TESLA MOTORS-EVALUATIONG A GROWTH COMPANY Harvard Case Solution & Analysis

TESLA MOTORS-EVALUATIONG A GROWTH COMPANY Case Study Solution

Tesla is an automobile company, which was incorporated in July 2003. Company has manufactured “Roadster” as its first manufacturing vehicle. As the company has less resources and production capacity, tesla was unable to deliver the vehicle on its time. This failure had a very bad impact on company, which resulted as a change of CEO.

As the new CEO arrived, the company manufactured a new sleek designed and highly developed electronic car, which run by battery or plugging in any electric source. With this new thought and its incentives, tesla received many reservations. Due to a large number of pre manufactured order, and previous losses and a negative cash flow, company faced a serious issue of scarce resources and insufficient cash. Which resulted in slow production, some late deliveries and unable to manufacture and deliver all the reservations.

As a result, Company was facing bad financial position. So the company initiated IPO. However, company had gifted its share prices to its managers and employee as their incentives and soon they reached to the position of High Short Interest Ratio. This situation had given options to the company, either to take benefit from this situation or to lower the investments performance.

To conclude, it is recommended that company should focus to decrease its operating and revenue costs, along with capital expenditures. Company should also increase its production capacity by investing into acquisition of successful and Production Company, which will increase the production resources and production capacity of tesla. Company should take benefit from this opportunity and make most wise decisions in the favor of the company to increase its worth and investments opportunity.

INTRODUCTION:

Tesla is an automobile company, incorporated in July 2003. First production of the company was “the Roadster”. With the pre-sales of 570 Roadsters, company promised to deliver the vehicle by June 2007. However, the delivery wasn’t made until Feb, 2008. This situation resulted in significant cost overruns.

With the low cost and high energetic development of lithium-ion battery packs, portfolio for future foundation vehicles were developed. A new electric vehicle model was announced in 2009, named as Model S sedan. As soon as this model was introduced, company received tons of reservations, that promised to deliver from 2009-2012. As this model is cos effective and highly developed electronic car for consumers.

However, from Tesla’s inception to 2009, company was not able to generate enough cash to build an electrical vehicle that is, the Model S.Using all the financing and funding resources available, company faced many challenges for the development of new model, as well as its distribution and delivery.

With all the financials and management issues happening in the country, company is facing a high short interest in ratio, which increase the temporary value of shares. This temporary high rate increase in the shares have challenged the management of company to make the opportunity to increase its future growth or to lower the investment performance.

DISCUSSION:

Due to the late delivery of Tesla’s first ever vehicle, Roadster, the CEO was changed. Elon Musk was an entrepreneurial legend, who had sold many previous ventures. He set the company’s goal to sell sports car, with that money made an affordable car and to provide zero emission electro power generation. With this goal, company produced lithium-ion battery system, which were cost effective and high energy provider. This development regain the lost trust to customers.

In 2010, company entered into relationship with Toyota and developed a full powertrain system for Toyota’s car manufacturing. In return, Toyota will facilitate tesla by sourcing parts and production and engineering experts for Tesla’s upcoming car, Model S.

Due to late deliveries of Roadster, company had generated loss from the day of its incorporation to 2009 of $236.4 million, while earning revenue of $108.2 million. This results in insufficient cash for manufacturing Model S sports car. The following funding policies were used by the company:

  • Financing by Daimler, which resulted in 10% stake in the company
  • $465 million loan from U.S department of Energy.
  • Tesla raised an additional $100 million from equity.

Tesla was planning to enter into Global Electric Vehicle Market by manufacturing Model S. as this market is growing from a CAGR of 135%. In 2011, with an increased demand of consumers, electrical vehicle comprises 0.1% of total global production.

As soon as Model S was revealed to the public, 500 reservations were received in a day. And in 9 months, the reservations increased four times of that amount. Reservations payment were increasing by 64% CAGR.

Purchasing a Model S have many advantages. Some of them are:

  • Electro vehicles are solely dependent on batteries that are easily charged by plugging into electric power source. This vehicle will save the fuel cost up to $1800 per year for a car.
  • Electronic vehicles are categorized at zero emission vehicle, as they produce no exhausts to the environment.
  • Sleek design and leading performance of Model S. which have attracted the consumers and viewers.
  • Under the US law of driving electronic motor vehicle, a person may get federal tax creit up to $7500. Model S was qualified for full credit of $7500.
  • Local incentives will also be provided to the buyers of electric vehicle including, reduction in home electronic bill, free parking etc.
  • Incentives of zero omission vehicle and greenhouse gas credits and low interest rates.

Unlike its competitors, Tesla provided up to 265 miles on a single charge, due to the larger battery packs installed in their vehicles. Own charging network was developed by Tesla, named as Supercharger network that facilitates free services for the cars having large batteries up to 85 kilo-watt hour batteries. With the use of Tesla’s own developed battery, cylindrical lithium-ion cells, tesla offer greater complexity to its competitors. This includes cost advantage to Tesla from its competitors.....................

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