Tesla company case study

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    High School
  • Page:
    2
  • Words:
    952

Words: 871

Tesla Company Case Study

Introduction

The Tesla Motors Company is American based automotive company with its headquarters in California. The company name was derived from Nikola Tesla, who patented technology in 1888 (Hill and Jones, 2013). The firm was formed in 2003 by Musk and Eberhard. The two were great entrepreneurs with a high-risk appetite. For example, Musk had spent $55 Million of his wealth and those from friends. The company is a major player in the automotive industry due to its innovativeness (Hill and Jones, 2013). Tesla Motor Company was founded with the aim of developing an environmentally friendly sports car and achieves the USA energy independence. Tesla deals with designing, manufacturing, and selling electric power-train mechanism, and battery products.

The idea of creating an innovative and competitive product in automobile industry pushed the company to provide value for money products and eliminate challenges of charge. The two co-founder ideas conflicted at the initial stage but due to Musk contribution regarding capital made his specification prevail. Musk advocated the use of light and strong material. Also, he looked at reducing the cost to anything less than $100,000 (Hill and Jones, 2013). In contrary, Eberhard was of the opinion that using fiberglass was ideal though expensive, hired PR professional to build publicity. The two also conflicted on the design since Musk wanted door sills lowered by two inches to increase customer comfort in entering and exiting the car (Samson and Singh, 2008).

Organisational performance

Tesla Market status

The company has continuously improved its market status by launching new models with advanced features, which response to changes in consumer preference. The first car launched in 2008 was named Roadster. The car has accelerated the power of 0-60Mph in 3.7seconds and travel for 245miles with a single charge of lithium ion battery. The company has sold more than 2,400Roadsters in more than 30 countries worldwide (Tesla Motors, n.d.).

The company launched Model S in 2012 which was more sophisticated than Roadster. It was the first premium electric sports car and used 100% power. The car had four doors and accommodated seven passengers and 64 cubic feet of storage. The company found it necessary to breach market gap created by a roadster in providing sports car that allows comfort and family or friend to participate together. Also, Model S has improved stability to reduce toppling. The low center of gravity was achieved by combining battery into the chassis and below occupants sits (Tesla Motors, n.d.). The car received safety rating of 5-star which is attributed to lowered standard of gravity and strength of the material used. The charge per mile improved to 265miles per charge (Tesla Motors, n.d.). The increase in acceleration forced the company to release two mode S in 2014 which included 85D and P85D that had high efficiency and unparalleled control of traction. The company launched Model X, which has more sophisticated features which include high acceleration, three rows of sits, and falcon wing doors.

The company has achieved great success in the automotive industry with over 50,000 vehicles on the road as per 2015 statistics (Tesla Motors, n.d.). The continuous improvement of the product by Tesla plays a great role in ensuring that the company records first profit in the first quarter of 2015 financial year.

Tesla Revenue and Profitability

The company profitability has been on the rise due improved car quality, value for money, concern on zero emission automotive, response to changes in consumer preference, and innovativeness (Schiffman and Kanuk, 1978). The graph below shows revenue and profitability trend of Tesla Motors since 2009;

tesla company case study

Source: Company document

The continuous improvement of company revenue signifies an increase in market share and improved customer satisfaction compared to competitors’ products (Hoyer and MacInnis, 2001).

Profitability

tesla company case study 1Source: Company document

The graph shows EDIT expressed in millions. The lower revenue volume and high expenses were attributed to negative EBITDA in 2011 and 2012. On the other hand, 2015 loss resulted from high non-operating expenses and increased in research and development cost (Tesla Motors, n.d.).

Competitor

The company received constant competition from other automotive companies which included General Motors, Ford, Nissan and Toyota. The competition evolved within attainment of the highest consumer satisfaction (Samson and Singh, 2008). The Toyota started was producing a hybrid vehicle that used gasoline and electricity before the inception of Tesla in 2000 thus making it the first competitor. Also, California law in 2013 that mandated all automotive players to have a portion of emission-free cars increased the level of competition. It was noted that most companies sold electric cars at a lower price (Hill and Jones, 2013). The aim of cheaper electric cars was to get a higher volume of sales for the more expensive combustion automobiles. The strategy caused Toyota, Honda, GM and Ford to shut down electric vehicle program and buy carbon credits from those companies which had excess. Tesla Motor Company had a better competitive edge due to surplus carbon credit, and it earned $68Million during the first quarter of 2013 from the carbon credit sold (Hill and Jones, 2013). The venture of the electric vehicle is costly thus limiting entry of competitors into the market. The cost of entry creates a monopolistic effect which protects Tesla domination. Fisker, Bright Automotives, and Coda are among companies that failed from lack of enough capital.

Reference:

Hill, C. and Jones, G. (2013). Strategic management. Mason, OH: South-Western, Cengage Learning.

Hoyer, W. and MacInnis, D. (2001). Consumer behavior. Boston: Houghton Mifflin.

Samson, D. and Singh, P. (2008). Operations management. Cambridge: Cambridge University Press.

Schiffman, L. and Kanuk, L. (1978). Consumer behavior. Englewood Cliffs, N.J.: Prentice-Hall.

Tesla Motors, (n.d.). Tesla Motors. [online] Teslamotors.com. Available at: https://www.teslamotors.com/ [Accessed 16 Apr. 2016].