing function in international firms. International Marketing Review, 31(1), pp.51-78.

Mathews, S., Bianchi, C., Perks, K.J., Healy, M. and Wickramasekera, R., 2016. Internet marketing capabilities and international market growth. International Business Review, 25(4), pp.820-830.

Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management. Springer.

Okazaki, S. and Taylor, C.R., 2013. Social media and international advertising: theoretical challenges and future directions. International marketing review, 30(1), pp.56-71.

Papadopoulos, N. and Heslop, L.A., 2014. Product-country images: Impact and role in international marketing. Routledge.

Rana, S. and Sharma, S.K., 2015. A Literature Review, Classification, and Simple Meta-Analysis on the Conceptual Domain of International Marketing: 1990–2012. In Entrepreneurship in International Marketing (pp. 189-222). Emerald Group Publishing Limited.

Skarmeas, D., Zeriti, A. and Baltas, G., 2016. Relationship value: Drivers and outcomes in international marketing channels. Journal of International Marketing, 24(1), pp.22-40.

Tesla, 2017. [online] Available at: <https://ir.tesla.com/secfiling.cfm?filingid=1564590-16-13195> [Accessed 18 Nov. 2017].

Wan, W.W., Luk, C.L. and Chow, C.W., 2014. Consumer responses to sexual advertising: The intersection of modernization, evolution, and international marketing. Journal of International Business Studies, 45(6), pp.751-782.

Wu, C.W., 2016. The international marketing strategy modeling of leisure farm. Journal of Business Research, 69(4), pp.1345-1350.

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[Accessed 12 July 2024].

My Assignment Help. 'Tesla Inc.: On The Road To Success Or Ruin? A Case Study Essay.' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/fina1035-strategy-financial-management/report-on-tesla-inc.html> accessed 12 July 2024.

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