Tesla has witnessed popularizing challenges despite closing the year on a high note. The company had outlined its initial progress reports seeking to expand its production faster than expected in both the Shanghai GigaFactory and In Germany. More specifically, the top challenges faced by the company entail technological challenges embedded in Elon Musk’s, the company CEO, vision of advancing full self-driving automobiles. As such, the company has had a tough time integrating features that include response and recognition to stop signs and traffic lights. In retrospect, the company has been postponing these new features for months in a bid to achieve an above-zero chance of accidents and driver interventions. This is the case with appliances used for the models, especially batteries that ought to have a steep ramp of production, improvement, and performance per kilowatt. Accordingly, Elon Musk has outlined these challenges as fundamental and extremely difficult. Besides, other notable problems the company faces are linked to their customers and market base, where questions regarding the company’s profitability, valuation, and demand for their products remain evident. This paper, therefore, makes a detailed analysis of the problems and issues facing Tesla in reference to internal and external demographics.
State of the car industry (characteristics and Challenges before Tesla)
Over the years, the car industry has been characterized to be cyclical, and much is attributed to the decline of sale. The industry, in general, has had downturn cycles of bust periods and built-in boom periods. Following the 2008 financial crisis, the industry has experienced an unprecedented and unusual decline in sales to a tune of 40 to 50 percent. Also, the industry has witnessed a comparative integration of technology to incorporate various safety and driver-assist features that happen to attract even more customers. Broadly, customers in the industry have mounted new business models to multiple vendors and manufacture as they yearn for specific functionality and re-assuring features in their automobiles. Before Tesla entering the market, the car industry had notable challenges, especially in regards to environmental impacts that include gas emissions, fuel economy, affordability, and Safety (Bakker, 2010). Therefore, most car manufacturers have been affected when selecting the materials for their automobiles that should be light and durable, yet environment friendly. Also, carbon dioxide emission from motor transport has been an issue of debate as they accounted for roughly 20% of the total emission as reported by the European Union.
How Tesla challenge and disrupt the traditional business model of the automobile industry
Although the company is experiencing growth challenges, Tesla has been open and invited criticism subject to its ambitious goals and its vision as the future of the automotive industry. Following its initiation, the car industry, including already established and large automakers have experienced rapid changes hence their recent shift to hybrid electric cars. Today, automakers are vast in exploring the potential of autonomous vehicles and the incorporation of Artificial Intelligence (AI) in cars. Notably, the electric car was never invented by Tesla but Scottish inventor Robert Anderson in 1832. Nonetheless, Tesla has become synonymous with electric vehicles as they have played a significant role in its promotion, pioneering, and popularization from 2003 when the company was founded. Consequently, notable manufacturers were not keen on electric cars until 2008 when Tesla announced their first luxury and an electric car called the Tesla Roadster. Tesla’s move motivated other automakers to major and embark on eco-friendly and low emission cars, thus their rapid development and investment in electric cars. According to Brian Loh of McKinsey&Company, Tesla set the pace for innovation and made the competition in the industry reach an all-time high with every automaker aiming to be successful in the next era (Gao, Kaas, Mohr, & Wee, 2016).
The rationale behind the acquisition of Solar City
The acquisition of SolarCity was motivated by both company’s efficient and easier collaborations on joint efforts on the change of Solar Roof and the Solar markets. To many, the merger with SolarCity was a bailout with many criticisms linked to the merger agreements that saw Tesla acquire SolarCity, as well as its debt holdings amounting to over $3 billion (Mayfield, & Siriwardane, 2018). This reasoning, however, is far fetched as the acquisition means that Tesla would be able to shift from leasing to selling solar energy systems hence able to minimize the cost of marketing and advertising their solar products. Also, among the significant challenges facing the company entails sourcing challenges and batteries that are sourced from the far East compounding on their quality and supply problems. On the other hand, the acquisition of SolarCity adds up on Elon Musk’s original Master Plan, which entails expediting the move from a mine and burn hydrocarbon economy towards a solar electric economy offering sustainable solutions.
How Tesla can convince investors given it’s current profit margins
Wall Street has not been lenient with Tesla as their stock prices, as well as their profit margins, have been falling over the years. Nevertheless, Tesla can convince investors by focusing on their revenue, the company’s progress, and short-term cash reserves as propagated by analysts (Larcker, & Tayan, 2011). On revenue, technology analysts Colin Rusch speaks on the need for the company to increase its gross margin, more specifically that of the Model 3. On progress, the company should also illustrate its worth to investors showing what it is doing with its working capital.
To sum up, Tesla has been a critical player in the automotive and car industry. Following its entry into the market in 2003, the company has brought about significant changes to the industry as well as warranted other key players in making electronic vehicles and autonomous vehicles. Tesla disrupted the car industry and set precedence for competition and room for innovation as other companies joined the race to include technology and artificial intelligence in car making. On the contrary, Tesla has had numerous challenges, including batteries, which motivated Elon Musk’s acquisition of SolarCity in 2016. Accordingly, the acquisition warranted efficient and easier collaborations and joint efforts on the change of Solar Roof and the Solar markets. While Tesla acquired an enduring debt from SolarCity, this acquisition is viable in reference to Tesla’s vision of having a sustainable environment and automobile
References
Bakker, S. (2010). The car industry and the blow-out of the hydrogen hype. Energy Policy, 38(11), 6540-6544.
Gao, P., Kaas, H. W., Mohr, D., & Wee, D. (2016). Disruptive trends that will transform the auto industry. McKinsey & Company, 1(January), 1-9.
Larcker, D. F., & Tayan, B. (2011). Tesla Motors: the evolution of governance from inception to IPO. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-15.
Mayfield, E. S., & Siriwardane, E. N. (2018). Tesla-SolarCity.
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