MBA FPX 5910 Assessments 4 Capstone Project

MBA FPX 5910 Assessments 4 Capstone Project

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Capella university

MBA-FPX5910 MBA Capstone Experience

Prof. Name

Date

Executive Summary

Tesla Motors is a luxury electric vehicle manufacturer that began selling cars in 2008. The company’s iconic models, such as the Tesla Roadster, Model S, and Model X, have transformed the automotive industry, offering an all-electric solution that caters to high-end consumers. Headquartered in California, Tesla has established operations worldwide. In January 2019, the company initiated the construction of Gigafactory Shanghai to meet the increasing demand for more affordable versions of the Model 3 in the region (Tesla, 2019).

Tesla has gained a competitive edge in the global market by providing unique and unmatched products. However, the company has been facing significant quality and delivery issues, which have eroded its once-dominant market share. Management has prioritized profit margins over delivery, performance, and product quality, alienating a loyal customer base. To address these challenges, Tesla’s leadership must find ways to improve global collaboration across teams and restore the superior quality and performance that Tesla customers expect. Additionally, Tesla needs to develop contingency plans to strengthen its other product lines in case it loses dominance in the electric vehicle (EV) market.

Introduction

This paper aims to explore how Tesla, Inc. has maintained its leadership position in the EV market despite the intense scrutiny it faces globally. The paper will also investigate whether Tesla can sustain its business through other product offerings if its dominance in the EV market diminishes (Barcom, 2019). Failure to adapt could have catastrophic consequences not only for the company but also for Tesla EV owners, as maintenance is exclusively performed by Tesla. This proposal, accompanied by strategies, data scope, and action plans, presents a method for leveraging Tesla’s independent product lines to retain market share and ensure long-term survivability. These strategies and plans are derived from the concepts and methods learned in this MBA program and will be conveyed through a detailed analysis of Tesla’s product lines and survival strategies.

Background and Current State

Tesla Motors is a luxury electric vehicle manufacturer that started selling cars in 2008. The introduction of the Tesla Roadster, Model S, and Model X has revolutionized the automotive market. The company, headquartered in California, operates globally. In January 2019, Tesla began constructing Gigafactory Shanghai to increase production and meet the demand for a more affordable version of the Model 3 in the local market (Tesla, 2019). Despite its innovative product offerings, Tesla has faced numerous quality and delivery challenges, costing the company a significant portion of its once-dominant market share. Tesla’s leadership has focused on maximizing profit margins at the expense of product quality and performance, which are key expectations of its customer base. To regain its position, Tesla must enhance collaboration across teams worldwide and reestablish the high standards that initially set it apart from competitors.

Table: Tesla PESTEL Analysis

Element	Factor	Business Impact
Political	– Environmental Protection Agency (EPA) Green Initiative	– Incentivizes consumers to buy electric vehicles, enhancing market appeal
	– Federal and State tax incentives for electric vehicle purchases	– Increases affordability and demand for Tesla vehicles
Economic	– Lower battery costs	– Decreases production costs, making electric vehicles more affordable
	– Exchange rate fluctuations	– Affects Tesla’s revenue from international markets
Sociological	– Growing popularity of environmentally friendly transportation	– Expands Tesla’s target market, appealing to eco-conscious consumers
	– Social attitudes towards autopilot technology	– Safety concerns after crashes negatively impact Tesla’s market perception
Technological	– Technological advancements by competitors	– Competition pushes Tesla to innovate faster to maintain its market leadership
	– Research and development of solar energy and battery technologies	– Focus on renewable energy enhances Tesla’s sustainability credentials
Legal	– Vehicle dealership sales regulations	– Limits Tesla’s ability to sell directly in certain states
	– Lawsuits related to autopilot crashes	– Legal costs and negative publicity damage Tesla’s reputation
Environmental	– Rising consumer demand for eco-friendly products	– Increases market opportunities for Tesla’s sustainable energy products
	– Recycling initiatives for batteries and vehicle components	– Improves Tesla’s environmental standing and reduces production costs

Tesla’s Ethical Issues in the EV Market

Tesla, Inc. faces several ethical issues in the electric vehicle (EV) market, with trust, quality, and leadership being the most significant. The trust issue emerged when Tesla sold previously registered vehicles to companies in Germany, compromising the eligibility for electric vehicle tax incentives. NextMove, an EV rental company, ordered 100 cars from Tesla but canceled most of the order due to receiving used cars with multiple defects. These issues led to a breach of trust, as customers expect new, high-quality products from a company like Tesla (Hyatt, 2019). Despite Tesla’s claims that the problem stemmed from a “temporary system issue,” the damage to its reputation had already occurred (Hyatt, 2019).

Quality concerns further compound Tesla’s ethical dilemmas. Employees in the company’s “tent” manufacturing facility claimed they were forced to take shortcuts to meet aggressive Model 3 production targets (Kolodny, 2019). These shortcuts resulted in subpar products, with customers reporting defects such as condensation in headlights and paint imperfections (Hyatt, 2019). The compromise in quality not only affected customer trust but also diminished Tesla’s market share globally. A company’s leadership is responsible for maintaining product standards, and in Tesla’s case, it seems that the pursuit of profit has taken precedence over delivering high-quality vehicles.

Tesla’s leadership, particularly CEO Elon Musk, has also contributed to the company’s ethical problems. Musk’s behavior, such as his social media posts and the lack of transparency about quality issues, has created confusion and uncertainty among consumers and stakeholders. A prime example is the Securities and Exchange Commission (SEC) lawsuit after Musk hinted at taking Tesla private, a move that could have had significant market implications (Ferris, 2018). Moreover, Tesla’s failure to comment on reported quality issues further alienated customers, as new car owners reported an average of 66 problems per 100 vehicles between January 2018 and September 2019 (Matousek, 2019).

Leadership and Organizational Structure

Tesla’s leadership style has been both a strength and a liability. The company’s centralized and unitary organizational structure, led by Elon Musk, facilitates quick decision-making but also limits the ability of international offices to address local challenges. This lack of autonomy hinders Tesla’s responsiveness in different regional markets, which affects its global performance (Meyer, 2018). Despite Musk’s visionary leadership, the rigidity of Tesla’s structure and the top-down leadership style limit the ability of teams to collaborate effectively. Successful leadership requires collaboration and empowering teams to contribute solutions that align with the company’s strategic goals (Kunnannatt, 2016).

Tesla’s organizational structure emphasizes functional teams, where employees with similar skills work together. However, this approach can lead to operational challenges. For example, the high centralization characteristic of Tesla restricts the ability of overseas offices to independently resolve issues. This limitation can stifle innovation and hinder global team cooperation, which are crucial for Tesla’s long-term success in the competitive EV market (Meyer, 2018). The company must shift towards a more flexible and collaborative leadership model to enable its teams to respond effectively to global challenges and drive sustainable growth.

Strategies for Sustainability and Growth

To maintain its position as a leader in the EV market, Tesla must address both the trust and quality issues that have been plaguing its reputation. Two strategies can help the company regain its market share: mitigating losses in the EV market sector and diversifying its product lines. First, Tesla must resolve the quality issues affecting vehicles already delivered and implement risk management plans to prevent further incidents. For example, Tesla had to fix defects on over 5,000 Model 3 vehicles after consumer reports withdrew their recommendations (Olsen, 2019). By addressing these issues, Tesla can retain its customer base and minimize future losses.

In addition to improving quality, Tesla should continue to diversify its product lines. Tesla is already a key player in sustainable energy solutions, providing products such as solar panels and battery storage systems. This diversification is crucial for the company’s future, particularly if the EV market experiences a downturn. Tesla’s ability to expand its offerings beyond cars will help the company maintain profitability and relevance in a rapidly changing market (Tesla, n.d.). By focusing on sustainable energy ecosystems, Tesla can position itself as a leader not only in electric vehicles but also in the broader field of renewable energy solutions.

Tesla’s Investments and Market Strategy

Tesla has made significant investments in battery and charging technology for their electric vehicles, which they have now extended into both the commercial and residential markets, along with their solar panels. Solar energy, while sustainable, has not been extensively adopted within the continental United States until recent years. However, Tesla’s gross profit margins in the solar energy sector have not been substantial enough to sustain the company on their own. To make this strategy successful, Tesla must capitalize on its core competencies.

Tesla has a strong history of battery technology, which can be sold independently and in high volumes. Due to their green initiatives, Tesla also benefits from government support, particularly through the Environmental Protection Agency (EPA). Tesla already has a global charging network in place, which could be leveraged to sell charging time to customers of other manufacturers. As technology becomes more affordable, opportunities for Tesla in various markets will continue to grow.

Pros and Cons of Independent (Diversified) Product Lines

There are several advantages and disadvantages to having a diversified portfolio of products. Tesla offers a wide range of products that can help sustain the company should they lose a portion of the electric vehicle (EV) market. While their primary product is EVs, Tesla also manufactures powertrain components and batteries for these vehicles. Additionally, they produce solar panels and charging equipment. A significant advantage of this is that Tesla has incorporated solar energy and further battery development, which has allowed them to offer the beginnings of a sustainable energy ecosystem. This enables homeowners, businesses, and utilities to manage renewable energy generation, storage, and consumption (Tesla.com, n.d.).

The disadvantage of having various product lines is that not all of them are profitable or generate enough revenue on their own to justify production without other supporting products. For instance, Tesla’s Powerwall and solar energy products for homes and businesses accounted for only 7.9% of their Q1 2017 revenue (Tesla, 2017). Moreover, Tesla’s service product line exists only for the EV sector as a whole, not as subcomponents, and this sector faced a loss with a negative 11% margin (Tesla, 2017).

Recommendations for Tesla’s Strategic Growth

After an in-depth external analysis of the EV sector in which Tesla operates, two key recommendations emerged to help the company address its current challenges and stabilize its position in the EV market while promoting further growth in the global sustainable energy sector. The first recommendation is to reduce losses within the EV market sector, and the second is to solidify the independence of Tesla’s diversified product lines.

By addressing quality issues in the manufacturing and delivery processes, Tesla can improve customer satisfaction and investor confidence. Redirecting research and development (R&D) funds from the Autopilot program to vehicle fixes would reduce financial losses and resolve ethical concerns related to fatalities linked to autopilot failures. Additionally, offering a powerful, efficient EV with advanced technology at an affordable price would help Tesla regain a lost segment of the market (Barcom, 2019).

The second recommendation is to strengthen Tesla’s independent product lines, particularly its battery and solar energy technologies. As these technologies become more affordable, there are significant opportunities in markets outside of the automotive sector, particularly in regions where commercial electricity is more expensive. Focusing on their Powerwall technology and expanding their market presence will help Tesla diversify their revenue streams and reduce their reliance on the automotive sector.

Table: Tesla’s Product Line and Performance

Product Line	Performance	Recommendations
Electric Vehicles (EVs)	85% of total revenue (Tesla, 2017)	Address quality issues, expand product offerings with affordable, advanced models.
Powerwall & Solar Energy	7.9% of Q1 2017 revenue (Tesla, 2017)	Focus on expanding market presence and capitalize on decreasing production costs.
Service and Maintenance	-11% margin (Tesla, 2017)	Improve service quality and reduce costs by increasing operational efficiency.

Conclusion

Tesla has a diverse product portfolio that spans several sectors of sustainable energy. By far, their largest revenue stream comes from the EV sector, with automobile sales accounting for 85% of the company’s total revenue (Tesla, 2017). Despite challenges, Tesla’s continued focus on improving quality and performance, while expanding R&D for battery technology, will ensure their dominance in the EV market and enable further growth in other sectors. By listening to consumers and implementing strategic frameworks like the AFI strategy framework (Tedder, 2018), Tesla can capitalize on new opportunities and solidify its position as a leader in both the EV market and sustainable energy.

References

Barcom, G. (2019). Capstone Project Summary, PM-FPX5910 Asst 1Capstone Project Summary. Capella University.

Hyatt, K. (2019). Quality issues lead NextMove to bail on its massive Tesla Model 3 order. Retrieved from: https://www.cnet.com/roadshow/news/tesla-model-3-nextmove-german-cancelsorder/

Kolodny, L. (2019). Tesla employees say they took shortcuts, worked through harsh conditions to meet Model 3 production goals. Retrieved from: https://www.cnbc.com/2019/07/15/teslaworkers-in-ga4-tent-describe-pressure-to-make-model-3-goals.html

Tesla, Inc. (2017). Annual Report. Retrieved from: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_TSLA_2017.pdf

MBA FPX 5910 Assessments 4 Capstone Project

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