Category: Tesla

Summary

This paper aims to examine Tesla Motors’ business model in terms of its competitive advantages. First, an overview of the company’s entry strategy will be provided to examine the challenges that Tesla faced when entering the market. Next, the paper will consider the question of Tesla’s profitability, regarding the company’s competitive advantages, revenue, and operational cost numbers, as well as providing an estimation of the future potential for the evolution of the company. Further, based on the findings from the previous sections, this study will suggest several strategies to benefit and strengthen Tesla’s position in the industry. In the context of these suggestions, a policy for overcoming the competition will be discussed, and finally, an overall conclusion will be drawn.

Tesla’s Entry Strategy

Barriers Tesla Has Had to Overcome

Considering the five forces framework, which was described by Thompson, Peteraf, Gamble, and Strickland (2018), it is essential to identify the involved parties for each force (p. 51). The competition from rival sellers is significantly high while the competition from new entrants is likely to be weak since Tesla itself is still a newcomer (Van den Steen, 2015, p. 5). The producers of substitute products (gas-fueled cars) are also considerable rivals for the company. Suppliers do not have significant bargaining power since Tesla has very advantageous contracts with its suppliers, for example, with Panasonic (Van den Steen, 2015, p. 7). The bargaining power of buyers is moderate because the buyer’s group appears to be concentrated primarily in the United States.

Further, it is essential to discuss the entry barriers. The car industry comprises one of the largest markets in the United States; thus, Tesla Motors was in a challenging position upon its entry into this market (Van den Steen, 2015, p. 1). The three principal aspects of automobile production include (a) car design; (b) car manufacturing; and (c) car marketing, distribution, and service. First, it should be noted that the development of a new car design involves significant expenditures (up to $6 billion) and a prolonged period (4 to 5 years) (Van den Steen, 2015, p. 2).

Manufacturing incurs significant operating costs, such as those for large assembly plants, and the industry of marketing, distribution, and service is highly competitive (Van den Steen, 2015, pp. 2–3). Also, Tesla’s team comprised people who had no experience in the car industry, which presented another barrier (Van den Steen, 2015, p. 6). Finally, the market for electric cars was fraught with considerable uncertainty about the long-term profitability related to their manufacture, resale value, and safety (Van den Steen, 2015, p. 5).

What Nissan Can Learn from Tesla’s Approach

Nissan can be considered a primary competitor of Tesla Motors. In 2007, Carlos Ghosn, CEO of Nissan, initiated the development of the Nissan Leaf, the most ambitious project in the electric vehicle (EV) industry (Van den Steen, 2015, p. 5). This new addition to Nissan’s offerings was designed from the ground up, a process that took the company three years, albeit somewhat faster than the company’s standard four-year span (Van den Steen, 2015, p. 5). The Nissan Leaf is a mid-sized family-oriented sedan whose battery was developed in “a joint venture with NEC” (Van den Steen, 2015, p. 5).

It would be possible—perhaps even advisable—for Nissan to adopt two primary aspects of Tesla Motors’ business approach. First, Tesla entered the market with the Roadster, a high-end product that aimed for an upper-class market segment (Van den Steen, 2015, p. 6). This approach helped the company to establish its position as a leader in the industry. Second, Tesla outsourced the design of their battery to Panasonic; thus, the company was able to create a very powerful motor at less expense (Van den Steen, 2015, p. 7).

The Possibility of Other Car Manufacturers Following Tesla’s Approach

Numerous governments, including that of the United States, are concerned with reducing toxic emissions from cars. Accordingly, they are promoting the adoption of EVs by setting a minimum percentage of electric vehicles to be sold by a particular manufacturer (Van den Steen, 2015, p. 5). Therefore, other companies may choose to follow Tesla’s approach. The company’s success has proved to other car manufacturers that the EV market has considerable commercial potential. However, many other companies entering the EV market would have to shape their entry strategies accordingly since Tesla Motors dominates the industry.

Tesla’s Profitability

Tesla and Profits

In considering the whole picture, it is essential to discuss the question of Tesla’s profitability. Undoubtedly, the company has enjoyed a successful entry to the market: In the first half of 2013, “it sold 10,500 model Scars” and “its market cap was about a quarter of that of BMW” (Van den Steen, 2015, p. 9). More particular data from the case can be found in Exhibit 1. According to Thompson et al. (2018), the company’s total revenues have grown from 204,242 to 2,013,496 dollars from 2011 to 2013, respectively (p. C-203). Also, the researchers mentioned that Tesla raised “over $1 billion by issuing new shares of common stock” (Thompson et al., 2018, p. C-203).

Tesla’s Competitive Advantages

Thompson et al. (2018) mentioned that Tesla Motors constitutes a group of companies performing focused (also referred to as market niche) strategies (p. 136). In particular, Tesla employs a focused differentiation strategy since it

1. aims for a relatively narrow segment
2. can provide a high-end product (Thompson et al., 2018, p. 137).

Focusing on a particular market niche creates a high level of competition. However, Tesla has the following advantages:

1. its market entry was immensely successful, establishing its position as an industry leader,
2. it holds to “in-house” manufacturing and assembling policy,
3. it has built a network of company-owned retail stores instead of independent dealerships (Van den Steen, 2015, p. 8).

Estimated Evolution of Tesla’s Position

Also, it is possible to suggest the way Tesla’s position in the market will evolve by the end of 2014. Based on information about the company’s performance in the past, it is eminently possible that Tesla can significantly extend their business. In particular, Musk has expressed ambitious plans involving “shipping 40,000 Model S per year by the end of 2014,” and he also stated that he aims to create more accessible mass-produced EVs (Van den Steen, 2015, p. 8). However, as Thompson et al. (2018) have noted, in 2014, Tesla sold 17,300 cars, while Nissan sold 30,200, figures showing the growing competition in the market (p. C-222).

Potential for Change in Revenue or Operational Cost Numbers

Given the fact that the company’s position will evolve due to a variety of economic aspects, it is apparent that revenues and operational costs will also change accordingly. First, Tesla aims to extend its production line by including the Model X, a new crossover SUV, and thus, the company’s revenues are projected to continue to grow (Van den Steen, 2015, p. 9). Simultaneously, extending the production line means additional operating costs, and the company will have to generate enough profits to offset these additional costs.

Evolution of the Automobile Industry

Possibilities for Strengthening Tesla’s Future Position

Based on the previously retrieved information, it is appropriate to state that Tesla Motors, despite its significantly successful entry to the car industry and subsequent performance, still faces numerous challenges, most notably the rapidly growing competition in the market. It could be proposed that Tesla should continue to invest in the development of lower-class mass-produced EVs. Since the company’s competitors are primarily focusing on high-end production (one of Tesla’s strengths), it would be a sagacious step to fulfill the demand for cheaper electric cars (Thompson et al., 2018, p. C-222).

Tesla’s Problem of Imitation or Entry by Competitors

Preventing entry by other competitors is hardly possible for Tesla Motors. The company has stated that it would not initiate any lawsuits against companies that use Tesla’s patents, claiming it is not concerned with imitation (Thompson et al., 2018, p. C-214). However, in the case of several manufacturers, entry into the market would significantly raise the level of competition. First, BMW should be mentioned, as this well-known company launched its i3-series electric car model in 2013 (Thompson et al., 2018, p. C-222).

Second, Mercedes-Benz is also competing with Tesla, having introduced a “premium compact B-Class electric vehicle in the United States” in 2014 (Thompson et al., 2018, p. C-222). Third, Porsche, Audi, Cadillac, and GM are also aiming to extend their presence in the EV market shortly (Thompson et al., 2018, p. C-223).

Conclusion

Finally, it is appropriate to draw conclusions based on the Tesla Motors case by considering the issues raised in the conducted study. It is evident that the company has enjoyed a positive measure of success in entering the market, and Tesla continues in its position as one of the prevalent competitors in the market. Among the reasons for the company’s immense success would be Elon Musk’s leadership qualities and ambitions as well as the company’s innovative approach to designing, manufacturing, and distributing the product. Nevertheless, this case study also identified concerns regarding the future sustainability of Tesla Motors due to the possibility of a high level of competition in the rapidly growing EV market.

References

Van den Steen, E. (2015). Tesla Motors. Harvard Business School, 9-714-413, 1-25.

Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. (2018). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases (21^st Ed.). New York, NY: McGraw-Hill Education.

Appendix

The customers are usually provided with the ability to return the product in case it does not satisfy their needs or was defective. The rights of the buyers are protected and regulated by law. However, the customers are not the only group that can return the product. It is worth highlighting that the company can itself recall the product, in case the life or the health of the customers is dependent on the product, and some issues were discovered after the product was manufactured and delivered to the buyers.

There is hardly an enterprise in the world that did not face the problem of returned or recalled products. Tesla Motors Incorporation is not an exception. The primary purpose of the paper is to discover the reasons the customers return the cars made by Tesla Motors and what is the purpose of recalling the product.

Tesla Motors is famous for combining innovations with the current market needs. It is worth noting that they are successful in it and have become popular nowadays. Although the majority of people drive fuel cars, Tesla Motors aims to foster the transition of the world population to sustainable energy and provide people with affordable and innovative electric cars. Globalization strategies and flexible marketing ideas help the company in the way of their goal accomplishment.

Despite the fact, that the cars developed and manufactured by Tesla Motors have already been successfully integrated into the society, and people value the product, it is of paramount importance to make an accent that their product, namely electric cars, was returned by the customers and recalled by the company itself. What are the reasons for such actions? First and foremost, one should consider the aspect of innovative technologies.

Tesla Motors cannot be compared to the giants of the automobile industry. The company was established only in 2003, and the first car was presented to the public only three years later. Tesla Motors uses new technologies and change the vision of people towards an understanding of what the car is. The machine made by Tesla does not require car service. This and other advantages of Tesla’s electric vehicle contributed to the fact that the product made by the company becomes popular every year. However, innovations are always risky. The reason the company recalled the product is security.

Providing a customer with a secure product is a fundamental concern of any company. In 2013, the Model S vehicles were recalled by Tesla Motors because of the fire hazard (Lienert, 2014). The company discovered potential issues with the battery, and thus, recalled the product. In 2015, the company discovered the issue of a faulty seatbelt in the Model S car. The company recalled 90,000 cars (Thielman, 2015). In 2016, the company recalled 2,700 vehicles of the Model X because of the insecurity of the third-row seats (Hull, 2016).

After multiple testing, the managers concluded that the seats can create a potential problem. As for the product return, there is hardly a person that was not satisfied with the vehicle. Thus, the customers prefer to have Tesla electric vehicle in the garage, not back in the store.

In conclusion, it should be stressed that even though Tesla Motors is a client-orientated and innovative enterprise, the products of this company can be recalled in case of the potential risk. However, it characterizes a corporation as responsible and caring for the customers.

References

Hull, D. (2016). Tesla Recalls 2,700 Model X SUVS to Fix Third-Row Seats. Web.

Lienert, A. (2014). 2013 Tesla Model S Charging Equipment Recalled. Web.

Thielman, S. (2015). Tesla Motors recalls entire fleet of Model S cars over seatbelt issue. Web.

Innovation is the art of making things amazingly different to advance modernity. Tesla Company became one of the leaders in innovation in the car industry. Its announcements of new models, new battery technology, and patent release enabled it to make a lot of progress in the market.

Elon Musk, the chairman, and CEO of Tesla had a plan to revolutionize the automobile industry. The introduction of the electric vehicles helped to provide cars that were eco-friendly and efficient for the market. However, there were a few problems. The infrastructure in the industry was not viable for the new developments. Its technology was not compatible with the national adaptation to the new system. Most customers still preferred oil-fueled vehicles because oil prices had dropped over the period. The electric cars were very expensive (Grant 237). Therefore, Tesla allowed the use of its patent to increase the level of uptake of the electric vehicles in the market.

Tesla had made advancements in the electric cars. Its battery innovation was and still is the basis for its uniqueness. It also developed a wholly new electric car from scratch. The system of charging with the newly developed supercharger made Tesla a company to beat. Within 30 minutes its system can charge a car to travel for over 100 miles (Grant 237). The other national chargers are slow and a charge of 30 minutes can only take the vehicle for not more than 10 miles. The architecture of Tesla’s car battery packs, high voltage cables that connect to the battery, and the advanced computer system that manages the charging system are its unique points. It is not easy to patent such technology. Such unique features led the company to protect its patents through registration. They were its competitive advantage.

Tesla’s unique range of cars gives the company an edge in the market. The company partnered with Panasonic Company to provide the cars with the much-needed support of quality batteries (Johnson 502). It has the S-Model and the X-Model which took the market by storm due to their structure and speed. The battery only adds to this beauty with the supercharger system and ability to store energy for long distance performances.

The lithium-ion batteries were already in use even before Tesla Company came into being. Other companies like Nissan partnered with NEC to produce lithium-ion batteries from scratch. Tesla bought off-the-shelf lithium-ion cells which were smaller but capable (Grant 237). They also did not overheat like other batteries. Later, Tesla and Panasonic partnered in 2014 to build the world largest manufacturing plant for lithium-ion batteries. It has projections to ensure that the electric cars become affordable to acquire and to maintain.

The anticipation was that the move would free up its patent to other companies. It would then speed up the market for the electric vehicles. When there are many supplies in the market, the price tends to drop. The decrease in prices leads to the increase in demand. It leads to more purchase. However, the company states that the use of its patent should be in good faith. It will maintain its supercharging technology but share its battery technology. Customers who charge in its stations should pay a fee to enable the company to raise additional revenue. If Tesla did not share its technology and got a competitor who did, its recharging stations would lose value.

Tesla and other companies can revolutionize the industry. Their sharing of technology will help to save the environment from pollution. It will also speed up technological advancement.

Works Cited

Grant, Robert M. Contemporary Strategy Analysis. 9th ed. Hoboken, New Jersey: John Wiley & Sons, 2011. Print.

Johnson, Drew D. International Directory of Company Histories. 1st ed. Detroit, Mich.: St. James Press, 2011. Print.

Introduction

Tesla Inc. is one of the most unique, innovative, and massively popular corporations in recent years. Thriving under the leadership of the brilliant entrepreneur Elon Musk, the company has become synonymous with pushing technological boundaries and disrupting the status quo in the automotive and energy industries. It remains one of the most rapidly expanding and investor-attractive firms in the United States. Tesla maintains a management style and organizational structure which supports its R&D capabilities and business growth; however, recent events surrounding its practices are a cause for concern.

Background

Tesla Inc. previously known as Tesla Motors was founded in 2003 by Martin Eberhard and Marc Tarpenning with the purpose of creating an electric sports vehicle. It was a venture project, gaining much of initial funding from Elon Musk who served as chairman for many years. In 2008, the company introduced its first electric vehicle which broke numerous records on travel distance on a single charge, efficiency, and environmental emissions. This propelled the company into the spotlight. At this time, the founders left the company with Elon Musk becoming CEO and becoming a public company.

Over the years, the company has introduced new vehicle types and technologies for electric automobiles (lower emissions and self-driving cars), significantly pushing the industry into this direction while gaining government and policy support. The company has also invested in solar panel and battery technology development although no widespread commercial products are yet available. Although most of Tesla’s products are high cost, it is making significant strives to lowering costs and expanding production to meet overwhelming demand. The company’s primary mission is to create products and technological ecosystems which will “accelerate the world’s transition to sustainable energy” (Tesla, n.d., para. 1).

Organizational Structure

The uniqueness of Tesla as a company also reflects on organizational structure. Although there is no official structure available, it is speculated that the company utilizes a divisional approach with a functional or U-form organization. The company maintains structural groups of employees based on functionality and divisions such as engineering or sales. Corporate characteristics are present at Tesla, but at a lesser rate than other automakers.

The key to Tesla’s structure is a function-based hierarchy which defines its global organizations. While similar aspects are seen in other companies, Tesla has a functional organization which represents its international operations including chairman and CEO, finance, technology, global sales, engineering, and legal. Furthermore, Tesla uses a centralization approach to structure, where managerial control is concentrated in the hands of Elon Musk with limited autonomy of its divisions. The divisions consist of automotive and energy generation and storage which implement different strategies and operations (Meyer, 2018).

Musk is consistently improving the management and organizational structure of Tesla Inc., flattening it to streamline operations, improve communications, and combine functions while eliminating aspects which are not vital to the company’s success (Dudovskiy, 2018). Tesla takes the divisional approach to a new level according to reports. It has been revealed that Elon Musk has 29 people reporting to him directly.

The flat organizational structure has certain competitive advantages by saving money on executive strategies. However, there is a certain lack of transparency about Tesla’s leadership team outside the almost cult-like personality of Musk. Centralization is beneficial to an extent, with Musk only being able to do so much in a day while reducing trust and lacking delegation necessary to run a large company (Zetlin, 2018). Therefore, while interacting with employees far below him may be positive in some respects, a lack of clear hierarchy may be damaging to Tesla in the long run as demonstrated by recent events.

Management Style and Communication

Under Elon Musk, Tesla’s inner management style has been aggressive and combative, largely due to the mercurial nature and high demands of its leader. Musk reportedly berates both executives and low-level of employees, consistently challenging their competency, and expects people to work exhaustingly for a prolonged period of time, something he himself is known for. At the same time, his perfectionism, drive for innovation, and ambition has propelled the company in this social image and an automotive giant that it is today, elements that he expects to see in the management team and their styles (Fairyington, 2019).

Therefore, employees see Musk as an inspiration but fear him. He seeks to micromanage every aspect of company operations and quality management that affects operations, particularly in the automation of the production process. Musk also fails to consider the opinions of experienced advisors or tested methods pioneered by other automakers. The enigmatic leader has impaired decision-making at times and approves expensive and underrated projects which cause significant issues for a company struggling to find its stability (Kolodny, 2018).

The divisional approach in Tesla offers more flexibility and less bureaucracy in comparison to other companies of the size. The company can increase the speed of communication through layers of organization with positive outcomes on decision-making and flexibility (Dudovskiy, 2018). The organizational structure allows for strong managerial control of the business and maximizes the information exchange with top-level managers for informed decision-making as Tesla continues growth and complexity in the global market.

This type of management and communication in a flat organization structure has the advantage of the easier implementation of new strategies within the organization and rapidly readily to challenges. However, this is only within its primary United States divisions, as without autonomy in a centralized system, foreign branches of Tesla are unable to do as well as the competitors which build a new organizational structure from the ground-up on each continent.

Recent Controversies and News

Unfortunately, Tesla Inc. has faced a number of controversies regarding its CEO Elon Musk as well as its business practices and products. It is worth to examine all these aspects as they affect the company and its future. One of the first issues is the company’s production capabilities and financial status. Due to the complexity of the technology and lacking the enormous productive power of other automakers, Tesla has been struggling with production and delivery backlogs for many years.

Its most popular Model 3 sedan was not produced quickly and despite attempts to expand the facilities and production lines, the challenges were not sufficiently addressed. Only recently did the company reach a sustainable level of production for its sedans. In 2018, Musk admitted that the company was bleeding money heavily and was not leading business practices beneficial in the long-term (Lambert, 2018).

Over the course of the company’s existence in the automotive industry, only in the past two quarters of 2019 did the company make a profit for the first time in its history. It is important for Tesla to modify things going forward to ensure it is able to reach the scale of production and demand for its vehicles to ensure profitability as the company largely operates on investor funding and requires more financial stability (O’Kane, 2019).

This leads to another controversy and presence of Tesla in the news. Elon Musk tweeted in late 2018 that he has secured funding that the company would be bought out, reportedly by a Saudi investor. This led to a rapid rise in investments and stock of the company, but the information was not confirmed to be true. This led to the U.S. Securities and Exchange Commission (SEC) to investigate Musk for potential defrauding of investors.

A deal was reached lessening the role of Musk in the company and limiting his social media presence. However, in February of 2019 he once again responded on social media that Tesla would produce 500,000 cars in the upcoming year, a figure which was considered to be grossly exaggerated. Once again, this prompted investigations from the SEC in the context of issues described earlier and resulted in multimillion-dollar fines for the company and a loss of stock value of upward of 5% (Siddiqui, 2019). It suggests that the company itself is facing internal issues of disorganization with its leadership and also needs to reconsider its communication strategies with investors.

Conclusion

Tesla Inc. is an innovative company which has revolutionized the automotive and energy industry. Its organizational structure is based on divisional function and centralized decision-making by its symbol and enigmatic CEO Elon Musk. The management style is reflective of his personality, being combative and micromanaging, which can be both inspiring and hindering. Despite the innovation and popularity of Tesla, the company has struggled with its production and finances, as well as having controversies due to unthoughtful actions by Musk. Through employing better business practices and using long-term strategy, Tesla can find its ground as a leader in the future generation of sustainable energy and electric vehicles.

References

Dudovskiy, J. (2018). Tesla organizational structure: Divisional and flexible. Web.

Fairyington, S. (2018). What we can learn about how not to lead from Elon Musk. Web.

Kolodny, L. (2018). Elon Musk’s extreme micromanagement has wasted time and money at Tesla, insiders say. CNBC. Web.

Lambert, F. (2018). Tesla was within weeks of dying because of Model 3 delays, says Elon Musk. Web.

Meyer, P. (2018). Tesla Inc.’s organizational structure & its characteristics (analysis). Web.

O’Kane, S. (2019). Tesla posts back-to-back profits for the first time. The Verge. Retrieved from Tesla posts back-to-back profits for the first time.

Siddiqui, F. (2019). Elon Musk and the SEC resolve dispute over the Tesla CEO’s tweets. The Washington Post. Web.

Tesla. (n.d.). About Tesla. Web.

Zetlin, M. (2018). Tesla internal organization chart shows Elon Musk has an astonishing 29 direct reports. Web.

Introduction

Since its very inception, the brand name Tesla has become synonymous with big-picture ideas and revolutionary solutions. Even before the company’s emergence, the market for fully electric vehicles had been proliferating, thus, creating niches to be filled. Indisputably, what made Tesla stand out among its contenders was the successful employment of the disruptive business model. This type of model can be interpreted as the invention of a technology that is not only innovative but is also more beneficial as opposed to those created to serve the same need before.

Therefore, the said new invention has the potential to put other companies whose profits are tied to the “old” technology at the risk of bankruptcy. Still, history has seen many companies with a similar business model fail miserably after the initial success. This paper will discuss the company’s sustainability and challenges.

Tesla’s Business Model Sustainability

To examine the sustainability of Tesla’s business model, one needs to get to the very core of what the company is actually doing on the market and in the business world. If one assumes that Tesla is nothing more than another car company with somewhat different ideas and solutions, the possible conclusion might be that the company is barely able to stand the competition. It is true that the company’s sales are growing with each coming year.

Yet, the American car market is not only tremendously competitive but also almost monopolized by such industry giants as Ford and Chevrolet. When comparing their revenues to those of Tesla, it is easy to see that the latter is nowhere near starting the electric car revolution. However, it seems more reasonable to compare Tesla to Apple: one should not call them a car and computer companies respectively. On the contrary, in the developmental process, these brands have been moving relentlessly into broader fields. As for Tesla, it boasts endless opportunities to invent more vehicles for its unique batteries.

Tesla’s Challenges

For all the company’s progress, one should not dismiss the challenges that Tesla is likely to face in the future. In 2018, Musk’s plans to manage finances and avoid fundraising seemed somewhat uncertain. Moreover, the company has yet to demonstrate its ability to produce electric cars at scale to meet the growing demand. The recall of 123,000 Model S sedans due to a technical issue at the beginning of the year has not helped the case. What might have been most detrimental to the company’s reputation is the death of the driver who was behind the wheel of the semi-autonomous Model X. These incidents only show that Tesla’s ambitions might not be matching its technical excellence.

Conclusion

Tesla has not only made a household name for itself but has also been increasing its revenues as the years pass by. Yet, the question arises as to whether Tesla’s business model is sustainable in the long haul and what challenges might manifest themselves in perspective. Tesla’s way of doing business may be viable if one presents the company, not as a car manufacturer but an inventor and popularizer of innovative technology. Nevertheless, some possible issues might compromise and undermine Tesla’s sustainability. The year 2018 is likely to go down in the company’s history as the one full of misfortunes. One may conclude that the company’s most bold ideas might need more time for testing before implementation.

The place where the majority of employees are based

Tesla Motors is a company that experiences rapid development due to the innovations and appropriately chosen marketing strategies. As a matter of fact, the company started their work with 600 workers and increased this number by twenty times¹. Over 13,000 people work for Tesla nowadays. The majority of the employees are based in Fremont, California.

Unionization

The employees in Tesla are not unionized; however, the United Auto Workers aimed to unionize the staff.² Although the attempt failed to succeed, the UAW does not want to give up.

Salaries of the very top executives

The wages of the top executives in Tesla Motors is different. Elon Musk makes almost 35,000$ a year, chief technology officer – 249,600$; chief financial officer – 338,000$; vice president – almost 273,000$.³

The lowest-paid ends of Tesla

Work for Tesla is complicated and will not suit those who want to find a balance between personal life and work. Some managers try to show employees that they are easily replaceable and are not important.⁴ Standard wages and this fact discourage work. However, the majority of the employees think that being able to make something that has never been done before and being able to contribute to innovations and development overweight the disadvantages. The experience that is gained at Tesla Motors is considered to be valuable.

Chief mechanical engineer makes about 146,000$ a year. According to the information stated in the description of Tesla vacancies, Chief engineers are responsible for the design, analysis, and testing of mechanical components.

One of the lowest salaries that can be compared to the wages of the ordinary worker is the salary of Elon Musk, the founder and CEO of Tesla Motors.⁵

Gender balance of employees at various ranks

Although the majority of people think that the automobile industry is not for women, it is worth stating that twenty-seven women are working for Tesla.⁶ However, the majority of employees are men. According to the research, all executives and people who hold high positions are men. Such a gap in gender diversity can be explained by the fact that not a lot of females choose technical careers.

Managerial and employee diversity

The American company is not going to give up on the conquest of the world market of electric cars, and for this purpose, it intends to increase the number of employees sharply. Currently, the number of open vacancies at Tesla Motors exceeds fifteen hundred.

To become a member of Tesla, there is no need to move to California. Among the 1649 vacancies, there are not only technicians but also employees that are needed for the dealerships in the United States.⁷ Tesla is looking for transport engineers in Norway, and in Germany and France for specialists in sales development.

The top manager of Tesla one stated:

We have built a company that draws on diverse, exceptional talent from all over the world. Diversity is one of the many factors we consider when hiring and recruiting, and we are fortunate to benefit from a wide range of backgrounds, perspectives, and ideas from our employees. This diversity will remain a key feature of work-life at Tesla going forward.⁸

Union or student solidarity or living wage campaigns

According to the words of Elon Musk, the attitude of the company towards unionization is neutral.⁹ However, the United Auto Workers aimed to organize the workforce, however, failed. Nevertheless, the UAW does not want to give up and will continue the attempts.

Response to such campaigns

Tesla Motors provides the workers with appropriate working conditions and environment for them not to seek help from the unions¹⁰. One of the major strategies of the company related to the staff is that people are not forced to work for Tesla. In case they do not like the conditions, the employees can leave the workplace as there are thousands of candidates who dream about this job, and thus, there is no need for the workers to unionize.

Bibliography

Doeden, Matt. SpaceX and Tesla Motors Engineer Elon Musk. Minneapolis: Lerner Publications, 2015.

Kopytoff, Verne. “Tesla’s Gender Gap at the Top Narrows – but Just a Little.” Fortune. Web.

Loveday, Eric. “UAW Looks to Unionize Tesla Motors.” Inside EVs. Web.

“SFGate: Unions Press for Place with Tesla.” Tesla Motors Inc. Web.

“Tesla Motors Inc. Executive Salaries & Other Compensation.” Salary.com. Web.

Vance, Ashlee. Elon Musk: How the Billionaire CEO of SpaceX and Tesla Is Shaping Our Future. London: Virgin Books, 2015.

Wattles, Jackie. “Tesla’s Female Engineers Say #ILookLikeAnEngineer.” CNNMoney. Web.

Footnotes

1. Matt Doeden, SpaceX, and Tesla Motors Engineer Elon Musk. (Minneapolis: Lerner Publications, 2015), 64.
2. Eric Loveday, “UAW Looks to Unionize Tesla Motors,” Inside EVs, Web.
3. “Tesla Motors Inc. Executive Salaries & Other Compensation,” Salary.com, Web.
4. Ashlee Vance, Elon Musk: How the Billionaire CEO of SpaceX and Tesla Is Shaping Our Future. (London: Virgin Books, 2015), 51.
5. Matt Doeden, SpaceX, and Tesla Motors Engineer Elon Musk. (Minneapolis: Lerner Publications, 2015), 62.
6. Jackie Wattles, “Tesla’s Female Engineers Say #ILookLikeAnEngineer,” CNNMoney, Web.
7. Verne Kopytoff, “Tesla’s Gender Gap at the Top Narrows – but Just a Little,” Fortune, Web.
8. Verne Kopytoff, “Tesla’s Gender Gap at the Top Narrows – but Just a Little,” Fortune, Web.
9. “SFGate: “Unions Press for Place with Tesla,” Tesla Motors Inc., Web.
10. Ibid.

Introduction

Today, the main challenge Tesla Motors is to face lies in its innovative strategy. As long as the group has ambitions to provide high-quality batteries for electric vehicles, it has to solve two primary problems: the promotion of battery usage and the high cost of this product.

Tesla Motors Analysis

Tesla takes various measures to cope with the problems and to perform a successful, innovative policy. First of all, the company enlarges the customers’ awareness of its offers both via online resources and the relevant presentations performed in its showrooms. Secondly, the group eagerly encourages cooperation with other auto manufacturers. It offers them a chance to buy high-quality electric products that the former can use to install in their products. Moreover, Tesla performs a significant contribution to the development of the charging stations sector. The accessibility of such stations is highly important for the company that is interested in electric cars’ distribution.

Apart from the stations’ foundation the company also considers the work out of other kinds of charging facilities, such as electric plug-ins in public places. The company’s main battery supplier is Panasonic, which serves as a significant support to Tesla’s image. Nevertheless, the cost of the battery for electronic vehicles is considerable which leads to the inevitable cell shortage. To solve this problem Tesla has to invest in the battery innovation industry and the foundation of new factories capable of producing a sufficient quality of batteries at a reasonable price.

The perspectives of the company’s innovative plans seem to be ambivalent. On the one hand, the problem of large expenses appears to remain unsolved. One can suppose that cooperation with Panasonic as the only company’s supplier turns out to be insufficiently effective. Tesla could try to enlarge its collaboration base thus attempt to solve the cost and shortage problem via new partnership. Besides, as far as cylindrical usage seems to fail to prove its cost-benefit, the group might begin looking for some alternative variants. Furthermore, the numerous troubles connected with charging operations prevent Tesla Motors from its firm establishment in the global market.

Therefore, the company’s primary concern should be to liquidate all the charging difficulties a customer might experience. Besides, the group should not cease to maintain the image of the true innovator. It means they are to perform constant changes and improvements in the battery production process, such as the usage of the new materials and the launch of progressive techniques.

Conclusion

The current state of events gives grounds to suppose that Tesla Motors is likely to overcome all the innovative challenges in a short time. Firstly, the green image of its production is in great demand nowadays. Secondly, the usage of electric vehicles guarantee’s low customer emissions that make it particularly attractive. Thirdly, the company promises to supply its customers with cars that can dismantle a stereotype about electric vehicles. According to the managers’ words, Tesla’s cars will have the same characteristics that the standard ones have. It means they will be the same fast, comfortable and good-looking. This point is of particular importance as the reason for people’s unwillingness to purchase an electric car is often the fear that it will be different from what they are used to. Thus, the company’s policy seems to be reasonable and efficient.

References

Newton, T. (1999). How Cars Work (1st ed.). Black Apple Pr.

Baden-Fuller, C., & Haefliger, S. (2013). Business Models and Technological Innovation.

Long Range Planning, 46(6), 419–426. Web.

Baden-Fuller, C., & Haefliger, S. (2013). Business Models and Technological Innovation.

Long Range Planning, 46(6), 419–426. Web.

Baden-Fuller, C., & Haefliger, S. (2013). Business Models and Technological Innovation.

Long Range Planning, 46(6), 419–426. Web.

Baden-Fuller, C., & Haefliger, S. (2013). Business Models and Technological Innovation.

Long Range Planning, 46(6), 419–426. Web.

C. Baden‐Fuller, Stefan Haefliger; Published 2013; Business Models and Technological Innovation; Long Range Planning, 46(6), 419-426.

External Environment

Americans have always been fascinated with vehicles. The US car business comprises up to 3% of the country’s GDP (Van Den Steen, 2015). This multi-billion industry gives jobs to 1.7 million employees. American households spend over 15% of their overall income on cars and associated products and services (gasoline, repairs, and the like). At present, the three largest car producers operate in the US market and make up almost half of the country’s car market. Financial crises that took place in the late 2000s shaped the way market share was distributed, as some large manufacturers went bankrupt. Their competitors took up their share and managed to maintain their leading positions.

The potential losses and high risks carmakers have to face are associated with the peculiarities of the industry. Their products require significant funds at the production stage. For instance, manufacturing costs commonly reach up to approximately 80% of the selling price (Van Den Steen, 2015). These high costs are partially due to a process that includes multiple stages and is associated with errors and quality issues. It is also quite expensive to market cars. For instance, Ford invested almost $4 billion in advertising in 2010. To compare, Coca-Cola, which is famous for its extensive advertising, invested almost $3bn. Even so, the value of car brands is approximately $8bn (for Ford) or $5bn (for Porsche), while the values of such brands as Disney or Pepsi are $27bn and $16bn, respectively.

The industry is also characterized by collaboration with dealers rather than direct sales and the provision of associated services. Dealers have exclusive rights to sell a brand or several brands of cars. Automobile producers also provide services associated with the maintenance of cars. Van Den Steen (2015) notes that changing motor oil is the most common maintenance task fulfilled in service centers.

As far as electric cars are concerned, their popularity increased in the late 20^th century. It is noteworthy that electric vehicles were highly popular and were serious competitors to conventional cars in the early 19^th century. However, the problems associated with batteries’ range, speed, and so on made electric cars less popular than those with internal combustion engines. The 21^st century is marked by a focus on environmental issues and sustainability concerns, which made electric cars popular again.

It is noteworthy that the manufacturing process is quite similar in the production of conventional and electric cars. The major difference is the powertrain. Electric cars are powered by a battery pack and electric motor. This feature enables car developers to make motors smaller and use no transmission. At first, the batteries were quite heavy and had a rather low efficiency. EV and Li-Ion technologies have been used to power electric cars. The latest battery technologies are significantly more efficient, which has resulted in cost reductions.

The US government (as well as the governments of other countries) encourages its citizens to buy electric cars and car manufacturers to produce more electric cars. For instance, people received substantial amounts of money as subsidies for buying electric cars (Van Den Steen, 2015). The US government also contributes to the development of the infrastructure necessary to make electric vehicles appropriate for various settings and functions. Specifically, recharging facilities are appearing at a significant pace. The American government also imposes some quotas concerning the production of zero-emission vehicles. Furthermore, a tax credit is provided to electric carmakers. Some states provide additional tax reductions or credits and subsidies to carmakers. Finally, the government introduces laws that require the production of electric cars, and manufacturers who do not comply with these regulations have to buy ZEV credits from other car producers.

The development of the industry is also facilitated by a significant interest in electric cars among consumers. As has been mentioned above, modern society pays considerable attention to environmental issues and sustainability projects. This shift to a smaller environmental imprint has made electric cars appealing to car users. People are ready to pay more (although a reduction in prices is expected) for environmentally friendly cars. Apart from the government and car producers, various companies and organizations contribute to the development of the infrastructure. For instance, these organizations offer charging spaces for their employees free of charge.

This feature of the market mentioned above suggests that the industry is likely to develop rapidly in the coming years. Technological advances and issues with the availability of resources (oil or natural gas) will make electric cars more popular, especially in developed countries and emerging economies where the level of people’s incomes is growing. The shift in the position of governments also shows that the oil lobby is weakening, and the electric car industry will receive considerable governmental support.

As far as Tesla’s major competitors are concerned, Nissan has come up with models that have become quite popular. For instance, the Nissan Leaf became a rather successful model, although the manufacturer expected higher sales.

Van Den Steen (2015) provides a detailed comparison of three competing models offered by three carmakers. It is clear that Tesla aims at wealthy consumers as the price for its Model S is slightly over $61,000 while the BMW 5 is sold at almost $49,000. The Nissan Leaf can be bought for only $19,650, which is the most attractive price, which might make this model a mainstream product. It should be noted that many features of the Tesla model can justify its price. For example, the time the vehicle needs to accelerate to 60 mph is only 5.6 seconds, as compared to the BMW model’s 6.1 and Nissan Leaf’s 10.3. The difference in horsepower is also significant: 302 for Tesla, 240 for BMW, and 110 for Nissan.

Tesla leads in cargo capacity as well, with 26.3 cu ft, while the Nissan model’s capacity is 24 and the BMW model’s cargo capacity is only 14. The range is another advantage, as the Model S can go 208 miles without recharging, while the Nissan Leaf’s range is only 75 miles. Two other significant features are safety ratings and fuel cost per year. Tesla and BMW both score a 5 in NHTSA rating, while Nissan only scores 4. Fuel costs are lower for the Nissan Leaf ($384 /15000miles), but Tesla is also characterized by comparatively low costs ($468/15000 miles). Even so, US sales show an interesting trend as BMW’s models were more popular, with almost 30,000 sold in 2013. Compared to these figures, Tesla sold 10,500 cars, and Nissan’s sales were 9,839. Despite this, customer ratings show a greater degree of satisfaction with Tesla, as its model received 99 (out of 100) according to consumer reports. The same reports for the Nissan and BMW models are lower, with 78 and 81 respectively.

Tesla’s management expected to reach annual sales of 500,000 cars in 2013. However, the company sold only 26,000 cars in 2012. Some improvements and a reduction of prices led to unprecedented growth in sales, which almost doubled. Van Den Steen (2015) also notes that many car producers have started developing electric cars. Therefore, competition is likely to increase, and electric carmakers will have to come up with new technologies, infrastructure solutions, and services to remain competitive or maintain their leading positions.

Another important area where Tesla is operating in the market for Lithium-Ion battery packs. This segment is evolving even faster than the market for fully electric cars, as these batteries are used in fully electric vehicles, hybrids, as well as other spheres (e.g., machinery). Van Den Steen (2015) provides data concerning annual sales and industry shares. The growth is remarkable, as annual sales reached $10.6 billion in 2010, while they grew only up to $11.7 billion in 2012. Even so, annual sales in 2016 more than doubled compared to 2010 and comprised $22.5 billion. There is an obvious trend toward increasing the use of this technology in car manufacturing. For example, its share of the automotive industry was 14% in 2012, while industrial usage made up 22% of the entire market. In 2016, there was insignificant growth in the industrial share, while the automotive industry made an unprecedented leap and reached 25% of the market. This growth provides various opportunities for Tesla and other producers of battery packs and components. This trend also suggests that the electric vehicle market is likely to expand in the near future.

Internal Environment

Tesla has the necessary internal capabilities to become a leading electric car manufacturer in the US market or even globally. The company was founded in 2003, so it is quite young, which has both benefits and downsides. The company does not have a well-established culture and conventions like other carmakers. However, this can be quite beneficial, as the company does not have to accommodate changes in the industry, as its culture is based on the most recent trends. Thus Tesla does not redesign conventional cars into electric ones but creates fully electric vehicles instead (Van Den Steen, 2015). It is also necessary to add that the company’s founders do not have any experience in car manufacturing, which can affect the company’s development and performance.

The company’s major facilities are located in the USA. Tesla had a partnership with a UK-based company, and some parts of the battery pack were assembled in Thailand. However, after the termination of the contract in 2012, the company moved all of its operations to the USA.

As for partnerships, Tesla has had several successful projects with such partners as Panasonic and Lotus. The partnership with Panasonic was regarded as quite an unexpected move, as Tesla did not use EV technology like other car manufacturers (Van Den Steen, 2015). The company instead used modified Lithium-Ion batteries, which has proved to be an effective solution. Tesla and Panasonic developed batteries that could be used in cars. The new battery pack had a doubled energy density, which led to a reduction in the cars’ weight. Importantly, costs were also reduced.

As has been mentioned above, Tesla’s culture is based on the principles of modern society, focusing on the environment, technology (especially mobile technology), efficiency, customization, and innovation. Therefore, the company started developing cars that had touchscreens, software that could control various systems, and so on. The cars also had some component systems that could be customized (e.g., suspension).

The company enjoyed a very significant initial investment, and it was able to make use of subsidies provided by federal and state governments. Even so, the financial crisis provided several opportunities that Tesla did not waste. For instance, the company acquired the NUMMI plant (one of Toyota’s facilities) for $42 million. Struggling manufacturers had to sell their facilities and equipment, so Tesla was able to make its newly-acquired facility operational for a third of the $1 billion that had been the typical size of investment required before the crisis.

The acquisitions and various choices made in the early 2010s resulted in quite a remarkable increase in the company’s revenues. For instance, Tesla’s revenues were slightly less than $117 million in 2010 (Van Den Steen, 2015). They rose up to over $200 million in 2011. In 2012, the company’s revenues doubled again and reached $413 million. In 2013, the carmaker’s revenues more than doubled and grew to $967 million.

As for the company’s marketing strategies, it did not adopt the conventional approach, which can be associated with its organizational culture. Tesla is not involved in partnerships with dealers but instead sells its products through a network of its own stores (Van Den Steen, 2015). Another characteristic feature of its strategy was the way these stores’ employees were paid. They received salaries rather than commissions.

It came as a surprise to many that Tesla did not emphasize its environmental impact. The company focused on such properties as speed and maintenance costs. Tesla stressed that its cars were faster than many electric and even conventional cars. It also emphasized that its models did not require expensive gas or motor oil, as well as repairs of various types that are quite common for conventional cars. Although it manufactures completely electric cars, the carmaker devotes little attention to the environmental friendliness of its products.

In conclusion, the company’s internal and external environment was quite favorable for its development and growth. Successful acquisitions and the financial issues faced by many companies helped Tesla to obtain the necessary capacity to satisfy the needs of its customers. Nevertheless, competition also became rather stiff, which makes it vital for Tesla to develop innovative products and strategies to retain its position.

Tesla’s Status After 2014

Since 2014, the company has remained one of the leading electric car manufacturers. It constantly improves its models and develops new ones. For instance, the company has improved the first Tesla Model S by adding larger batteries that enabled the car to drive longer without recharging (DeBord, 2017). Teslas are quite popular, and new models are highly anticipated. For example, the company received almost $10 billion in pre-orders for its new Model 3 (Hern, 2016). Nevertheless, the company is facing some problems.

One of the major issues is associated with delivering the new model within the announced time. The company had similar problems with the launch of the previous model. The sales of the Model X had started three years after the due date, as the manufacturer had problems with the production of the car’s seats (Hern, 2016). These operational issues can have a negative impact on the company’s image and its competitiveness, as customers will buy from other carmakers.

It is also necessary to note that the industry has developed at a significant pace. Newcomers have created a new level of competition, and Tesla may lose its leading position, especially if the operational issues mentioned above are not addressed. The company’s co-founder and CEO, Elon Musk, announced that the company is committed to producing the first mass-production electric car in 2017 (Hern, 2016). This new model will be affordable, according to Musk, which will be the first step towards a new trend.

However, other carmakers have come up with models that are sold at the same price or even offered at lower prices. As for the major competitors in the industry, the most serious rivals may be models offered by Daimler, Ford, Nissan Leaf, Kia, and Chevrolet (Breuninger, 2017). Eisler (2016) stresses that Toyota’s hybrids also represent serious competition, as its Prius models are cheaper and have become quite popular in the USA. As for all-electric vehicles, Smart Fortwo Electric Drive costs $20,000, which is the most attractive price for an electric car. Nissan Leaf, which is one of the primary competitors of Tesla’s models, can be purchased for over $30,000. While this is quite a high price, it is still lower than the Model 3, which is slated to become a mainstream car.

Regardless of particular difficulties, Tesla remains one of the most innovative companies. For instance, Tesla’s Model S was equipped with an Autopilot technology in 2014 (Dikmen & Burns, 2016). This option was soon offered in all Model S cars. Dikmen and Burns (2016) note that drivers report some downsides of the system (e.g., speed control, errors in detecting lanes), but they still find the vehicle comfortable. This model is characterized by a high level of popularity among customers.

Since 2014, the company has continued to develop its recharging facilities. Its supercharge points can recharge any Tesla model within 30 minutes (Eisler, 2016). It is noteworthy that these recharging points can be used by Tesla vehicles only, which leads drivers and other carmakers to criticize the practice.

The company has continued its efforts towards expansion and collaboration. It reached the Australian market after 2014. Tesla showrooms are now available in some Australian cities (Voigt, Buliga, & Michl, 2016). The company is also developing its recharging facilities to make their customers’ driving experiences more pleasant. Finally, Tesla continues to sell electric car components (battery packs and associated products) to other carmakers. In addition, Tesla earned $51 million, selling its ZEV credits to other companies.

Communication with existing and potential customers has remained unchanged since 2014. Tesla uses its showrooms and social networks to share news, receive feedback, and so on (Voigt et al., 2016). Again, this practice is consistent with the manufacturer’s culture, as traditional channels are not used to communicate with consumers. Online services and communication are preferable channels for young adults and many adults. These people are also environmentally conscious, which makes them a target population of the company.

As for the major messages delivered, they have changed slightly. Before 2014, the focus was on the speed and efficiency of Tesla models. At present, Musk still devotes most of his attention to these features, but he also draws people’s attention to such areas as environmental sustainability and prices (Hern, 2016). When speaking about Tesla’s new model, the company’s co-founder claims that the Model 3 will become an affordable electric car that will lead to a major shift in society. The company’s CEO believes that people will become more environmentally friendly and will try to use corresponding practices. Electric cars are regarded as the future of both the US market and the entire society.

In conclusion, it is clear that Tesla has pursued a consistent strategy since its first days. The company focuses on innovation and sustainability. The carmaker continues its expansion, and its cars and recharging facilities are already in all major markets. The most recent trend is Tesla’s focus on the development of a mainstream model, but it is associated with certain operational issues. The company faces various issues related to the production process, as its facilities seem to have insufficient capacity. However, interest in Tesla models is on the rise, and people are still willing to buy luxury models and wait for the development of the promised affordable vehicle. The existing trends also create various opportunities for electric carmakers. Therefore, Tesla is likely to remain one of the leaders in the market if it addresses the existing gaps.

References

Breuninger, K. (2017). 5 electric alternatives to Tesla’s Model 3. CNBC. Web.

DeBord, M. (2017). The Model S is still Tesla’s best car – here’s why. Business Insider. Web.

Dikmen, M., & Burns, C. (2016). Autonomous driving in the real world. In Proceedings of the 8Th International Conference on Automotive User Interfaces and Interactive Vehicular Applications – AutomotiveUI’16 (pp. 225-228). Ann Arbor, MI: ACM.

Eisler, M. (2016). A Tesla in every garage? IEEE Spectrum, 53(2), 34-55.

Hern, A. (2016). Tesla Motors receives $10bn in model 3 pre-orders in just two days. The Guardian. Web.

Van Den Steen, E. (2015). Tesla Motors. Harvard Business School, 9-714-413, 1-26.

Voigt, K., Buliga, O., & Michl, K. (2016). Business model pioneers. San Francisco, CA: Springer International Publishing.

Numerous companies are facing soaring demand for their products and need to implement certain changes in order to meet it. One of the typical examples is the automobile industry, as multiple companies which had long been betting on electric vehicles finally got a chance to prove their efficiency as a business. The demand has skyrocketed, and local producers are rapidly searching for new models which can allow them to ship substantial amounts of their goods and car components to regions where they do not currently have plants. Tesla and multiple Chinese electric vehicle manufacturers represent an excellent example of companies facing such a challenge.

Tesla has plants only in the US, a few European countries, and in Shanghai. It is clearly not enough given the rising popularity of the new type of vehicles. The company cannot afford to waste time on inefficient shipment routes. In a couple of years, numerous electric car producers will emerge all around the globe, and it will become much more challenging for an American company to penetrate some markets. Thus, shipping its vehicles and parts to Latin America, Eastern Europe, Asian countries, and cities across China is becoming central to the company’s future success. The Transportation Model described in “Business Analytics: Data Analysis & Decision Making” alongside other optimization models provide the best solutions. The tools which are illustrated by Albright and Winston (2016) can help any local car dealer, distributor, or car service to establish an efficient network that ensures consistent shipment of Tesla vehicles and car parts to a particular country. Cooperation with local businesses specializing in electric cars should become one of Tesla’s major objectives.

The company relies greatly on the timely shipment of its batteries, as they are a major component in its vehicles and, at the same time, represent the company’s competitive edge. Moreover, unlike cars with a combustion engine, electric vehicles rely greatly on infrastructure, which includes proper roads, charging stations, and care services. Therefore, Tesla’s management should focus on Transportation Model as the main tool of addressing all the numerous logistic issues that will arise if they want to replicate their success in the US and Norway.

References

Albright, S. C., & Winston, W. L. (2016). Business analytics: Data analysis & decision making (6^th ed.). Cengage Learning.

Introduction

New technological innovations offer many opportunities for businesses to improve their products or services. However, they also entail various technology risks that have to be managed to ensure the safety of users and prevent damage to the company, whether reputational or financial. Consequently, studying cases where new technology risks were not managed adequately helps to identify practice gaps and develop strategies that could help to prevent future failures. The present paper focuses on Tesla’s autopilot technology, which has been blamed for lethal traffic accidents. As the analysis carried out in this paper will show, the company failed to manage the technology risk and should improve its practices in the future to avoid similar incidents.

Background

Tesla is an electric car manufacturer that is famous around the world for its designs and innovations. The company was founded in 2003 by Martin Eberhard and Marc Tarpenning, who were both engineers (Reed, 2020). At the time, electric cars were still new to the market; however, General Motors got positive results during its market experiment with electric vehicles, which inspired the two engineers to start their company (Reed, 2020). In 2004, Elon Musk invested $30 million into Tesla, which made him the chair of the Board of Directors (Reed, 2020). Tesla was innovative in many ways, and this helped the company to achieve popularity both in the United States and in other countries. Firstly, the company was the first to produce a fully electric car that could meet consumers’ needs. As explained by Reed (2020), “previous experiments in this field had failed because, among other issues, companies struggled to produce a battery powerful enough to keep cars on the road and a cost-effective motor that could fit inside a consumer vehicle and accelerate it to highway speed” (para. 8). Secondly, Tesla was able to improve the battery of its cars over time, leading to reduced charging times (Reed, 2020).

Another critical innovation implemented by Tesla was autopilot. The technology is described as “an advanced driver assistance system that enhances safety and convenience behind the wheel” (Tesla, 2020, para. 1). The company warns that the features currently included in their cars do not make them fully autonomous, and thus drivers should still keep their hands on the wheel and be ready to take over at any moment (Tesla, 2020). Nevertheless, this innovation is crucial in the contemporary world because it enabled the automobile business to step closer to creating fully autonomous vehicles.

Autonomous Cars Risk

Cars with autopilot features are among the examples of technology that has many benefits while posing potential risks to the health and safety of users. On the one hand, driverless cars are believed to contribute to road security because they could reduce the risk of traffic accidents. According to McDonald (2013), many car accidents occur due to the drivers’ mistakes, whether it is distracted driving or driving under the influence. Therefore, it is believed that autonomous cars will help to prevent accidents stemming from human error. For drivers, autonomous vehicles are highly beneficial because they enable people to drive larger distances without feeling tired or use their daily commute time to do other things. For car manufacturers, driverless cars are a crucial market opportunity because they could be sold at higher prices, thus bringing more revenues.

Nevertheless, there are also various risks associated with autonomous vehicles. For example, Demmel et al. (2019) state that, like many other technologies, automated driving features can malfunction, resulting in sensor, hardware, or actuator failures. Because drivers rely on autopilot to work perfectly, they do not anticipate these situations and engage in non-driving tasks like reading, playing games on their smartphones, or even sleeping (Demmel et al., 2019). Consequently, in case of a malfunction or a sudden change in the traffic environment, drivers may not react as quickly as needed and prevent the collision (Demmel et al., 2019). This means that autonomous vehicles require rigorous risk management to protect the safety of drivers and passengers while also shielding manufacturers against liability.

When it comes to autonomous vehicles, risk management is complicated by the increased number of actors and their responsibilities. For instance, as explained by Thom (2015), the mechanism by which autonomous driving is carried out “involves governmental authorities supplying a constant stream of data about roadway and traffic conditions and facilitating the broadband radio communications that inform individual vehicles of their traveling neighbors’ behaviors on the roadway” (para. 11). The signals are then interpreted by onboard technology in automated decision-making. Due to a large number of interfaces and instruments involved in driving an autonomous car, risk management consists in evaluating and controlling a wide array of risks, from network malfunctions and system glitches to sudden changes in road conditions.

Tesla Model S Crash

Based on the information above, it is far from surprising that Tesla’s vehicles featuring autopilot technologies were involved in several accidents over the years. The first fatal crash involving Tesla Model S in autopilot mode occurred in Florida in May 2016 and killed the driver named Joshua Brown. According to McFarland (2016), “as a tractor-trailer turned in front of Brown, his Tesla plowed ahead — its roof striking the underside of the trailer and passing underneath it [and] continued to drive, striking two separate fences and a utility pole before finally stopping” (para. 1). Not only did the technology fail to recognize another vehicle on the road – it was unable to stop even after the collision had already happened. The story resonated throughout the United States, making people wary of using the feature.

The evaluation of the incident showed that Tesla’s technologies were indeed at fault. It is reported that Tesla’s autopilot system is prone to such crashes due to its technical shortcomings (McFarland, 2016). Indeed, future cases involving Tesla cars in autopilot followed similar scenarios, where the cars failed to recognize a significant obstacle on the road (BBC News, 2018; Krisher, 2020). Based on the similarities that exist between crashes involving different models and the content of the discussions related to the 2016 crash, it is evident that the company was aware of the gap in its system, but failed to address it sufficiently. Furthermore, the company also did not respond to the recommendations provided by the National Transportation Safety Board in 2017 following the Model S crash, which could have helped the company to improve the safety of drivers and passengers while using autopilot (Chokshi, 2020). At the moment, the pressure on Tesla to improve its technologies is high, but it is unclear whether or not the company will be able to do so in the foreseeable future (Chokshi, 2020; Heilweil, 2020). Further sections of the paper will analyze the 2016 crash and study stakeholders’ perspectives to identify how they could have contributed to or prevented the accident.

Case Analysis

To understand the case in-depth, it is essential to identify why the current risk management efforts of Tesla failed to prevent the accident. Following the traditional five-step model of risk management, which includes risk identification, analysis, evaluation, treatment, and monitoring, could help to identify the stages at which the company’s actions contributed to the risk of the accident. From the information on the accident presented above, it appears that the primary steps contributing to the risk were risk analysis, evaluation, and treatment.

Firstly, it appears that the company has failed to identify the risk associated with drivers’ behavior while operating a vehicle in autopilot mode. According to research on such accidents, a significant share of them occurs due to both system malfunction and the inability of the driver to react quickly and take control of the situation (Banks, Stanton and Plant, 2019; Casner, Hutchins and Norman, 2016; Demmel et al., 2019). While the company accepted the residual risk of a technology malfunction, it failed to account for drivers’ response to such malfunctions, which would have been essential in preventing the accident. Focusing more on drivers’ perceptions of risk during the analysis would have allowed the company to understand that, despite warnings and claims that the autopilot feature still requires drivers’ attention on the road, excitement with technology reduces drivers’ risk perceptions (Glendon and Clarke, 2016). Consequently, people are more likely to engage in non-driving activities and get distracted, and the steps taken by the company to warn them were inadequate.

Secondly, the company’s evaluation of the risk that was identified successfully – system malfunction – was also insufficient. On the one hand, the company did not fully explore the factors that could contribute to the outcomes of technology malfunctions, including system recovery times, driver reactions, traffic operations, and more (Demmel et al., 2019; Dixit, Chand and Nair, 2016; Jeong, Oh and Lee, 2017). On the other hand, the company also underestimated the importance of this risk, which is likely the reason why it ignored the residual risk and the subsequent recommendations of the authorities on improving the system, letting crashes continue instead.

Finally, the company’s control measures were also not appropriate for the level of risk that that was involved in the case. According to reports, the company was aware of the blind spots in the system but opted not to address them or notify the drivers of the potential danger (McFarland, 2016). In other words, the company treated the risk as residual but took limited steps to control it in real-life circumstances. This approach proved to be wrong because the technologies used by competitors did not show the same performance issues, and thus Tesla had the technical opportunity to improve its system (Chokshi, 2020; Heilweil, 2020; McFarland, 2016). Furthermore, even if the company opted for accepting the risk, more information about it should have been disclosed to drivers, which would prevent them from trusting the technology entirely. Combined with other gaps in risk management, this shortcoming affected the outcomes of the accident.

Contribution of Stakeholders

The key stakeholders involved in the situation were Tesla’s management, engineers, and the driver. Each of these stakeholders contributed to the 2016 accident in different ways. The role of Tesla’s management is, perhaps, the most important, as it positioned the technology in a way that suggested it was error-proof and automated despite understanding its gaps. In contrast, other manufacturers who found similar gaps in their systems chose not to release them or branded them as semi-autonomous driving support systems (Dave, 2016). Additionally, the engineers could have contributed to the accident since they conducted tests and ruled that the system was ready to be used by the public. Finally, the driver was also involved because he overestimated the capabilities of Tesla’s technology, which resulted in him losing caution while driving and not noticing the truck when it turned in front of his car.

Hence, each stakeholder could have acted differently, and it would have helped to prevent the accident. Tesla’s management, for example, could postpone the release of the feature until the risk of the malfunction was minimal or use marketing to let customers know that the car is not fully autonomous and that drivers should never take their eyes off the road, even when the feature is enabled. Similarly, the engineers working on this feature could have altered the values required to pass testing to minimize potential risks or warned the management about possible malfunctions. The driver could also contribute to the prevention by staying focused on the road and keeping his hands on the wheel to allow for a quick response.

Conclusion

Overall, the 2016 accident involving Tesla Model S highlights how inadequate management of technology risk can endanger users’ health and safety. Based on the analysis of the case, Tesla failed to account for drivers’ risk perceptions while driving an automated vehicle, which led to the accident. The various stakeholders included in the case could have prevented the accident, but instead, their actions contributed to it. Enhancing the practice of risk management will help Tesla to avoid similar issues in the future.

Reference List

Banks, V. A., Stanton, N. A. and Plant, K. L. (2019) ‘Who is in responsible for automated driving? A macro-level insight into automated driving in the United Kingdom using the Risk Management Framework and Social Network Analysis,’ Applied Ergonomics, 81, p. 102904.

BBC News (2018) ‘Tesla in fatal California crash was on autopilot,‘ BBC News US & Canada, Web.

Casner, S. M., Hutchins, E. L. and Norman, D. (2016) ‘The challenges of partially automated driving,’ Communications of the ACM, 59(5), pp. 70-77.

Chockshi, N. (2020) ‘Tesla autopilot system found probably at fault in 2018 crash,’The New York Times, Web.

Dave, P. (2016) ‘Tesla’s ‘autopilot mode’ puts it at risk for liability in crashes,’Los Angeles Times, Web.

Demmel, S. et al. (2019) ‘Global risk assessment in an autonomous driving context: impact on both the car and the driver,’ IFAC PapersOnLine, 51(34), pp. 390-395.

Dixit, V. V., Chand, S. and Nair, D. J. (2016) ‘Autonomous vehicles: disengagements, accidents and reaction times,’ PLoS one, 11(12), e0168054.

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