Essay 2017). This has been publicly justified by the

Essay
I

Tesla

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11/12/2017

Markets,
Marketing and Strategy

IB
1170

ID:
1732796

Word
count : 2000

Deadline:
11/12/2017

Tesla

Executive
summary

Tesla
is an automotive company founded in 2004. It has since succeeded in
adapting existing technologies in order to manufacture electric cars
and is thus far succeeding in creating customer awareness and sales
are increasing exponentially.

The
purpose of this essay is to provide a synthetic overview of the
company’s history, strengths and weaknesses. We will be covering
distinctive features such as idealistic leadership, vertical
integration,

Table
of contents:

Introduction

Company
Background

Assessment
of Assets and Resources

Industry
and business environment analysis

Market
segmentation

Business
performance analysis

Recommendations

Company
Background

Tesla
Motors was founded in 2003 by a group of entrepreneurs and engineers
including Mark Eberhard, who served as CEO of the company until 2007
(Vance, 2017; Morris, 2017).

The
company started out with only 7.5 million USD, most of which was
provided by Elon Musk who at the time focused on SpaceX (Vance,
2017). The founders shared the desire to shift public perception of
electric cars for obvious environmental reasons. At the time, the
public generally thought of electric cars as clumsy, slow,
short-range, ugly and not very sexy (Vance, 2017).

Recognizing
that consumer buying decisions in the auto-mobile sector are usually
based neither on spreadsheets nor all that much on practicality, in a
way similar to the apparel sector, they decided to break with
tradition by not targeting consumers which were interested in the
ecological aspects as well as economic savings, but to target a more
affluent group of people and thus designing a sports car (Morris,
2017).

This
decision was also influenced by the Li-Ion technology at the time,
whose energy density was not well suited for a sedan lest there be
further improvements (Eberhard and Tarpenning, 2006; Vance, 2017;
Morris, 2017; Berdichevsky and Straubel, 2006).

The
companies first car, the Tesla Roadster, was launched in 2008
following five years of development. The central idea was to combine
an outsourced Lotus glider (chassis) with Tesla’s know-how regarding
the battery pack, electric motor and control software to create a
high-end sports car (Vance, 2017; Morris, 2017).

The
car received almost exclusively favourable reviews and accomplished
its mission in modifying consumer perception and proving the concept
(Reynolds and Vance, 2010; Cammisa, 2009; White, 2009).

Tesla
notoriously adopts a no-advertisement strategy (Morris, 2017). This
has been publicly justified by the engineering belief that focusing
resources on development of a superior product is often the better
choice, especially when one does not have the funds to do otherwise,
which is the case with most start-ups. Even though Musk has publicly
stated that he does not engage in marketing at all (Vance, 2017), his
celebrity and the considerable controversy around his products tend
to generate media coverage and customer awareness at no monetary
cost, even though some of it is obviously negative (Morris, 2017;
Vance, 2017), quite often even negative reviews are better for sales
than none.

Given
that the Roadster was a solid product and that early customers
included several high-tech oriented celebrities, their brands
contributed at least to some degree to the improvement of public
awareness.

Following
the companies IPO in 2010, in 2012 the Model S was launched,
developed using profits from the Roadster as well as in large part a
US Government loan granted by Obama.

Assessment
of assets and resources

Based
on NASDAQ’s published annual report (2016), Tesla’s assets currently
total ~22.7B$ while liabilities amount to 16.67B$. Most of it’s
assets are tied down in equipment and machinery in it’s various
factories as well as buildings (16.05B$).

A
considerable portion of it’s liabilities is due to leases and
obligations (7.39B$) as well as Equity (4.75B$).

Given
it’s considerable debts and almost complete reinvestment of annual
gains, the company is clearly engaging in a not inconsiderable level
of high-gearing in order to build its two Giga-factories as well as
continuing to open stores in various countries and enlarging the
supercharger network.

Tesla’s
current management clearly expects a vast growth of demand. To meet
that demand, it is crucial for Tesla or any rising company to avoid
production bottlenecks and avoid delays in delivery, otherwise
reputation will suffer.

Industry
and business environment analysis

Tesla
significantly changed the landscape of electric vehicles, essentially
creating it’s own market. Traditional methods of analysis are not
applicable given that Tesla is not exclusively profit oriented and
comparisons are impossible given that to date Tesla is the only
specialized electric car manufacturer on the market.

While
Nissan, BMW, Fiat-Chrysler and most other car manufacturers have
occasionally produced small numbers of electric cars, even when
demand for the Fiat 500e far exceeded expectations, Fiat decided to
stop producing the car. While there is clearly no proof for this, the
possible reasons a company such as Fiat may have to stop producing a
product that is highly sought after and profitable, are quite limited
in number and obviously related to the fossil-fuel complex.

Tesla
now controls a large portion of the market. Logically, electric
vehicles will sooner or later replace combustion engines. This is
simply a matter of technological progression. Electric vehicles in
are superior in performance, maintenance, reliability, practicality
and safety today. Progression will sooner or later solve the battery
cost variable and consumers will therefore eventually shift to
electric.

Major
car companies are therefore reviving their EV programmes and
attempting to catch up with Tesla. Given their superior monetary
means, it is evident that in a few years or at most a decade, it will
have to compete for it’s market position.

Market
segmentation

As
is generally well-known, Tesla’s plan was to enter the market by
leveraging high-end consumer capital towards the cost optimization of
their technology (Vance, 2017; Morris, 2017). This method is common
in silicon valley’s environment, even though it has not been applied
to the auto-mobile industry to date. Tesla therefore demonstrates
that virtually any market can be disrupted using the same strategy.
The larger existing placeholders are, the longer the temporal window
available for any disruptive mission given greater inertia.

There
are few competitive products on the market at the moment. Most of
those use Tesla’s battery packs and often motors and can therefore
not entirely be seen as competition (Vance, 2017; Morris, 2017).
Given that most major modern car makers tend to outsource their
components and assembly in large part, acquiring components from
Tesla makes much sense.

Business
performance analysis

Ultimately,
traditional analysis is irrelevant in a case such as Tesla whose
purpose is to create a new market and shift consumer thinking in
regard to a product.

While
in most large organizations, a rise or fall in annual profits can be
seen in relation to a relatively long history and thus be meaningful
in time as well as in space when seen in relation to various
competitors, in Tesla’s case just with early Apple and Microsoft, a
new market is being created and thus comparison both temporal as well
as spatial is impossible.

While
in today’s Microsoft or BMW, a rise or fall in profits can thus be
seen as good management or mismanagement of an organization based on
how well decisions regarding hundreds or thousands of products and
means to market them are made, in a start-up, the venture itself is
the experiment and there is only one product.

Either
consumer belief and behaviour will continue to shift in Tesla’s
favour or an accident or other unfortunate event will curb their
progress. Either way, given that Tesla is currently still led by it’s
founder Elon Musk, as I mentioned before, profit generation is to be
seen as a means to the end of disruption and technological
advancement, not an end in itself. This is demonstrated by cases such
Apple’s firing of Steve Jobs from 1985 and reinstatement in 1997
(Siegel, 2017). Apple struggled considerably without it’s founder and
promptly fell into the same trap of maintenance management as Boeing
and Airbus.

Given
that profit therefore is neither comparable or the sole purpose of
the organization, basing an analysis of the company in any major part
on an analysis of it’s finances would result in an improper portrayal
of what is more of the out-birth of a movement rather than a mere
company.

This
is also the single greatest strength of the company. Given that
employees are united by a sense of purpose and led by a celebrity CEO
with a strong vision, Tesla is able to leverage much more work from
it’s employees than any competitor.

Recommendations

Open-sourcing
Tesla’s patents in June 2014 (Musk, 2017) was a notably controversial
decision on Musk’s part.

Mainstream
literature however, tends to underestimate the barrier represented by
lack of know-how and manufacturing technology when it comes to the
feasibility of copying other entities technology (Chomsky, 2006). On
top of that, potential competitors have shown limited interest in
committing the vast resources which would be required to build their
own EV’s (Morris, 2017).

Most
auto makers such as Fiat, BMW, GM and most others, outsource up to
90% of manufacturing while themselves focusing only on engineering
and design (Morris, 2017). Tesla therefore is likely to be the main
source of EV components for years to come and acquiring components
from Tesla is entirely compatible with the business models of
potential competitors in the market.

Given
that Tesla does face potential competition from companies which have
financial means orders of magnitude greater than itself (Morris,
2017), rapid expansion is the only feasible model for Tesla at the
moment if it is to serve the mainstream market at some point in the
near future with its planned cheaper products.

Entrenching
and attempting to serve a niche market would result not only in
failing the mission which currently motivates it’s employees but
would also signify that any major manufacturer could wipe out Tesla
once it does acquire the capacity and desire to compete with it,
especially given their vast superiority of means. A relatively risky
approach is therefore required.

As
discussed earlier, Tesla’s extreme focus on vertical integration is
uncommon in the auto-mobile industry and will give the company a cost
efficiency advantage for a relatively long time-frame. Musk applied
similar philosophies in SpaceX and SolarCity, with excellent results
in both cases.

Lastly,
Musk is currently, albeit likely unconsciously, targeting the human
need to feel to identify with a mission for a better future. A
purpose that feels important and elevates the employee from his
normal self-perception as replaceable and meaningless, a feeling
which pervades modern civilization more so now than ever before.

Unfortunately,
this principle continues to be ignored by most modern companies.
Monetary compensation is only one of many ways in which employees can
be motivated to work harder (Greene, 1998; Sun and Griffiths, 1971.;
Machiavelli, 2016). Those companies who use the full range of
motivators and who act based on an understanding of human nature will
have a great advantage compared to those who merely pay their
employees hoping for them to work hard.

In
economic terms, a wage will motivate an employee to do the least
amount of work possible to be paid at the end of the month save for
casual bursts of productivity when looking to be promoted. Amazingly,
many or most employees work for only three out of eight hours they
spend at the office each day (Harrow, 2017).

Musks
employees believe in the companies mission and are far more motivated
than those working for more established companies (Vance, 2017). In
fact, they usually work for ten or more hours per day, seven days per
week without complaining and are far more productive in that time
than those working for competitors (Vance, 2017).

Employees
willingness to work harder for Musk than for anyone else has been the
driving factor of his success with SpaceX, Tesla and SolarCity
(Vance, 2017). Recognizing this and consciously capitalizing on the
use of social engineering and manipulation of the workforce could
have a significant impact towards further maximizing the work-output
per wage-dollar-paid ratio.

References

Harrow,
B., 2017. Survey
Reveals Employee Productivity Averages 2 hours and 53 Minutes a Day
| vouchercloud Incloud blog.
online Incloud. Available at:

Accessed 11 Dec. 2017.
Vance,
A., 2017. Elon
Musk and the quest for a fantastic future.
New York, NY: Harper, an imprint of Harper Collins Publishers.
Musk,
2017. All
Our Patent Are Belong To You.
online Tesla.com. Available at:

Accessed 11 Dec. 2017.
Chomsky,
N., 2006. Failed
state.
London: Hamish Hamilton.
Charles
Morris, 2017. Tesla
Motors: How Elon Musk and Company Made Electric Cars Cool, and
Remade the Automotive and Energy Industries.
1st ed. Charles Morris.
Siegel,
J., 2017. When
Steve Jobs Got Fired.
online ABC News. Available at:

Accessed 11 Dec. 2017.
Machiavelli,
N., 2016. The
art of war ; & the prince.
Lanham: Dancing Unicorn Books.
Sun,
T. and Griffiths, S., 1971. The
art of war.
Place of publication not identified: Oxford Univ. Press.
Greene,
R., 1998. The
48 laws of power by Robert Greene.
Place of publication not identified: Viking Press.
Eberhard,
M. and Tarpenning, M., 2006. The
21st Century Electric Car.
Tesla Motors. Available at:
Accessed 11 Dec. 2017.
Berdichevsky,
G. and Straubel, JB., 2006. The
Tesla Roadster Battery System.
Tesla Motors. Available at:

Accessed 11 Dec. 2017.
White,
J., 2009. The Surge in Electric Cars. The
Wall Street Journal.
online Available at:

Accessed 10 Dec. 2017
Cammisa,
J., 2009. 2009 Electric Tesla Roadster – The Electric Tesla Acid
Test. Automobile
Magazine.
online Available at:

Accessed 11 Dec. 2017.
Reynolds,
K. and Vance, B., 2010. FIRST TEST: 2010 TESLA ROADSTER SPORT. Motor
Trend.
online Available at:

Accessed 10 Dec. 2017.