Description
Tesla Motors Paper
Broken up into 4 parts
1. Brief history and background (1-2 pages)
2. Identify the problems that the company is facing currently
3. Give recommendations that address problems and provide actionable steps to accomplish these recommendations.
4. Give updates on company that illustrate what would happen to the company if they followed the recommendations.
Refer to the outline and provide details. Use professional sources and if possible the company's quarterly reports and shareholder letters.
Use MLA formatting and in text citations.
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Explanation & Answer
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Tesla Motors Business Analysis
History and Background
Tesla Motors was founded in July 2003 by Martin Eberhard and Marc Tarpenning
(Baer, 1). The two founders managed the auto company until in 2004, Elon Musk invested in
Tesla Motors by financing its $7.5 million Series A and became the Chairman of the Board.
Elon Musk again in 2005 led the financing to raise the company $13million so as to finance
the development of Tesla Roadster which was released in July, 2006. Musk and Technology
Partners helped the company to raise $40million Series C in 2007. Tesla faced some tough
times in 2007 as the company was losing money and was in need of new leadership and
therefore in response, Ze'evDrori was made CEO due to his experience as a high-tech
entrepreneur and chief executive. The reason why Tesla was losing a lot of money and found
itself in financially tough times in 2007 could be attributed to the fact that Tesla had failed to
attract the additional $100m investment that would have helped in financing its operations (Van
den Steen, 4). Another reason it was losing money could be because it was stretching itself thin
by attempting to introduce several cars into a market that is hard to create a presence when it
was not yet an established company.
In 2008, Elon Musk took over as CEO and in the same year in June, Model S was
revealed by the company. Model S was the car that Tesla came to be known for. Model S was
manufactured to be a more affordable luxury sedan that would produce zero emissions despite
having every single amenity that a luxurious vehicle would have. Model S was, therefore,
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more luxurious than the Roadster. The Model S was bigger than the roaster as it was built with
5 adult seats and 2 children seats and therefore a total of 7 passengers. In June 2009, Tesla
Motors received a $465 million loan from the Department of Energy. The loan was paid off in
May 2013, nine years early. In June 2010, Tesla goes public and is the first American car
company to do so since Ford went public (Kumparak, Greg, et al. 1). Tesla unveiled its first
SUV and AWD vehicle known as the Model X on February 9, 2012. In 2012, Tesla quietly
started developing a small number of electric car charging stations in California for charging
its vehicles. By the time of their announcement, 6 stations of the superchargers were
operational. In 2013, Tesla was experiencing a wave of success having launched its first massproduced car that is the Model S (Stewart 2).
In 2015 Tesla won a lawsuit in New Jersey that allowed it to sell their cars directly to
customers. Car manufacturers face a huge challenge in their distribution network in the United
States as they are not allowed by the US to sell their car directly to customers but rather through
third-party dealerships. One of the challenges of using these traditional distributional channels
such as dealer networks is that the high customer acquisition costs inspire dealers to turn the
store traffic into sales with the use of aggressive tactics that create differential margin according
to the willingness of the customer to pay. The process of buying vehicles from dealers was
frustrating and made many customers unhappy which pushed some to look for second-hand
cars. In March, 2016 Tesla revealed their most affordable car yet, the Model 3 (“Model 3” 1).
The base model was to start from $35,000 and it is this affordability that made Tesla triple its
2015 sales with the Model 3 (Van den Steen, 4).
Problems
Despite the fact that Tesla has a considerably good number of customers and sales, the
company is yet to break even when it comes to profits. The profits of $22million that Tesla
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made in 2016 marked its first profits after 14 quarters of losses and negative cash flows. This
is due to the fact that the company is still facing a challenge when it comes to increasing its
manufacturing so as to meet the needs of its customers. This is affecting its ability to build and
maintain a successful mass market for its vehicles. The costs that go into manufacturing its
luxurious cars could also be another reason why the company is failing to make profits.
Currently, critics are skeptical whether Tesla will make a profit in 2017 like it did in 2017 due
to the possibility of its costs ballooning due to the various commitments it has. These
commitments include an expansion of its production facilities so as to be able to manufacture
the Model 3 mass-market electric car. Another commitment is funded to finance its $2.8billion
acquisition of Solar City corp and the cost of increasing its deliveries to 500,000 by 2018. All
these production and operations costs eat into the revenue of the company and result in either
very little profit or losses (Stewart 1).
Another reason Tesla could be having trouble making a profit is the fact that it is going
against a basic business principle which is identifying demand and then capitalizing on it at a
profit. Tesla despite having a huge demand for its cars is not exploiting this market advantage
but instead attempting to create and dominate a new market. The Model S and Model X
vehicles give Tesla domination over a small market for luxury electric cars, but instead of
focusing on this market and building its advantage, Tesla want...