Please read the following case and answer the questions followed by it. Tesla Mo
ID: 435790 • Letter: P
Question
Please read the following case and answer the questions followed by it.
Tesla Motors: Disrupting the Auto Industry?
Driving down the Silicon Valley corridor from San Francisco to the brown hills of Palo Alto near Stanford University, a casual observer might catch multiple sightings of the Model S, an all-electric vehicle made by Tesla Motors with a range of almost 300 miles. Although the company had many fans in the tech-friendly valley, it also had its critics. On the positive side, Tesla had been ranked by Forbes as the World’s Most Innovative Company in 2015, with a flashy feature on the front cover This was largely due to the success of its second model, the Model S, named ‘car of the year’ by the magazine Motor Trend in 2013, the only unanimous choice anyone could remember.
According to Elon Musk, Tesla’s strategy was to start selling vehicles in the high-end niche and gradually move down-market. If all went according to plan, the Model S and X would be followed in 2017 by a far cheaper Model 3, starting around $35,000 (though many observers questioned whether the Model 3 could really hit this price point given that the Model X came in higher than expected, at around $130,000). And even if it did, could it succeed given that gas prices looked set to remain low for some time and overall sales for electrics and hybrids were basically flat.
Even Musk had been unsure whether Tesla would work at the beginning: “I didn’t ask for outside money for Tesla – and X Space – because I thought they would fail.” While it now seemed unlikely to fail, whether Tesla could be sold to the masses – and truly disrupt industry incumbents by making the internal combustion engine obsolete – was unknown. As Tesla prepared to launch the Model X, onlookers tended to polarize into the idealists who believed it would change the industry and the skeptics who doubted its ability to change one of the oldest technology paradigms in recent history. Displacing the internal combustion engine (ICE) would require significant technology advancements, changes in customer preferences, infrastructure enhancements and changes to government policy – well beyond the reach of a start-up with limited capital. Tesla seemed to be too thinly spread – developing multiple lines of vehicles, then adding home energy storage, the gigafactory1, charging stations and dealerships.
Even its manufacturing appeared inefficient compared to incumbent auto manufacturers who had been working for years to shave cents off the production process, while ICE technologies continued to improve. Indeed many hybrids had become comparatively less attractive as ICE engine efficiencies increased globally, a fate that maybe fall electric cars. In this context, could Tesla ever make money? Idealists pointed to the incredible strides made from the Roadster to the Model S, which seemed to be selling well, and now the Model X, with plans for the Model 3 in the pipeline. Clearly investors believed in Tesla’s innovations, judging by the premium paid by investors betting on its future growth. But would Tesla ever make a profit? And if so, when? Tesla’s income statement showed large losses and growing liabilities.
Do a SWOT analysis for electrical vehicle market in the world.
What are the unique strategies can be deployed by Tesla to sustain in the market? Discuss.
Explanation / Answer
Tesla will likely not make profit in our lifetime. The company has been posting loss year on year. The recent P&L statement has improved but the chances of the company making profit in the next 40 years is very thin.
The main reason why Tesla is unable to make money is because it is working with cutting edge technology. These are niche technology and often are not profitable in short-term. However the challenge the company face is that, while they are improving the electric cars, the ICE makers are also improving their efficiency. Now, the best argument for an electric car is the environmental impact and reduced pressure on fossil fuels. With improvement in ICE, both these points are dampened.
It is true that fossil fuels are limited and we will eventually run out of it. At that point, the electric car will be our only option. However, that will likely take several hundred years at the least. Especially considering how the new technologies are improving the ICE. Naturally this means Tesla will find it difficult to sell their car for a premium in the next few decades at least. And unless they sell the cars for a premium they will not be able to make profit. Overall it will take Tesla at least another 4-5 decades before the company can start making profit.
SWOT analysis for electric vehicle market
Strength: The key strength for electric vehicle market and the industry as a whole are
Weakness
Opportunities
Threats
The best strategy for Tesla will be to gain government favor and get the ICE vehicles banned in countries for public. This will make sure that citizens will need to purchase an electric vehicle. This may allow Tesla to reduce cost and become profitable through economies of scale. However, it is easier said than done.
The next best strategy for Tesla will likely be to sell their company to large automobile manufacturer. Someone like Volkswagen, General Motors or Ford could fund the R&D for Tesla vehicles. This provides a way for these large companies to profit in the current market and prepare for the future as well.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.