The article analyzed the latest initiative launched by Tesla Motors – upgrading autopilot in approximately 70,000 of its vehicles on the road. It involves utilizing cellular networks to update software that will be useful for upgrading the autopilot driver support system. The program intends to enable the company to reach its customers through mass media on issues related to vehicle fixes as well as establishing means of having major enhancements downloaded. This outstanding technological feat began the very week Boudette wrote this article – around one month ago. The motive behind this feat is the need to avoid faults that led to the disastrous crashes, which occurred along the Florida highway back in May and other accidents that might occur in the future if appropriate measures are not taken. That said, the author questions the effectiveness of the launched initiative and calls drivers for being attentive while driving.
From the summary above, it is clear that this initiative targets individuals, who own cars from the company – Tesla Motors. It means that the article is written within the frame of invisibility, as current and potential Tesla owners are mentioned, while the interest of others is not. At the same time, it is a peculiar referral to social class and privilege because this company is known as a luxury manufacturer. So, representatives of the middle and lower classes can hardly afford to buy one. This referral is pointed to by drawing lines between Tesla and Apple’s iPhone, which is commonly associated with a sign of prestige and a positive social image. Moreover, there is a hint at the concept of power. As mentioned by one of the research directors of Gartner Group, Tesla senior executives have enough power to control their autos while they are on the road. At the same time, they have enough power to direct the lives of Tesla owners, as updating software and upgrading the autopilot system might contribute to decreasing the risks of fatal crashes. More than that, they can choose to put people driving their cars at risk of accidents by offering an experimental version of autopilot. Finally, the concept of power is seen in the ability to inspire changes in automobile manufacturing by advocating for the implementation of only perfectly operating software in autos offered by other companies. However, this ability is ignored. From this perspective, the frame of power is closely related to invisibility because only the lives of Tesla owners are valued.
Also, it is imperative to point to the significance of media functions. In this case, it is seen as a tool for controlling people. For instance, visual and audio advancements are used for reminding drivers to stay focused and make sure to keep their hands on the steering wheel. At the same time, the informational function of media is highlighted, as the latest software offers pictures of a car, its location on the road, and map information. On the other hand, the article suggests that the influence of media on human life is crucial. The rationale for coming up with this statement is the very instance of a mentioned accident. If a driver stayed focused and ignored the option of autopilot, the outcome of the story might have been different.
In conclusion, it is imperative to state that both authors use different frames to make the message more persuasive. That said, preference is given to visual messages (demonstrating options of autopilot software), some real-life issues (e.g., a fatal crash and changes in legislation), and referrals to external research (quotes of people, who are believed to be experts due to their ranks). These frames contribute to the strength of provided arguments and explain the potential causes of the changes in the company’s policy.
Bloomberg
Edward Niedermeyer
This article analyzes Hype Machine, i.e. the very essence of Tesla’s autopilot. The key argument made in the article is that there ought to be a clear distinction between the true capabilities of the system and the expectations of a car driver/owner. The chief point that critics and regulators have capitalized on is their relentless opposition to the autopilot system. That is, the assumption that it is capable of handling the complexities of the urban highways is unfounded and Tesla is not at the stage of automobile development it states it is. This article refers to the recent software update and unpredictable outcomes it is associated with, i.e. the death of a Tesla driver.
Just like in the case of the first article, the concept of power is one of the major lines of this article. It is seen not only in power to affect people’s lives but also in breaking promises, which might lead to fatal cases. This statement can be supported by the fact that the initially introduced hardware, which might make a car autonomous, is now called a driver-assist system. Moreover, the concept of power is closely related to privilege. It is seen not only in a prestigious brand but also as an opportunity to offer a fascinating experience related to testing the new autopilot system to everyone already owning a Tesla vehicle. This one is closely connected to the psychological nature of a human being, as each person using a novelty, which is not yet available to masses, feels privileged.
At the same time, the issue of functions of media is as well mentioned. It can be referred to as the image of Big Brother introduced by Orwell because the latest software makes it possible to collect data while a car is on the road. Furthermore, the influence of mass media is as well emphasized. In this case, it is essential to recollect the promotion of the beta version of autopilot, as it was demonstrated as a tool for making a car autonomous. On the other hand, it is hinted that it shapes people’s perception of the novelties, as company founder claims that negative articles do not necessarily contain true information, but they could still demotivate Tesla owners to use autopilot and decrease demand for Tesla automobiles. Finally, the idea of difference is as well traced. It is seen in the difference between the product description and what the company offers in practice. More than that, it can be located in the difference between customers’ expectations and reality, as the software, they are proposed to use is not what they were promised.
Just like the author of the first article, Mr. Niedermeyer deploys different frames to influence the perception of his message. The only difference in the chosen frames is the fact that the latter article includes a photo of a fatal crash and detailed descriptions of the offered software. Together with the best techniques, they make the article persuasive and provide reasons for believing the mentioned information.
This Financial Research Report presents a possible investment opportunity for a client interested in the US stock market. The company chosen for the client is Tesla Motors, Inc. Established in the year 2003 and went public in the year 2010, Tesla designs develops, manufactures, and sells its high-end electric cars and solar energy storage products in the US, Europe, China, and other global markets. Its flagship cars are mainly sedan and sports utility cars.
A rationale for choosing the company for which to invest
Tesla Motors, Inc. is the pioneer electric car manufacturer, which is viewed as a great firm given consumers’ enthusiasm for its sports utility, sedan cars, and solar energy storage products. The company’s Model S is highly evaluated while Model 3 got nearly 290,000 pre-orders.
Economic significant
Tesla is a company that has brought about major changes in the automobile industry. The established sales channels with no distributors and innovative technologies, including solar energy storage have deeper implications for both the energy and transport sectors. That is, Tesla is a company with innovative products and technologies with huge potential to disrupt significant fractions of the economy and enhance the US economic growth for many decades.
The firm is poised for growth, as will be seen in the stock analysis later in this report. The disruptive nature of this company makes it vital for the economy in specific areas related to employment and inflation and, therefore, of interest to any investors. Tesla has automated most of its manufacturing processes to save costs on human labor.
Also, it has significantly embraced new technologies to reduce the overall headcount in the factory – a move that has suppressed growth in wages. Of course, this approach has assisted the company to mitigate issues associated with skyrocketing labor costs and other uncompetitive labor practices. Consequently, it can save significantly on employee compensation and benefits.
Additionally, Tesla has embarked on disrupting the traditional model of a car dealership by focusing on online car sales, few showrooms, and almost no advertisement expenses.
Tesla is an exemplar of technological realization and its disruption in economies. Although the company has relatively a small production number relative to gasoline-fuelled cars, the company’s production capacity is expected to rise each year as demand increases. That is to say, the electric car market is growing steadily and rapidly than earlier anticipated.
Keen analysts and investors have noted that the number of electric cars on the road in the US will reach five percent by the year 2025. This project will ultimately shift oil consumption in the US and lead to a decline in oil demands. The reduction in demands will be attributed to a significant number of electric vehicles on the road, which would perhaps lead to low oil prices. Thus, Tesla will influence the economy in a significant manner.
Financial significant
Current financial reports indicate that Tesla is a loss-making firm, and it is not likely to be profitable until the end of the decade. Nevertheless, the company has continued to realize increased revenues because of year-over-year growing demands and sales.
For investors, Tesla does not pay a dividend. Instead, the company focuses on enhanced investment in research and development (R&D) to revamp its autopilot technologies, longer battery lives, and introduce new advanced models at affordable prices.
The continued investment shows that Tesla executives have better growth opportunities to invest earnings and shareholders’ funds. To this end, the financial significance of the company to the economy or investors is negligible, but it continues to shape the investment in R&D.
Relative to competitors, Tesla appreciates that its rivals have greater financial, marketing, manufacturing, and technical resources, which they can use to facilitate the production, sales, and promotions of new cars. Moreover, the company lacks massive financial resources generated from revenues because of less extensive customer bases and industry relations, limited operating history, and inordinate name recognition.
Tesla stock is, therefore, suitable for the patient, long-term investors. According to experts, Tesla stock offers an important opportunity for investors who are keen and can absorb some risks because it is one of the best long-term stocks currently available (Anderson, 2015).
As the share price continues to decline, long-term investors have a better buying opportunity. It also noted that the company has gained about 500% in share price since its IPO in 2010. That is, its IPO at $17 per share in June 2010 had achieved a maximum of $280 per share in 2014, but the current share price is around $220.96 (August 2016).
Other factors of consideration for the selected stock
For investors, Tesla should be more than an electric car manufacturer. One major reason that makes Tesla stock superior as a long-term investment opportunity is the company’s focus on the home battery segment of the market. The company has started the production of lithium-ion batteries found in its cars for capturing and storing solar power for domestic usages. This represents a critical shift for the company, which positions it above competitors.
Tesla now is strategically positioned in the middle of two emerging industries, electric, self-driving cars, and clean energy, which will move the company forward.
Further, the quality of leadership is also interesting. Elon Musk is now considered the most innovative, futurist CEO on earth. He can identify values that others have failed to recognize. Cars, lithium-ion batteries, solar, and innovative business models have all shaped entrepreneurship. The home battery, for instance, is meant for everyday use to allow owners to store energy and use during high-cost tariffs. The use of direct sales ensures that Tesla can maintain the required inventory around while simultaneously eliminating dealers with diverse business agendas (D’Allegro, 2015). Ultimately, the company cannot go wrong with such approaches.
Tesla is regarded as a disruptive technology firm. It boasts of superior technologies and qualified engineers, which give it a lead on other companies in the auto industry. Moreover, Tesla has maintained a growth rate of more than 50% every year in a relatively stable market. It is expected that Tesla will continue to deliver superior products relative to its Model S and competitors.
Given that Tesla still has low sales volume, it then has further opportunities for expansion. Further, the decline in prices of gasoline should not be a factor of concern for investors because the shift toward electric cars is not driven by gasoline prices. Instead, it is a general shift, which promotes environmental conservation. It is expected that by the year 2025, there would be more Tesla cars on the road than imagined (D’Allegro, 2015).
Tesla’s stock price will continue to improve as revenues rise. Hence, it is a good bet for investors.
The primary reasons why the selected stock is a suitable investment for the client
Tesla is a growth-oriented company, and so is the investor.
Tesla has demonstrated its potential since its launch in 2003. Today, the company’s gross margins have improved, and they could range between 25% and 30% by the end of 2016. Tesla is currently manufacturing about 2,000 Model S and Model X cars in one week. Further, the company focuses on a steady increment to attain a target of 2,400 by the end of the fourth quarter.
Tesla has also invested heavily in its Model 3, which is touted as an affordable model expected to provide sufficient volumes to drive operation profits. The CEO has stated that the volume of cars would triple or even quadruple once the company starts to ship Model 3. Further, mini-SUVs and buses based on the technology of Model X will soon reach the production stage too.
These developments form a company characterized by loss-making sound enticing for a long-term, patient investor. An investor must, however, recognize that these are ambitious targets, which Tesla may fail to attain as stipulated.
Nevertheless, the bottom line is that Tesla’s financial indicators will soon shift to profitability and, thus, it will become a vital investment opportunity.
A description of the client’s profile
The investor recommended for Tesla is a growth-oriented one. The investor will seek to optimize the long-term potential for price growth based on its principal. Tesla’s share price is characterized by price fluctuations, which the investor must tolerate while ignoring all the noise and squeak. The investor notably possesses a long-term investment period (Vanguard Group, Inc, 2016).
The investor is a billionaire whose primary goal is optimization. Current income generation is not the major objective of the investment decision. Thus, it would be imperative for the long-term growth-oriented investor to hold off on Tesla’s stock until the company starts generating profits perhaps after this decade (Mourdoukoutas, 2016).
The investor uses a patient method to invest, is a fan of the company, and believes in a long, thriving future of the company and the bold vision of the CEO. The investor understands that the loss-making trend will soon end, and Tesla will start paying dividends.
The investor is not a long-term value-oriented or immediate income-focused investor. Long-term value-oriented investors should consider other stocks in the auto industry such as General Motors stock or Ford’s stock. These investors would not find Tesla’s stock as attractive relative to other companies. Hence, they should not buy, but instead, sell Tesla’s stock to other investors. Tesla currently has negative operating margins and operating cash. According to these investors, the current state of Tesla reflects multiple weaknesses, which they consider as critical sources of investment challenges with greater consequences than any strengths that drive decisions of long-term growth-oriented investors. In this case, such investors find it more difficult to consider Tesla’s stock because they believe that other stocks are better options. Thus, net income and sustained growth in earnings per share are vital for such investors.
Analysis of Financial Ratios
Liquidity
Current Ratio
Total Current Assets/Total Current Liabilities
This ratio is vital for providing an overview of Tesla’s ability to repay its short-term debts with its short-term assets. Tesla Motor Inc. Current Ratio for the last three fiscal years is presented in the following table.
2013
2014
2015
1.88
1.51
0.99
Source: gurufocus.com
It shows that the company is hardly efficient in its operations and, therefore, issues related to liquidity may arise. Generally, the acceptable ratio ranges between 1 and 3. Nevertheless, the industry average is imperative for comparison. While this ratio reflects the current financial challenges at Tesla, it does not necessarily mean that the company will go bankrupt soon.
Quick Ratio
Total Current Assets-Inventory / Total Current Liabilities
This ratio shows whether Tesla will be able to meet its short-term debts based on its liquid assets, and inventories are not included.
2013
2014
2015
1.37
1.06
0.54
Source: gurufocus.com
For the past three fiscal years, Tesla has recorded declining quick ratios, which show that the firm is highly leveraged and fighting to grow and sustain sales. Hence, the declining trend is not healthy, and Tesla may not cover its financial obligations.
Earnings Per Share
Diluted earnings per share = Net Income-Preferred Dividends / Total Shares Outstanding
This ratio reflects the value of earnings per outstanding share of Tesla’s stock. The dividend preferred has been subtracted to eliminate common manipulation through non-recurring items, depreciation, or amortization rate. This presents a better performance of the company.
2013
2014
2015
-0.62
-2.36
-6.93
Source: gurufocus.com
Earnings per share is a critical indicator of the current Tesla share price, and it is important for investors interested in the overall profitability of Tesla. In this case, Tesla is not profitable because of negative values.
Price Earnings Ratio
Tesla is currently losing money and, therefore, the price-earnings ratio is meaningless. That is, Tesla lacks positive earnings and posting losses, making the ratio impractical for decision-making.
2013
2014
2015
N/A
N/A
N/A
Source: gurufocus.com
Gross Margin
Gross Profit / Revenue or Sales
2013
2014
2015
22.66
27.57
22.82
Source: Morningstar.com
This ratio is consistent to show that Tesla is doing relatively well, but is fighting to gain the market share and establish a competitive edge over other auto manufacturers.
The risk level of the stock from the investor’s point of view
Tesla stock is considered as high risk by industry experts (StreetInsider, 2016). The rating is based on the cash flow challenges and negative ratios, making such ratios meaningless to investors (The Street Ratings, 2016).
Further, when the P/E ratio is negative, the value is useless to investors because it cannot be used to determine discount valuation or premium. It only shows that Tesla has negative earnings per share.
Analyses have also established that Tesla is over-priced or trading at a premium relative to other competitors or S&P 500 averages (The Street Ratings, 2016). For instance, Tesla’s price-to-sales ratio is 7.16 relative to peers 1.13. The price-to-book ratio (12.79) also reflects a high premium against competitors or peers (3.74).
Tesla, however, has high sales growth (23.35) relative to its peers (18.99). This ratio suggests that Tesla is rapidly gaining market share.
Given the high-risk rating, investors should also expect high rewards from Tesla. In this case, it is observed that investors have a choice. That is, they can invest in cash-rich regular automakers at low valuations or invest in Tesla because it presents the best chance to alter the industry fundamentals notwithstanding its current spending patterns and a lack of any near-term valuation indicators. Hence, Tesla stock is all about assessment and interpretation of risk and rewards. Thus, Tesla is not for every potential investor (Abramov, Radygin, & Chernova, 2015).
Key strategies to use to minimize these perceived risks
The investor must understand the financial risks and metrics of Tesla. Financial tools, such as ratio analysis, can greatly assist investors in decision-making. For instance, year-over-year ratios can be used to predict future performances albeit to a lesser extent because of other market fundamentals (Kubota & Takehara, 2010; Fathi, Zarei, & Esfahani, 2012).
The investor should also consider other investment options. For instance, a long-term investor may wish to consider corporate bonds because of relatively low risks compared to stock investment. Fixed income instruments can assist the investor to mitigate potential losses that Tesla may yield. Further, there is a need for constant changes or improvements to the investor’s portfolios. Such adjustments should be used to mitigate risks in stocks. That is, the investor will have a fixed risk-return ratio for a given portfolio to account for the long-term growth-oriented investment in Tesla stock. In this case, other long-term value-oriented stocks offered by GM and Ford could be an alternative in the auto industry. Hence, low-risk financial investment is a strategy to mitigate the negative impacts of Tesla.
The investor should also keenly follow the activities of Tesla, and possible reactions of other investors, including market information (Kumar, Dixit, & Francis, 2015; Mollik & Bepari, 2015). The announcement to acquire SolarCity, for instance, has led to a decline in Tesla’s stock price because both companies are loss-making entities. Thus, the acquisition announcement should inform future decisions to buy, hold, or sell (Smit & Moraitis, 2010).
Recommendations of this stock as an investment opportunity
It is recommended that the long-term growth-oriented investor should buy Tesla stock. It is believed that Tesla stock has huge potential to appreciate and generate massive returns once the ambitious targets are attained. The recommendation is based on the following observations.
Growth
Tesla is most likely to grow more than its current position because it is still considered as a startup driving two emerging industries with massive impacts.
Total Return
Based on the historic price movement of the stock, Tesla has gained more percentage than it has lost. Many analysts claim that Tesla stock is overpriced.
Price Volatility
The historical price movement has generally been good. In this case, most investors have often reacted to ‘noise’ rather than major events. Thus, price volatility noted will improve once the company attains some of its targets.
Financial Position
The gross margin has continued to increase year-over-year as Tesla acquires more market share. Nevertheless, the net income declined to affect overall performance. Also, the weak liquidity noted in quick and current ratios are temporary, which will improve. Overall, the liquidity continues to improve, reflecting an improving cash flow.
Therefore, in the long-term, a growth-oriented investor should be patient and accommodate current activities at the company until the end of the decade rather than investing in firms with low returns and share buyback tendencies.
The investor must be able to understand the company’s dynamics and its abilities to disrupt the auto industry and the clean energy division. Tesla has unique abilities to realize its goals.
The bottom line is Tesla stock is recommended for a long-term, growth-oriented investor who can afford to lose some investment portfolio, and this risk has been observed in the latest price decline in the stock. While some investors are selling, Tesla remains a superior buying investment opportunity.
Fathi, S., Zarei, F., & Esfahani, S. S. (2012). Studying the Role of Financial Risk Management on Return on Equity. International Journal of Business and Management, 7(9), 215-221. doi: 10.5539/ijbm.v7n9p215.
Kumar, M. V., Dixit, J., & Francis, B. (2015). The Impact of Prior Stock Market Reactions on Risk Taking in Acquisitions. Strategic Management Journal, 36(13), 2111–2121. doi: 10.1002/smj.2349.
Mollik, A. T., & Bepari, M. K. (2015). Risk-Return Trade-off in Emerging Markets: Evidence from Dhaka Stock Exchange Bangladesh. Australasian Accounting, Business and Finance Journal, 9(1), 71-88.
Tesla is a California-based electric vehicle manufacturer that began in 2003. The organization’s founders – Marc Eberhard and Marc Tarpenning – wanted to provide a stylish yet effective electric vehicle for the masses. Before their conception, electric vehicles lacked aesthetic appeal as they were too focused on practical aspects. Tesla sources its products from different partners around the world such as Sotira in France, and Hethel in the UK.
This method has caused huge savings in production because the organization builds vehicles on demand; it does not have to spend huge sums on inventory management. Additionally, the company sells itself as an environmentally friendly alternative to conventional, fuel-powered vehicles. Its efficiency ratings are quite impressive even in comparison to hybrid cars.
These developments have not come without their fair share of challenges. First, the company lost its founder Eberhard in 2007 and two crucial engineers in 2012 after they resigned. Furthermore, it recorded a net income of $ -396.2 million in 2012, which was worse than the performance in the previous year of -254.4 million. This was due to economic conditions and a series of other internal changes like the loss of the two engineers.
However, a fundamental problem is that electric cars are a new form of technology that must compete with century-old organizations. Gas-powered cars have been in business since the early 1900s; therefore, it will take some times before the public warms up to Tesla. This means that the organization must seek new ways of becoming profitable, and international expansion in South Korea is one such alternative.
Environmental variables
Political and economic background of South Korea
South Korea was laden with a series of autocratic leaders during the late twentieth century. Surprisingly, this was the point when the country’s economy grew tremendously. At the time, the prevailing leaders chose to appoint technocrats who spearheaded the country’s economic growth.
The government was heavily involved in these results owing to its centralized fiscal policies, the regulation of foreign exchange, and incentives that were available to small businesses. Prior to the 1990s, South Korea had a number of five-year interventions that saw 9% annual GDP growth rates within this period of time. However, in 1987, South Korea replaced the autocratic regimes with democratic ones.
This change did not come with the promising results that many anticipated as seen in the 1997 Asian crisis. Instead, the country’s political leaders used public positions to reward persons who had been loyal to them. The technocrats that had caused those changes were no longer present. In 2013, the country has become a respected democracy in which its political stability contrasts dramatically to the autocratic regime of its Northern neighbor (Heritage 12).
In the 2000s to date, South Korea remerged as a global world leader. President Dae Jung spearheaded high growth rates in 2000 using emergency loans from the IMF. The country did well in 2004 and 2006 where it reported 4.6% and 5% growth in GDP, respectively. In the 2008-2009 global economic crisis, the country managed to maintain a positive growth pattern while other developed nations reported declines.
Furthermore, now the economy is the eleventh largest in the world. This country’s economic growth patterns have been resilient against external conditions owing to strong fiscal reserves. Furthermore, the South Korean government owes little in debt. This implies that when emergencies occur, the country can easily use its reserves to deal with the problem.
The Asian nation’s economic freedom ratings are impressive. It now stands at position 8 in the continent and 34 in the world. This country has free trade agreements with the EU and US. It is open to foreign investment and most of its private sector players are free to operate. Innovation and a well-educated work force are some of the reasons behind this conducive environment.
In fact, now South Korea is a world leader in internet usage. This nation exports a series of items that include textiles, shoes, electronics, telecommunication devices as well as automobiles. Industry and service sectors are the largest contributors to the economy. Its trading partners are China’s Hong Kong, Japan, Taiwan and the US. Additionally, the country has been known for its innovations in alternative sources of energy.
For instance, it engaged in the production of certain forms of nuclear energy by building plants around the country. These facilities account for approximately 40% of the nation’s energy needs. In the future, it is likely that the country will get more than half of its electricity from nuclear resources.
Regulations – Tariffs, quotas and import tax
As stated earlier in the economic background section, South Korea is highly conducive to foreign investment. The Free Trade Agreement between Korea and the US has enabled importers to benefit from a 7.9% basic tariff for these goods. Nonetheless, it is expected that in the next four years, the country will eliminate 95% of tariffs on imports from the US.
Therefore, companies like Tesla will have an advantage over other automakers because their products come from the United States. In addition to this, one must consider the flat 10% VAT on imports. Since electric cars are luxury items, then Tesla will need to pay 10 to 20% excise tax to import them into the country.
If a foreign investor brings in raw materials for manufacture in South Korea, then he or she is not expected to pay import tax. Nonetheless, the Ministry of Finance will have to approve the project or investment before it be labeled as duty-free. When importing products into the country, one will also have to pay insurance and freight at 15%, import tariffs at 5%, Vat at 10%.
These additional costs will be added onto the product cost to create a final import price. In order to trade in South Korea, an investor or importer must comply with certain requirements. First, the individuals will need to hold a commercial invoice. This will need to include information about the quantity of goods being transported, their unit value, description and any other shipping information.
A certificate of origin must also accompany the commodities. In order to access preferential treatment, the certificate must indicate that the goods come from the United States. Details about the harmonized systems as well as certification date will allow the US exporter to enjoy tariff deductions. All goods entering South Korea need to have a bill of lading in which the concerned company places shipping information.
Consignee name, destination, shipper’s name, insurance and freight charges as well as the price list need to be included. During the clearance process, South Korean customs employees will work to clear goods in as little time as possible. The declaration system is now electronically managed.
Therefore, an importer can get import clearance electronically even without physically appearing in the customs house. Unless a commodity falls within the prohibited or special goods list, an investor can easily do business in this country without being boggled down by intensive and bureaucratic customs clearance.
Competition
Comparison with Korean Companies
Currently, few organizations sell electric cars in South Korea. Most of the prime international automakers plan on introducing them in the next five years. For instance, General Motors will build its own version of an electric vehicle in 2014. Even the BMW and the Volkswagen will enter the Korean electric vehicle market in 2014 where they will also build their own version.
Some of the local manufacturers like KIA plan on introducing a model known as Ray for the electric vehicle market in the near future. Renault will introduce the model SM3 ZE sedan in Busan, which is a region in South Korea. However, all these plans are dependent on whether the Korean government will subsidize the vehicles. Failure to do so will cause automakers to overprice their electric automobiles and thus become uncompetitive.
Aside from companies that plan on introducing electric vehicles, some companies like Nissan are selling the Leaf brand in Korea’s market. GM plans on making some electric vehicles in Korea in 2014 but already imports US-made electric vehicles into the country; its key brand is Volt. Currently, the two companies are struggling to sell their electric vehicles. Their cars have low range and mileage.
Since Tesla already worked on this aspect, it is likely that the organization will record better performance in the country than some of these older brands. Competition for Tesla will not just come from electric vehicle sellers. The organization must contend with other automakers that know and understand the Korean market. Hyundai and Kia are companies to watch out for in the market.
Hyundai initially struggled with creating visually-appealing vehicles but it has already improved on this component through its Tucson and Elantra models. Additionally, Kia has built sedans that are better looking than vehicle from global leaders Toyota and Honda. Perhaps one of the most impressive characteristics of Kia and Hyundai is their reverence for quality. These organizations’ cars deliver when it comes to performance.
Hyundai has also earned a reputation for its fast responses to defects. Kia and Hyundai, as Korean auto manufacturers, have also worked on their marketing appeal. Kia is now revered for creative advertisements while Hyundai is respected for innovative sales deals. It has a policy that guarantees buyers a resale of the car if the buyer loses his or her job.
It should be noted that when Tesla enters the South Korean market, it will have to fight against an organization that is owned by the wealthiest Korean in the country. Hyundai Motor Group manages both Kia and Hyundai, and these two companies have enjoyed a lot of government support.
Even its owner, When Chung, was pardoned by the government when he faced criminal charges. The courts claimed that he was needed in order to run Hyundai. Tesla will need to take advantage of the deficiencies in management of this organization in order to succeed in South Korea.
Demand on electric cars
Demand for electric cars in South Korea is moderate. This mirrors trends on other parts of the world where electric vehicles have not done so well. Oil prices in South Korea have been relatively stable, so this has curbed enthusiasm for electric vehicles. Nonetheless, this low interest will be counteracted by the Environment Ministry’s plan to provide $25.3 million in investments for purchasing approximately one thousand electric vehicles (Choi 5).
South Korea is already prepared for the adoption of electric cars by instating charging stations. Estimates indicate that the country now has about 600 of these. While some countries in different parts of the world have more than double this number, it is still sufficient enough for an investor to provide the vehicles within the country.
Electric vehicle sales will also be promising because hybrid vehicle sales have tripled in 2012. This indicates that automobile consumers are now aware of their environmental impact and are willing to mitigate this though alternative sources of fuel.
Competitive Advantage
The first and most promising aspect of Tesla’s vehicles is that they are fully electric. This implies that consumers will get exactly what the company markets. This commitment to electric vehicles alone also implies that the organization has perfected its craft. The firm’s founder Martin Eberhard once stated that most electric vehicles from mainstream automakers have failed because they required consumers to alter their nature.
The cars were less aesthetically-appealing, had less range and low speed, yet their prices were higher than their gasoline counterparts. However, Tesla set out to change all this by offering consumers a vehicle that would be in tandem with their nature. Electric vehicles from Tesla are not like those from other automakers because their technologies have been sharpened and worked on exclusively.
Tesla does not have to divide its time between gasoline-powered cars and electric vehicles; this is not a sideshow for the organization. Tesla’s competitive advantage also lies in its ability to offer comfort through size. The company initially produced the Roadster but it is now out of production. Therefore, the new Model S is the car to beat in electric vehicle sales.
Tesla will introduce a newer model X in the near future. The Model S can accommodate 5 adults. It has a head room of 35.3 inches, a leg room of 35.4 inches and hip room of 54.7 inches. Even the trunk cargo area is impressive as it has a volume of 5.3 cubic feet (Tesla 6). This vehicle is thus quite comfortable.
The company also offers high miles per charge for the vehicle. Once the vehicle is charged, it operates on 92% charge efficiency. This is arguably one of the most impressive efficiency ratings in the electric vehicle industry. Some models like the Toyota Prius can only promise 82% efficiency while the Honda CNG has 86% efficiency. It is easy to access a universal connector and charger.
The mileage for the automobile is also above the rest of its competitors. The mileage for the Model S is 265. A person can charge their vehicle through a supercharger station. Vehicles of this nature can get approximately 120 miles from a 60 Kwh battery. Tesla offers a luxurious and elegant alternative in electric motoring. The Model S has an interior design that is unrivaled.
It has sleek accents, black leather seats, interior door handles, seven-speaker systems and memory storage that enables its users to store up to 500 songs. The car also comes with wireless technology and WIFI-capability. One may also enjoy cruise control when driving the car. It has climate control capabilities so as to manage the temperature and air distribution in the machine.
The automobile can sensor when the driver’s seat has been occupied so one has the option of controlling this device as they please. Environmental friendliness is perhaps one of the unique selling points of the car. It is a given fact that relying on electric power to charge vehicles is much cheaper in the long run than gas usage. Furthermore, even charging costs are cheaper than gasoline refueling or other modes of energy.
Aside from price sensibilities, the amount of green house gasses emitted by such a vehicle is negligible in comparison to the carbon-rich conventional fuels. Critics sometimes claim that electric vehicles still emit carbon-based gases owing to the factories that create those batteries. However, this argument is lopsided because it does not compare these carbon emissions to the ones that come from conventional vehicles.
Gas-powered cars keep discharging polluting gases into the environment, yet the fuel also comes from carbon-emitting plants. At least in the case of electric vehicles, polluting gases are confined to battery manufacturers. Furthermore, studies indicate that the Lithium-ion batteries used by the company are some of the safest in the market. In fact, they can be disposed off at the municipal waste site without any problems.
Positioning strategy
The organization should position itself as a high-end electric vehicle seller. It needs to create an image in the minds of consumers that it is the best in the business. However, because demand for electric vehicles is moderate, Tesla will need to generate enthusiasm for its product. One way of achieving this would be to build only a few hundred vehicles for the South Korean market.
They can target car enthusiasts and key stakeholders to talk about the qualities of the car. This needs to be seen as a fine tuned vehicle that will satisfy customer expectations. Once the product brand is known as the go-to car for quality and efficiency, then the organization can work on increasing its availability.
The aspect of quality may also be sold through the partnerships that the company has with other conventional automakers like Daimler and Toyota. These organizations have been sourcing for electric vehicle parts from Tesla. Such collaboration is indicative of the market leadership and quality that customers get from Tesla.
One should note that all the positioning must tie in with the green aspects of the company’s offerings. This organization is an electric vehicle manufacturer; therefore, it will position itself as the environmentally- friendly car of choice.
Both selling points need to be merged together such that individuals do not assume that the car is only appropriate for environmentally-conscious consumers or quality-conscious consumers. The Tesla models available in South Korea should be such that they appeal to these two categories of consumers in equal measure.
Time and mode of entry
As stated earlier, in the ‘regulations’ section, the government intends on introducing subsidies for Korean-made electric vehicles. Therefore, Tesla would benefit from manufacturing the vehicles in the country rather than exporting them to Korea. Since the company already sources parts of its batteries in the target market, it would make sense to take production there.
However, the company might not have thorough knowledge of the South Korean market. It would thus make sense to enter the market through a joint-venture partnership with a local automaker. Tesla would bring the expertise it possesses on electric vehicles and the local partner would demystify the Korean market (Koch 70). This would make the building cycle quite low.
Furthermore, it would minimize costs as raw materials to be used for automobile manufacture are not taxed in the same way as imported cars. The company is trying to return to profitability. It can achieve this by expanding into a country that has promising outcomes. Therefore, this move should occur as soon as possible.
It is preferable that the company does it at the beginning of 2014. If it waits until later, competitors like GM, Chrysler and Toyota may dominate the South Korean market with their electric-powered vehicles.
Marketing mix Analysis
The fixed price of the Model S should be $ 40,000. Since the product will be manufactured in South Korea, then there will be no additionally sales taxes or tariffs. The idea is to get the public to appreciate the exclusivity of the product. However, after a reasonable amount of time, the organization will introduce the model X, which will be cheaper. This Model will go for $ 30,000. Individuals will already appreciate the quality of the brand so they will not mind purchasing another make.
In terms of place, the automobiles will be available in different distributorships across the country. This will cement the company’s name in consumer’s minds. Tesla will create a battery network in South Korea designed to lock out other dealers. It will make these stations exclusive to their models so that other companies do not take advantage of their investment.
In terms of the product, the Model S will possess all the features that were mentioned in earlier portions of the paper. Great emphasis will be given to the efficiency, performance, elegance as well as the greenness of the product. Promotions will include a sales deal in which a generous refund package will be available to consumers (Garling & Thogersen 60).
Additionally, the company will allow for leasing of the car such that consumers who cannot own the car can still have access to it. The organization will use Korean celebrities to endorse the product and act as brand ambassadors. Additionally, the firm will have a marketing campaign in which it will utilize creative advertisements to sell the elegance and exclusivity of Tesla’s vehicles. Test drives through computer simulation will also give buyers a feel of the automobile.
Managing and controlling marketing efforts
Care will be taken not to over market the product as it is an exclusive commodity. This means that the frequency and the quality of advertisements will be in tandem with this brand image. The message will be simple elegance; no flamboyant promises will be made in this marketing strategy.
Conclusion
Tesla has been highly successful in the past but is currently experiencing losses. It needs a new strategy to turn around its results, and entry into South Korea is one alternative. The Asian country has a business-friendly environment especially for US-based investors like Tesla. It would be advisable to enter the country through a joint venture in order to reduce cycle times and take advantage of the partner’s local knowledge.
Tesla ought to position itself as a high-quality green vehicle. This will work by generating a buzz concerning the automobile and building brand recognition. It should then introduce an inexpensive model for the masses after some years.
Works Cited
Choi, Kyong-Ae. “Seoul catches heat over electric cars.” Wall Street Journal 2012: 5. Print.
Garling, Anita & John Thogersen. “Marketing of electric vehicles.” Business Strategy and the Environment 10(2001): 53-65. Print.
Heritage. South Korea: 2013 Index of Economic Freedom. 2013. Web.
Koch, Adam. “Selecting overseas markets and entry modes: two decision processes or one?” Marketing Intelligence and Planning 19.1(2002): 65-75. Print.
Electric cars are a technological innovation that is not only convenient, but also environmentally friendly. However, this is a new product, and its manufacturers often face various complications in the market. In this paper, we will discuss the strategy of one of electric vehicles manufacturers, “Tesla Motors”, specifics of its entry into the Chinese market, and, after looking into the results the company received, we will consider possible ways to improve its performance.
“Tesla Motors” is an American company that specializes in producing and selling electric cars (“About Tesla”, n.d., para. 1). It was founded in 2003 by Silicon Valley engineers; the vehicles are produced in Fremont, California, and more manufacturing facilities are being opened in the USA and the Netherlands (“About Tesla”, n.d., para. 7-8).
Some of the company’s estimated strengths are: innovative technologies; high-performance products of attractive design; good reputation among both their clients and the media; and the “first mover” advantage in the market of electric cars in some countries (Mangram, 2012, p. 302). However, the company weaknesses are, among others, clients’ worries about possible problems with the product’s usage (the so-called “range anxiety”, resulting from scarce opportunities to recharge the car while traveling); high cost of the products; the dearth of supply of the product in case of high demands (Mangram, 2012, p. 302).
Mangram (2012) observes that the crux of Tesla’s strategy is manufacturing high-performance cars and selling them as high-margin luxury products (p. 289). The rationale behind this strategy is that it is typical of new technologies to be expensive and only affordable to the rich (Mangram, 2012, p. 304). At the same time, when the technology becomes less expensive, the company aims to eventually produce an affordable family car (Musk, 2006, para. 2).
“Tesla Motors” was planning to open its first shop in China in spring 2013 (Perkowski, 2013, para. 2). The company does not practise such an entry mode as franchising, and the shop was established as a sales representative, selling the product directly to the customers, for “Tesla Motors” believes this results in various benefits for the customers, such as the company’s ability to react to the clients’ demands faster (“Musk reboots Tesla’s China strategy”, 2015, para. 12).
Perkowski (2013) observes that the company believed their enterprise in China was going to be successful due to a number of reasons; some of them are high level of air pollution on Beijing and the need to decrease it; the state’s wish to lower its dependence on imported oil (which was supposed to result in governmental support in this country); and the promising Chinese luxury car market (para. 6). On the other hand, Perkowski (2013) then refutes these claims; he asserts that the smog in Beijing is primarily due to factories, as well as diesel buses and trucks, and not due to personal cars which already must meet high ecological standards (para. 9). Moreover, the Chinese government usually tends to favor home manufacturers of electric vehicles, so “Tesla Motors” is unlikely to get advantages from the government.
The results achieved by Tesla Motors in the Chinese market turned out to be poorer than it was expected, even despite the initially successful entry (“Musk reboots Tesla’s China strategy”, 2015, para. 4). A major hindrance that was not perceived at first is the “range anxiety”; traffic jams are extremely large in big Chinese cities, whereas the opportunities to charge cars are scarce; therefore, potential customers often worry about the inability to recharge their car while traveling. Another problem that emerged was the inability of the company to provide its clients with the product on time; buyers sometimes had to wait for nearly half a year until their cars arrived (“Musk reboots Tesla’s China strategy”, 2015, para. 2). Moreover, the after-sales service is reported to have been poor (“Tesla resets its China strategy”, 2015, para. 4).
“Tesla Motors” has already taken steps to neutralize some of the factors which negatively affected the company. For instance, it has started to provide its buyers with free home wall-charging units; it is also planning to release mobile connectors which would allow the car owners to recharge their car batteries using any outlet (“Musk reboots Tesla’s China strategy”, 2015, para. 19-20). The organization is also establishing a large network of Supercharger units in China, where electric car owners could recharge their vehicles (see Appendix A) (McKenna, 2014, para. 10).
To deal with the problems the company has faced, we would recommend enhancing its supply chain in China, for the situation when a customer has to wait for nearly half a year is definitely not beneficial to the clients’ perceptions of the company. It would also prove useful to enhance the post-sales service of the cars, for its low quality is able to seriously harm the company’s reputation.
These recommendations might entail creating new units throughout the region and further expansion of the company into the Chinese market. If the company does well enough in this country, they might even consider opening a local manufacturing facility to neutralize the lack of production output and create the opportunity to produce vehicles for the region. This will also allow easier transporting of cars to other Asian countries, which might become even more profitable when the company finally launches its long-expected affordable family car into the market.
As we have seen, “Tesla Motors”, despite initial expectations, have faced some serious complications in the Chinese market. This is not surprising, given the facts that the product is young, and that the company didn’t have much experience of working in China before. However, the company has taken steps to make up for the complications, and is likely to become an important part of the Chinese market.
After the successful sale of Tesla Model S in the US, Europe, Asia and other parts of the world, it is the right time for the company to consider the emerging markets, especially in Asia. In particular, Indonesia seems to be the right target for the company. This paper seeks to persuade the company to consider the Indonesian market as the right target due to its favorite business environment defined by a growing economy, a relatively large population and a growing population of the people in the middle-income category. In addition, Indonesia does not have electric cars, which means that Tesla Motors will enjoy a competition-free market once established in the country.
The company
Tesla Motors has been designing, manufacturing and selling electric cars and powertrains and their components since its incorporation in 2003. With the sale of Roadster models in more than 31 nations in the world, the company achieved a huge benefit in terms of increased sales and corporate performance. In addition, the sale of the Roadster Model in the global market contributed to the expansion of the company in all aspects.
Before taking the model to Europe and Asia in 2012, the company had an annual sale of less than 10,000 and only 3,000 employees. However, by January 2014, the sale of the product in the foreign nations had contributed to the expansion of the company in terms of sales and size, achieving more than 30,000 sales per annum and over 6,000 employees. Thus, this is the right time to use Tesla Model S to expand the company in terms of sale, size and profitability.
The product
Initiated in 2008, Model S has been successfully sold in Europe, Australia, Hong Kong, China, Japan and North America. The model has two battery pack options for more than 420 km per charge, giving customers the opportunity to enjoy using the car for a long distance without recharging. Among other achievements, Model S has won the Motor trend Car of the year 2013 and the World Green Car 2013, which recognizes the model’s ability to transform the motor vehicle industry, especially in “going green”.
In addition, the 60D, 85D and P85D motor wheel drives that were released in October 2014 adds to the increasing advantages of the model to the consumers. These variants are set to meet the customer demands in terms of the car speed, efficiency and long life of the battery before recharging. Therefore, the model is set to increase its global sales once introduced in the middle-income nations like Indonesia.
The board of directors (audience)
This presentation seeks to address the board of directors at tesla Motors Inc. Established in 2003, the board of directors is the top executive body at Tesla Motors Inc. The board comprises of the CEO (Elon Musk), the Chief technical Officer, the chief designer, the chief information officer and the vice presidents in charge of world sales and service, manufacturing, business development, human resources and supply chain.
Overall, the team is a dedicated organ that has steered the growth and expansion of the company in all aspects, including the size, number of sales, market size and financial performance. As such, it is expected that the team will listen to this proposal, debate and adopt the idea in order to take the advantage of the unexplored Indonesian market before other companies decide to take their electric powered motor vehicles to the country.
Indonesia as a potential market for Tesla Model S
Economic factors
Indonesia has an estimated population of more than 250 million, which makes it the fourth most populous nation in the modern world. With a total GDP and GDP per capita exceeding $850 billion and $3,400 respectively, the economy of Indonesia is the 17th largest in the world (Ricklefs, 2013). In 2014, the work bank reported that the country’s economy had expanded significantly, reaching a GDP of more than $1 trillion and reducing its debt ratio to less than 26% (Ricklefs, 2013). By nominal GDP (based on PPP), the country is the 10th largest economy in the world. In addition, it contributes to more than 2% of the global economic output (Ricklefs, 2013).
Since 1970s, the economy of Indonesia has expanded significantly. Indonesia has the largest economy in the Southeast Asian region (Friend, 2013). In addition, it is a member of the G-20, making it a strategic market for major global corporations. Over 46% of the country’s economy comes from the industrial sector, making it a rapidly developing nation due to the reduction of overreliance of the agricultural sector (Ricklefs, 2013). The service industry employs more people than any other industry, accounting for more than 48% of the total labor force (Ricklefs, 2013).
The world trade organization reports that Indonesia is the 26th largest country in terms of exports (Thee, 2013). The main export markets include Japan, Singapore, the US, China and European Union. On the other hand, the country is a major market for a number of nations, especially China, Japan, Singapore, the United States, Australia and the EU.
Political and social factors
One of the major factors contributing to the rapid development of the Indonesian economy and market is the adoption of a democratic form of government. Since the end of the Surhato regime in 1998, the country has witnessed major economic and political reforms. The 1945 constitution has been reviewed several times. Currently, the new system allows the citizens to elect the president and the vice president for a five-year term (Ricklefs, 2013).
The president can only serve for two terms according to the national constitution. In addition to other factors, the political aspects of the country have improved the economic performance of the country. In particular, the Indonesian middle-income population has expanded since 2000 v. The revamped political system has also allowed the population to enjoy the income gained from the oil industry, which had previously been politically manipulated to benefit a few individuals.
In the modern system, the income gained from such industries as the oil and tourism sectors has contributed to the growth and expansion of the idle income population. The education sector has also improved over the last three decades. The country has a mandatory 12-year education system. Both private and public schools serve the population (Ricklefs, 2013).
Cultural factors (Hofstede’s cultural dimensions)
Viewed from Hofstede’s dimensions of culture, Indonesia is a relatively good environment for international business. Indonesia’s power distance is about 78, making third in the world. In addition, the country has Confucian dynamism of 61, individualism collectivism of 14, uncertainty avoidance of 48 and masculinity of about 46 (Ricklefs, 2013). Therefore, the culture allows the population to appreciate foreigners and foreign-made products.
The automobile Industry in Indonesia
The automobile industry is rapidly becoming a major sector in the country’s economy. The country has become a major market for global automobile corporations that seek to take the advantage of the large population, a growing economy and lack of competitive local manufacturers of automobiles. Between 2010 and 2013, the sale of domestic cars increased by more than 50%, hitting a record 1.12 million units (Ricklefs, 2013). More than 780,000 passenger cars are sold in the country every year (Global Business Guide 2014). In addition, more than 1.3 million cars are sold in Indonesia every year (Ricklefs, 2013).
The key factor contributing to the rapid consumption of these products is the reduction of the key inters rate set by the bank of Indonesia. In addition, an easy availability of credit for assets and cars has expanded the volume of sale of motor vehicles per annum. The minimum payment on loads from multi-finance companies and financial banks has been raised significantly. Currently, car buyers need to pay at least 30% of the total price, making it one of the best for cars in the region as well as the world (Global Business Guide 2014).
Although General Motors had shut its local manufacturing plants in 2005, it re-entered the market in 2013 after reopening its plant in West Java, where Chevrolet Spin models are made (Global Business Guide 2014). Toyota is the largest marketer of motor vehicles in the country, recording more than 160,000 sales per annum (Global Business Guide 2014). Other competitors include Suzuki, KIA, Ford, Mitsubishi, Honda and Nissan.
Conclusion
Despite the huge economic potential, Indonesia does not have any competitor in the electric motor vehicles. In fact, the major corporations making this category of vehicles have not shown an intention to enter the market. Most companies target China, Japan and South Korea as their major markets in the region, ignoring the market potential in Indonesia. As such, Tesla will take this advantage and develop a strong presence and a competitive advantage before the entry of competitors.
References
Friend, T. (2013). Indonesian Destinies. Cambridge, MA: Harvard University Press..
As a matter of fact, the climate change and the influence that the human being has already made to the environment is irreversible. The fundamental purpose of the paper is to discover the impact of Tesla Motors on health and environment.
For the production of Tesla cars not so many details are used. It consequently leads to the reduction of the detail manufacturing for the modern vehicles. Tesla makes a step towards better understanding of the ecological needs of the planet. The less complicated the process is, the less environment is affected. With the popularizations of Tesla cars, the amount of the contamination will be reduced. It is worth noting that the primary objective of Tesla Motors and fundamental concern is the fostering of the transition of the society towards eclectic cars and providing the customers with a choice.
The managers of Tesla use their budget very reasonably. They create less expensive models for the purchasers to be able to choose a vehicle according to their budget. The demand for the electric cars is evident. The biggest cities across the globe suffer from the CO2 pollution and fuel emissions, sometimes people should take respirators on because of the high level of hazardous chemicals in the air. It affects all citizens of the cities and has a significant impact on the lifespan.
Moreover, the ecosystem becomes more vulnerable, and it consequently leads to the death of species. When one person buys an electric car and people around see all the benefits of it, for example, design, innovations, and efficiency, other people start to think about buying such type of the car as well1. In the digital world, it is essential for the society to think a couple of steps ahead and take into consideration the risks of environmental problems.
The life of the humanity is under the threat, and thus, some actions should be taken. In order improve the situation; the transition towards electric vehicles is vital. Tesla Motors provides the people with the ability to contribute to the environment without giving up the comfort2. The automobile industry is a fundamental reason for the air and water pollution. The ecosystem influences the lifespan and health of a person. In the countries, where the automobile segment and industry are less developed, people live more and are less likely to suffer from diseases. In case the industry gets rid of the emissions and other sources that use the internal combustion engine and fuel and will be substituted with the engine that works due to the energy or electricity, the society will improve the life of next generation significantly.
In conclusion, it should be pointed out that Tesla Motors aims to make a step towards sustainable future and technological progress. Moreover, the corporation is guided by the objective to find a balance between nature, human being, and technologies. It is worth highlighting that finding a balance between nature and human becomes more difficult because the industrialization affects almost every region in the world and the population grows in the geometric progression.
It increases the demand for the vehicles as well as the production and manufacturing of goods. The eco-friendly technologies that are offered by Tesla Motors contribute to the improvement of the situation. Furthermore, the company provides the customers with the comfort and innovations. These two aspects are valued and respected, and thus, the corporation is likely to reach success in future.
Bibliography
Oremus, Will. “How Green Is a Tesla, Really?” Slate Magazine. 2013. Web.
The American car market has one very distinctive feature: carmakers have no right to sell their products to the customers directly. Such a prohibition is directly related to the so-called “dealer franchise laws” (Crane 2013, par. 1). Tesla Motors Inc. manufactures luxury electric cars that are unique in the US and the world’s car markets due to their special features and their ability to take advantage of electricity.
The price of Tesla S, as the flagship model of the company, is considerably high, and the car requires special maintenance stations since it is an electric and innovative vehicle. The company has no rights to sell it directly to the customers and thus, set reasonable prices and satisfy customers’ needs as well as possible. Tesla’s cars were produced in the manufacturing plants in California while the company was expanding its locations in Europe (Randall 2016).
The decision to penetrate other markets became a logical solution. Today, Tesla sells more cars abroad than on the domestic market because of the policies that different countries adopt to motivate the local population to purchase environment-friendly electric cars (Doyle and Adomaitis 2013). It is the situation when local laws and regulations work against the manufacturer of cars that can reshape the market and change the preferences of the customers. Electric cars have become one of the trends that cannot be ignored in any society. It is time to change the laws that came from the era of powerful gasoline engines, enormous consumptions, and wastes.
Domestic Taxes
It is rather obvious that since the domestic regulations are against the competitive approach to car sales from the manufacturers directly, Tesla Motors Inc. went global. The company has zero preferences on the domestic market as the producer of the innovative, ecologically appropriate cars. It is the policy of equal opportunities that every carmaker has to have since the beginning of the 20th century when the situation was very different from the
modern one. In Norway, for example, the state regulations are aimed at the promotion of the environment-friendly cars’ purchase. According to Doyle and Adomaitis (2013), the government implements the programs that provide electric car buyers with subsidies up to $11,000. It makes Tesla cars affordable, not to mention other benefits that the owners of electric cars have.
Thus, according to Ole Marius Lauritzen, Tesla owner, “the benefits are… too good. You can take bus lanes, get free parking, and it costs very little to refuel…” (Doyle and Adomaitis 2013, par. 19). The approach of the US government shapes the success of Tesla Motors Inc. on the global market to a certain extent
Meanwhile, following the international strategy assists the company in avoiding regulations related to taxes. For example, currently, Obama is concerned about introducing a new tax system to obtain more governmental profit from companies with high profits overseas (Timiroas and McKinnon 2015). The companies have a tendency to save a significant share of the income while operating in the foreign markets, as they can avoid paying additional taxes. Tesla pursues a similar strategy since this approach helps the company maximize its profits and strengthen its financial positions.
Lastly, the focus of the operations on the international market assist in maintaining the labor and transportation costs low (Randall 2016). For instance, the company has established a new manufacturing plant in Europe to ensure the rapid delivery of its products to the customers in this region (Randall 2016). The highly automated production lines with multitasking possibility and suitable locations allow the company to avoid high transportation and labor costs, which are present in the United States of America.
Based on the factors provided above, the international operations and ambitions have a significant influence on the company’s success while helping it minimize costs related to labor and taxations. The rationale behind Tesla’s globalization strategy is clear, and keeping up with these objectives is critical for the company’s profitability and stability in future.
Lobbying Efforts
Tesla Motors Inc. has rather complex relationships with the American government institutions, regulating the issue of the direct sales from the manufacturer. According to Crane (2014), “Tesla has been lobbying for legislative reforms at the state level, thus far with mixed success” (par. 3). The success of the company can be described using the example of New Jersey, where Tesla (and only Tesla) obtained the right to sell its products directly to the customers after pursuing its global strategy. However, it became eligible for the several outlets only. Ohio is another state where the company achieved certain success due to its lobbying efforts.
State’s legislators considered providing Tesla with the exclusive right to sell cars directly to the customers. The majority of other states have passed the laws that only strengthened the prohibition to sell directly, stating that it would disrupt the principle of the fair competition in the market (Lao, Feinstein and Lafontaine 2015). It seems that the company has to come the long way to allowing its customers buy Teslas from the company directly.
Lao, Marina, Debbie Feinstein, and Francine Lafontaine. 2015. “Direct-to-Consumer Auto Sales: It’s Not Just about Tesla.” Federal Trade Commission. Web.
In today’s business world it is more than important to have partners worldwide. In the era of globalisation, businesses should realise and assess the act of partnering with other corporations. Finding a merger partner is another option that is worth noting in the context of collaboration and teamwork. This memo chooses Tesla
Motors corporation as the merger partner for Volvo cars. It dwells on the history of the success of the company, explains the challenges that Tesla faces both internally and externally, and describes the role of organisational culture and leadership in its success. This memo also explains why Tesla Motors is defined as the perfect candidate for merging and projects future benefits of the partnership. It also proposes several effective ways to preserve the firm’s organisational and cultural structure.
Tesla Motors
Tesla Motors came into the limelight in 2013. Since then, the company is on the constant rise and frequently shows up on the news and social media (Culotta & Cutler 2016). Tesla took over the market and successfully won the niche of electric vehicles that had not been thoroughly explored before by any other company worldwide. Numerous reasons may be considered to be in charge of Tesla Motors’ success. First of all, it is the technology that Tesla uses. Model S is a technological phenomenon.
Furthermore, Elon Musk, Tesla Motors CEO, promised to continue to collaborate closely with technological giants. Another important reason is timing. Tesla Motors proved to be righteous regarding their ability to appear in the right place at the right time. This asset helped the corporation allocate its funds lucratively and win big. One more reason for Tesla’s success is monopolisation. The company took over the market of electric vehicles and showed the world the advantages of the cars that do not run on gas (Greenblatt 2016). One of the most important aspects of the company’s success is the team that is working together to bring outstanding quality to its customers. Elon Musk is never happy with average results but empowers and encourages his employees at the same time. This leadership style, demanding but passionate, made Tesla what it is today.
It is safe to say that Tesla Motors’ upsides allowed the corporation to conquer both home and world markets. Despite its popularity and the public and critical acclaim, Tesla cars are facing several challenges that hold back the progress of the brand (Labayrade, Perrollaz & Aubert 2010). First, its production centre is located in the United States. Its so-called “galleries” are mostly located in large metropolitan areas. Therefore, the corporation will have to expand its production overseas. Second, Tesla Motors needs skilled workers to build luxury vehicles with the most advanced technology.
The corporation requires experts in development, eminence, training, and dealer expansion. One of the instruments that are used to fight these weaknesses is Tesla Motors’ organisational culture. Their goal is to constantly innovate the process and the product and do the impossible to hit the target (Hardman, Shiu & Steinberger-Wilckens 2015). Tesla Motors’ team organisational culture allows the employees to work in a conflict-free environment and minimise their struggles through teamwork. The organisational culture of Tesla Motors corporation helps to maintain its competitive advantage and improve the performance of the company and its staff.
The attractiveness of the Candidate
Selection of the candidate
Before choosing Tesla Motors as the main candidate for merging, two other contenders, Toyota and Apple, were reviewed. To reach an unbiased verdict, the CAGE distance framework was used. Toyota turned out to be a mismatch for the reason of a huge cultural (behavioural) gap between Sweden and Japan. Despite the feasible common goal, the issue of conflicts based on different mindsets looks inevitable. Moreover, there would be a complexity comprising the closed economy of the Japanese corporation.
Adding to this the difference in size and geographic remoteness makes Toyota a weak merger option for Volvo Motors. Apple corporation possesses more valuable assets than Toyota does but still does not measure up to be the perfect contender. First, Apple Inc. is more of a hi-tech than a vehicle manufacturer. It is rather doubtful that its Apple Car project will be a decent rival for the technologically advanced and quite stylishly-looking Tesla vehicles. Second, its staff is trying to reach different markets and is not looking for partners. To conclude, Apple Inc. would be a respectable partner, but it does not have the features that Volvo Motors corporation is in search of currently.
Expected benefits and compatibility
Bringing Volvo and Tesla Motors together would be beneficial in different explicit and implicit ways. First, Volvo might be able to gain more insight into the electric vehicle technology. Volvo might also create a concept of a self-driving vehicle similar to Tesla’s prototypes (Cheong, Song & Hu 2016). Because Volvo is one of the most reliable cars on the market, the employment of an intellectual system would spark the interest of the customers (both long-time users and fans devoted to Volvo and new drivers who are looking for a car that would incorporate both luxury and possibility of everyday use).
The collaboration between Volvo and Tesla Motors would help amalgamate Swedish comfort and American energy (Pohl & Elmquist 2010). Tesla’s potential prospect, in this case, would be the European market and a possibility to open multiparty facilities in Sweden. This would minimise the risk of geographic remoteness, help popularise Tesla brand in European countries, and make the cars more affordable. Another key point is Volvo and Tesla Motors’ CEOs have relatively similar leadership styles so the merging of these two companies would only be beneficial regarding professional and personal experience exchange (Mangram 2012). This partnership would offer Volvo a possibility to adopt certain characteristics of Tesla’s organisational culture and vice versa.
Preserving organisational culture
Steps to preserve Volvo’s organizational culture would include keeping the focus on the corporation customers’ success and their trust in the brand, being innovative and finding smart ways to create and collaborate, and exceeding both company’s and customers’ expectations. The company should thoughtfully create a plan to upsize considerately.
Most importantly, the board and the employees should keep the core values in mind even though Tesla Motors’ values do not significantly differ from Volvo’s. The leaders of the company should be properly trained to manage the team and collaborate with the company’s partners efficiently. The managers should also be able to motivate the staff to provide their best effort and comply with the customs established within the company.
Conclusion
The prospects of merging with Tesla Motors look very promising. Both Volvo and Tesla will benefit from the partnership, being granted access to the valuable resources and new clientele. The merging process would result in a lucrative collaboration based on innovation and preservation of the core values of both companies.
Reference List
Cheong, T, Song, S, & Hu, C 2016, ‘Strategic Alliance with Competitors in the Electric Vehicle Market: Tesla Motor’s Case’, Mathematical Problems in Engineering, vol. 2016, no. 1, pp. 1-10.
Culotta, A, & Cutler, J 2016, ‘Mining Brand Perceptions from Twitter Social Networks’, Marketing Science, vol. 35, no. 3, pp. 343-362.
Greenblatt, N 2016, ‘Self-driving Cars and the Law’, IEEE Spectrum, vol. 53, no. 2, pp. 46-51.
Hardman, S, Shiu, E, & Steinberger-Wilckens, R 2015, ‘Changing the Fate of Fuel Cell Vehicles: Can Lessons Be Learnt from Tesla Motors?’, International Journal of Hydrogen Energy, vol. 40, no. 4, pp. 1625-1638.
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Tesla Motors are sure that their electric cars are the safest type of vehicles in comparison to the rivals and the cars that use fuel instead of electricity. Financial reports state that Tesla cars will be sold so fast that electric cars are likely to substitute ordinary vehicles very soon.
In 2013, there was an accident with a Tesla car. On the highway in the United States, the car was burnt after a little accident. The owner of the car claims that it burnt for no reason.1Nevertheless, the experts from Tesla Motors are sure that it happened because of the external influence, so the accident stimulated the battery ignition. However, in a couple of days, a similar case happened in Mexico. The professionals in the automobile industry are sure that such cases can only be explained by a bad security system. Innovations are always risky, and thus, the car should be used for a while in order to be sure that it is safe. Dealing with innovations people double risks. The same had happened to Tesla Motors. The reality does not reflect the financial strategies of Tesla Motors. They aimed to be popular in China, however, failed.
One of the strategies of Tesla Motors is to foster the transition of the society to renewable energy sources. The company notes that their electric cars are environmentally friendly, and thus, should be used by as many people as possible to improve the situation concerning the environment. 2When the company develops a strategy based on the goods that are eco-friendly, it attracts a lot of customers. It is very difficult to be unique riding an ordinary vehicle; however, Tesla meets the expectations of clients and provides them with unique cars that are costly.
2. The experts claim that all discussions about zero emissions are nonsense. Talking about emissions people do not take into consideration the effectiveness of how the batteries are charged. Despite the fact that there are evident advantages of the electricity system, the environment is still polluted. Tesla cars do not use gas; nevertheless function due to the burning of carbon. Tom Milnes, the professional in the sphere of renewable sources and ecology, states that Tesla’s vehicles are not the way out of the problem regarding pollution of the environment. Tom Milnes once stated that “it is a smart business move, and it might be a commercial success, but as a scientist I don’t think what Tesla’s proposing is a good solution”.3
Finding a data regarding the hype of the strategies that are implemented by Tesla Motors was a difficult task. The CEO and other members of the company have given an interview numerous times; however, the question regarding the strategies was not the popular one as the majority of journalists are more focused on innovations and the technologies that Tesla Motors uses. However, as a matter of fact, the fundamental concern of the company outside of innovations is the extension of the market and fostering the transition of the society to the electric cars.
For the company to be popular and successful in the selling of products, the organizations should be informatively bright. However, not always they are honest concerning the data should be trustworthy from the one side and realistic and attractive from the other. It should be noted that it is not about telling lies to the customers; it is more about creating a reputation of the organization that is attractive to the public.
The ROE improved from -3.1773 2012 to -0.1109in 2013. The value dropped to -0.3225 in 2014 (see table 1). The negative values can be attributed to the negative profit margin. The values of asset turnover ratios are low. They show that the sales generated per unit of total assets were less than one (see table 1). The values of equity multiplier were extremely high. This signifies a high leverage. Thus, the high gearing level increases the value of ROE. The trend of ROE is displayed below.
Fig. 1. Trend of ROE.
There was no continuous increasing or declining trend of ROE (see fig. 1). The values were erratic.
Eliminating ZEV sales has an effect of reducing the total sales and net income or loss (see table 2). The profit margin and asset turnover are also reduced. Thus, the resulting values of ROE are -0.5228, -0.2833, and -3.3665 for the years 2014, 2013, and 2012 respectively (see table 2). These values are much lower than the initial values of ROE which are -0.3225, -0.1109, and -3.1773 for the years 2014, 2013, and 2012 respectively (see table 1). The inclusion of ZEV sales boosts the sales and profit levels of the company.
Quality of Earnings
The question of Tesla’s quality of earnings is quite subjective. A review of the income statement shows that there is a tremendous growth in revenues. For instance, revenues grew by 387.23% in 2013 and 588.46% in 2014. This had a positive effect on earnings. It also indicates that it is a high growth company. The costs of sales were high, accounting for more than 70% of revenues. This resulted in low gross profit margin. There was a significant growth in operating expenses in 2014. This can be attributed to the US GAAP Standards that do not allow the capitalization of pre-production research and development expenses that were incurred in the engineering work of a new car model. The increase in selling, general, and administrative (SGA) expenses is attributed to costs that are associated with expansion into new markets. Thus, the income statement shows that the Tesla’s revenue cannot cover the operating expenses. This indicates that the company has a weak operating efficiency. The low values of return on equity, net margin, asset turnover, and cash flow is an indication that the company has a weak earnings quality.
How Tesla Motors, Inc. has Managed to Survive
Despite the negative profits, the company has been in operation for over ten years in the industry. A significant factor that has contributed to the continued existence of the company is the growth in revenue and volume of production. Secondly, the company prides itself on higher manufacturing efficiencies than its peers in the industry (Tesla Motors, Inc. 2). Also, the company has been efficient in the management of SGA expenses. This can partly be attributed to the centralized manufacturing. The company also has a low battery cost and headcount. Finally, the sale of ZEV credits has significantly boosted sales for the company (Tesla Motors, Inc. 4). Apart from the negative profits, the performance of the company does not differ significantly with those of its competitors in the industry.
Departures from the US GAAP
Tesla makes two departures from US GAAP in calculating some values. First, is in the recognition of costs and revenues that are associated with the sale of a vehicle. Revenues and costs are documented at the point where a client takes delivery of the car either in cash or credit and not when a vehicle is sold into a dealership. The second aspect is in the determination of revenue and gross profit. The company adds back deferred revenue and related costs of vehicles that are sold with residual value guarantee. Finally, stock based compensation and non-cash interest expenses are eliminated from non-GAAP per share information and expenses (Tesla Motors, Inc. 9).
Non-GAAP Measures
The company is based in the US and it is listed on NASDAQ with a ticker symbol TSLA. Therefore, based on the US laws and regulations, it is required to prepare its financial statements using the US GAAP Accounting Standards. Any deviation from the use of the US GAAP should be disclosed. The users of the reports published should be made aware of the use other set of standards that are used in the preparation of the financial reports. This explains why the company keeps on referring to the non-GAAP measures in the financial statement. Since 2002, SEC has allowed for the use of non-GAAP measures and subsequent disclosure of the measures used (Horner 291).
Works Cited
Horner, David. Accounting for Non-Accountants. Kogan Page Limited, 2013.
Tesla Motors, Inc. (2015). Tesla Motors – First Quarter 2015 Shareholder Letter. Web.
