A REPORT ON TESLA MOTORS

Tesla Motors
TABLE OF CONTENTS:

1. Introduction.........................................................................................................3

2. Background of Tesla Motors…................................................... 3

3. Product Overview of Tesla Motors.................................................... 4

4. Production Facility of Tesla Motors………………....................................... 4

5. Organizational Structure of Tesla Motors…………….................................... 5

6. Elon Musk as a Leader……..……………….................................................... 5

7. Overall Performance and Revenue Generation of Tesla Motors………… 6

8. Gap Analysis on Tesla Motors……............................................................... 7

9. Remedial Actions and Change Management Strategies for Tesla Motors 10

10. Current Leadership Style of Tesla Motors (Transformational L 12

11. Recommended Leadership Style for Tesla Motors (Transformational 12

12. Conclusi ................................................................................................................

11. References..........................................................................................................

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Introduction:

The inception of the automotive industry is rooted back to the formation of Ford
motor company by Henry Ford, in which the manufacturing units consist of
moving assembly line and interchangeability of equipments, brought a concept of
mass production procedures. The basic design of the car at that time till date has
not been much changed as the cars still have two pair of wheels at front and back
with similar type of chassis. However, the competitive advantage of Ford motors
had not much lived long and soon took over by the General Motors despite being
the founder of commercialized cars. Alfred P. Sloan, who was the founder of
General Motors brought a new concept of decentralized structure of organization
and advanced management concepts which offered customers with ease to select
their desired car type and design from vast product portfolio (Holweg & Pil, 2001).
From the introduction of commercialized cars till date, the technology used in the
cars have given edge to the companies who can provide better solutions and
efficient systems that can provide fuel efficiency and better performance. In
modern world, it has become difficult to survive for those companies who still
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practicing traditional management tactics and not commencing technological
advancements in their designs and manufacturing. Acquiring advanced
technology has now become a necessity rather than luxury in modern world. The
automotive giants are now working in change management concept to introduce
better solutions that are different and efficient from their competitors. Hence
implementing system capable of fulfilling the requirements of the market with
respect to advance technology requires effective and efficient management.
These changes in the system are like changing the overall operations of the
company regarding its marketing, services, productions and sales (Dessler &
Phillips, 2007). The change management concept consists of modification in the
actions of the company as well as technologies and methods to obtain the desired
goal of the company just as changing the business environment of the company
from inside and outside in order to attain high profitability. These changes are
associated with the adaptation change, control change and effecting change. In
this report, we will examine the business model of Tesla Motors, the journey of
the company in terms of introducing novel concept in traditional automotive
industry and the change management concept.

1. Background of Tesla Motors:

Tesla Motors is the company that is pioneer in designing, manufacturing and

selling battery electric vehicles (BEV) along with other equipments related to BEVs
such as battery chargers and powertrain technology. Tesla Motors came into
being existence in San Carla, California, 2003, by the founding members Marc
Tarpenning and Martin Eberhard. Soon the company was purchased by Elon Musk
by investing $7.6 million with only one aim to manufacture totally battery based
electric car that can generate 0% toxic emission and perform efficiently with
minimum energy consumption, that is why Tesla Motors is totally different from
traditional car manufacturing companies as its cars have state-of-the-art highly
integrated technology with eco-sustainability (TeslaMotors.com, 2017).

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2. Products Overview of Tesla Motors:

Tesla motors initially launched its first electric car “Roadster” in low volume and
high price. Soon after getting recognition from the market, Tesla launched two
new models “Model S” and “Model X” fall under the category of sports utility
vehicle and sports sedan. Recently, the company has launched its latest electric
vehicle “Model 3” having most advanced technology with fully auto driving
feature and over-the-air upgrades of software that can make this car safer than
the actual human driver (Express, 2017).

Image 1: Tesla Roadster 2.5 S (2011)

Image 2: Tesla Model S P90D (2013)

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 Image 3: Tesla Model X P90D (2016)
Image 4: Tesla Model 3 (2017)

3. Production Facility of Tesla Motors:

The first production facility of Tesla Motors is situated at Fremont, California. This
facility was purchased from Toyota Motors which has total area of 370 acre. The
company has expanded its tentacles in Tilburg, Netherlands, where it opened its
second assembling facility that can supply its products to whole Europe
(TeslaMotors.com, 2017). Now the company is planning to launch its first
Gigafactory that will have the capacity to produce over 500,000 vehicles and
enough battery packs that can meet the demand of its electric cars per year by
2020 (Business insider, 2017a).

4. Organizational Structure of Tesla Motors:

Tesla Motors is based upon the functional organizational structure where the
divisions of the company are headed by their respective chief operating officers

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and vice presidents. However, the other forms of organizational structures are
present in bottom-line of the management hierarchy. The functional structure is
also termed as centralized hierarchical structure where the command and control
of the whole company can be monitored from a central point consisting of all
departments’ heads (Julian et. al., 2010).

Figure 1: Typical structure of Functional Organization

The Tesla Motors consist of three major pillars of the management which are as
follows (TeslaMotors.com, 2017):

1) Elon Musk (C.E.O, Chairman of Board, Product Architect).

2) JB Straubel (Chief Technical Officer).
3) Deepak Ahuja (Chief Financial Officer).

5. Elon Musk as a Leader:

The Leadership is a characteristic of the person that drives the motivation of the
followers in order enhance their capabilities and influence them to work together
to achieve the desired goals beneficial for all (Vroom & Jago, 2007). Elon Musk
(C.E.O of Tesla Motors) have proved that he is a successful entrepreneur and
influential leader who converted his dreams into reality by achieving every single
target one by one from the success of PayPal to SolarCity and from Tesla Motors
to SpaceX. There are two types of leadership, in which one is transactional
leadership and other is transformational leadership. The transactional leadership
concentrates on receiving rewards in exchange of the efforts of subordinates. On

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the other side, the transformational leadership concentrates on intrinsic needs; in
other words, going beyond the acquirement of short term goals. The
transformational leaders have four features such as inspirational motivation,
idealized influence, individualized consideration and intellectual stimulation
(Podsakoff et al, 1990). Consequently, Elon Musk has all these four features
making him a transformational leader.

6. Overall Performance and revenue generation of Tesla Motors:

Despite being the most innovative company, Tesla Motors is still trying hard to
penetrate in the market in order to change the concept of external stakeholders
by avoiding the use of conventional gasoline car and start using new fully electric
vehicle. But the market is vast and the product is still in the development phase.
By only considering the overall sales of passenger vehicles in 2016, it has been
observed that over 74 million vehicles were sold and three major players of
automotive industrial segment (e.g. Toyota, Volkswagen and Daimler) earned
revenue more than $600 billion. The major producers of cars were China, Japan,
Germany and U.S. This shows that the automotive market has much potential but
introducing such novel product can be difficult for companies like Tesla. The
product lifecycle of Tesla Motors’ new cars are still in the initial level of growth
phase but crossed the introduction phase (see figure 2). Within the introductory
phase, the company has few or no competitors so that the resources are allocated
for the development and marketing of the new product as shown in the valley of
death curve (figure 3) but the risk of product failure is high. However in growth
stage, the product become commercialized and company start making profit from
the launch of its product (Onkvisit & Shaw, 1986).

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 Figure 2: Product Lifecycle Curve

Figure 3: Valley of Death Curve

However, it is an alarming situation for the management of Tesla Motors that the
company has reached at growth phase and still not earning the desired amount of
profit. The target of Tesla Motors is to produce 500,000 cars every year by 2020.
In that case, the company should take further steps with change management
strategies and result-oriented environment that can help in achieving the desired
target. The fact is that the production of such amount of vehicles by 2020 per year
is not so farfetched according to the size of the market if proper steps are taken.
But at this stage, the overall sales of Tesla Motors can contribute only 1% to the
total sales of cars in 2016 (Statista, 2016).

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 Figure 4: Stats of total Cars sales in Billions of Dollars (Statista, 2016)

7. Gap Analysis on Tesla Motors:

Being a revolutionary company does not mean that all odds will be in favor of that
company, but there are always loopholes and gaps present between the desired
outcome and actual outcome. In case of Tesla, the company is currently facing
tremendous amount of pressure in terms of sales, revenue and manufacturing.
The third quarter earnings report have shown very disappointing figures which
forced the C.E.O to review his decisions and implement change management
strategies that can help the company to overcome the issues (NBC News, 2017).
In this report we will perform the Gap Analysis upon Tesla Motor’s to examine the
difference between current and desired results.

The process or tool “Gap Analysis” is implemented within the organization to

explore the variations and gap between the current working conditions of the
system and what actually the system should work according to desired plans. The
major function of the gap analysis is to first identify the gaps and root causes for
the gap and then recommend remedial action in order to fill out the gaps
(Anthony, 2012).

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The first step of typical gap analysis is to first locate the performance problem in
any segment and in second step the root cause should be identified which is
causing performance hindrance. In third step, the recommendations or solution
should be presented in order to rectify the issue.

Figure 5: Typical flow chart of Gap analysis

Gap analysis is used where the performance of current scenario is not meeting
the expectations of the company and where the dissatisfaction of the customers
are present which enforces the management to mitigate the unhappiness at
clients’ end and improve the overall quality of the product (Franklin, 2005).

7.1. Identified Gaps in Tesla Motors:

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During the decade, Tesla Motors have faced many challenges as well as positive
aspects, such as in 2008, Tesla faced very crucial time which was near to
bankruptcy. On the other hand, also become a $30 billion market cap
organization. This is considered to be one of the major triumphs in business
history that penetration in automotive industry is very difficult but Tesla Motors
managed to do so (Business Insider, 2017b). But at present, Tesla motor should
do more in order to survive in the market as there are major obstacles present
within the company with respect to sales, manufacturing and management. These
major obstacles and gaps are mentioned in this report which will be further
assessed for better solutions.

7.1.1. Organizational Structure of Tesla Motors:

As mentioned earlier, Tesla Motors is based on functional organizational structure

where each head of the department controls the hierarchy of employees of that
particular department. However, this type of structure is not feasible for such big
enterprises because due to its rigidity, it is not possible to take swift decisions and
take prompt actions. The vice presidents cannot observe the tail end problems
which take place in regional markets as the upper management is just controlling
from a centralized location. Therefore, the management work by coordinating
across the functional boundaries is also considered to be a challenging task
especially when the organization is growing and spreading its tentacles in various
geographical locations (Back, 1992).

7.1.2. Lack of Result-Oriented Environment and Job Security:

Result-oriented work environment and job satisfaction are the major aspects that
bind the employee with the organization and essential for making good employer-
employee relationship. Recently, Tesla Motors have fired around 400 to 700
employees from its Fremont Automobile factory, California. This figure makes up
1% to 2% employees from its total figure of 33,000 people. The fired people were
mostly workers, technicians as well as corporate managers. According to Tesla, it
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fired the employees due to dissatisfactory production results and performance
reviews (Fortune, 2017). However, this creates a negative impact on the minds of
rest of the employees as the job satisfaction and result-oriented work
environment are the integral part behind good performance that encourages
employees to perform better (Hoppok & Spielgler, 1938).

7.1.3. Malfunctioning in Product:

There were many incidents reported upon the malfunctioning of auto-driving

system of the Model S cars. This impacted the reputation of Tesla Motors which
claims that the auto-driving feature is safer than actual human driver. Some
incidents were reported in China and US as well. One motorist from US had died
due to the car crash resulted from the malfunctioning of auto-driving system. As
these incidents continue to be reported then it will create a much long-term
impact upon the reputation of the company (RepRisk Report, 2016).

7.1.4. Problems with Manufacturing, Supercharger Network and Car Dealership:

Elon Musk’s idea of mass production of electric vehicles also needs special
scenarios that can foster the usage of these cars on roads. As these cars does not
required traditional gasoline fuel but they require electricity to charge their
batteries. In this case, the large distribution network of Superchargers is required
across the area where they are selling their product. The target of Tesla Motors to
produce 500,000 cars per year by 2020 needs many of these Supercharger
stations to cater these electric vehicles (Business Insider, 2015). Another issue is
slow production of Model 3 due to supply chain issues of battery packs and other
bottlenecks. The C.E.O elaborated the production of Model 3 as “Production Hell”
as the execution of the project is not as according to the plan. The major hurdle in
production is occurring due to the unavailability of large amount of battery packs.
The Gigafactory is still under construction which also causes great difficulty in

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meeting production targets (Business Insider, 2017b). Another issue with the
Tesla is that the company is not franchising its car dealership to the other third
party businessmen as the company has decided to sell its cars through its own car
showrooms and outlets all over the world (Business Insider, 2017b).

7.1.5. Unsatisfactory Reviews from External Stakeholders:

Tesla Motors had received average reviews from customers over Model S luxury
sedan which was the second launched car from Tesla Motors. At that time, it
would be among the top 10 car brands globally. But after the launch of Model X
luxury SUV, the company received much negative comments and reviews which
puts Tesla on 21st out 27th car brands, only ahead Volvo, Lincoln, Dodge, Cadillac,
Ram and GMC. The Model X was termed as the worst car with respect to its
reliability rate. This shows that the Tesla should consider such reviews on a
serious note so that it can meet the expectations of the external stakeholders
(Seeking Alpha, 2017).

8. Remedial Actions and Change Management Strategies for Tesla Motors:

Despite the major success of Tesla Motors, there are many areas in the company
which should be corrected so that optimal results can be achieved. These areas
can be corrected through change management strategies and remedial actions in
order to achieve the desired results from the employees and subordinates. Hence
change management is the formal procedure for organizational change which
includes application of knowledge and systematic approach. This procedure
means adopting and defining business methods, structures, strategies and
technologies to deal with unwanted outcomes which results from external and
internal conditions (Kotter, 1996). Below are the recommendations against the
identified gaps in Tesla Motors.

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8.1. Decentralized Structure for Tesla Motors:

As Tesla has a centralized and functional organizational structure, the

management should plan to turn the company into decentralized structure which
can help the organization to effectively communicate with the chain of hierarchy.
Decentralization can provide autonomy to overseas offices. It can also save
command time and eliminate the unwanted levels of management as the
authority can be shifted in the hands of regional managers which can result fast
decision making. This can also increase check and balance over employees as well
as fulfills the accountability criteria (Paslack, 2004).

8.2. Creating Result-Oriented Environment and Implementing Job Security:

To deal with employees’ performance situation, Tesla Motors should implement

job security and create result-oriented work environment within the organization
that can designate winners out of high performers and can reward them in public
with better incentives. This type of environment can motivate the employees so
that they can give their best output in return of appreciations and rewards
(Strickland, 2006).

8.3. Implementation of Crisis Management Plan against Malfunctioning Issues:

In order to deal with situation related to product malfunctioning (e.g. auto-driving

system), the management should dedicate a team that can communicate with
end user and collect the feedback. After the analysis of the feedbacks from
customers, the crisis management plan should be implemented so that the actual
root cause can be traced. After successful tracing of the root cause, the
recommendations should be forwarded to engineering designing team for proper
solutions. The team should also be capable for estimating the damages occurred
due to malfunctioning of the equipments.

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8.4. Redefining Supply Chain, Co-Branding on Supercharger Network and
Franchising Dealership:

Tesla Motors should redefine the supply chain management on the issue of
supplying battery packs for its electric vehicles. The Tesla Motors had already
signed partnership with Panasonic upon the manufacturing of battery packs but
the company needs more such partnerships with other battery suppliers and
technological assistance providers so that the demand of battery packs can be
met. Another issue is with the distribution network of Superchargers, as Elon
Musk is planning to make partnership with Starbucks in order to deploy his
Superchargers at Starbucks outlets (Business Insider, 2017c). But Tesla Motors
should also need more such partnerships so that the distribution network of
Superchargers can be expanded. Tesla should franchise its car dealerships to
independent car dealing businessmen so that company can save itself from extra
overheads that can be associated with maintenance of outlets, hiring of workers,
training of workers, running expenditures, outlet rents and management
expenses.

9. Current Leadership Style of Tesla Motors (Transformational Leadership):

The two major leadership styles are common in many organizations in which one
is transactional leadership style and other is transformational leadership style.
The C.E.O of Tesla Motors “Elon Musk” practice transformational leadership style
in his organization. This type of style is based on motivating employees to
perform well in order to achieve company’s goals (Judge and Piccolo, 2004). Elon
Musk usually concentrates on collaborating with employees, motivating them and
building up teams in order to achieve the desired goals. Although
transformational leadership style is praised and recommended by many authors
and entrepreneurs, but this style has some major disadvantages which are not
suitable for companies like Tesla Motor. These types of companies need strict
compliance on timeframe for meeting up the desired sales or production target.
Transformational leadership style is time consuming because time is required to
obtain a fruitful outcome. The leader must invest his time and potential in order
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to gain trust of his followers. Another disadvantage is that transformational
leadership mostly emphasizes on “what” target should be achieved but lacks in
describing “how” the target can be achieved. The command and control of such
type of leadership mainly revolves around the single personality rather than chain
of command which results in the lack of decentralization of power and control.

10.Recommended Leadership Style for Tesla Motors (Transactional Leadership):

Unlike the transformational leadership, the transactional leadership is based on

the exchanging of rewards in return of good performance from the subordinates.
These exchanges help leadership to achieve the targets that can benefit the
organization. Rewarding employees against their successful task completion
indirectly motivates employees so that company can take benefit in the form of
improvement in organizational efficiency, timely completion of project,
achievement of targets and avoidance of unnecessary risks (Bass, 1985). The Tesla
Motors is facing tremendous amount of pressure in the form of delays in
production and arrangement of automotive parts from supply chain. If this style
of leadership is implemented in Tesla Motors, then the employees will work in full
pace just to be rewarded with incentives and perks. This type of leadership style
allows the company to increase quality, increase production, reduce anxiety and
save time (Burns, 1978).

11.Conclusion:

Throughout the decade, Tesla Motors has shown that the idea of commercializing
electric vehicles on a large scale is practicable if proper measures are taken with
efficient utilization of capital and technology. The dream of the company has not
been achieved yet but the process of prosperity is on its way. However, it is quite
difficult for any newcomer to enter in the market of automotive industry where
the major players have positioned themselves firmly but Tesla Motors have
proved wrong and surviving in the market with commitments and promises. The
target of manufacturing 500,000 electric vehicles is not farfetched as the C.E.O
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has already proved himself the great entrepreneur of 21 st century. But this dream
can only be achieved if proper decisions are taken with better change
management strategies. Through proper leadership style, the company can meet
the desired target on time and can reduce the stress level and anxiety among the
minds on employees. If transactional leadership is implemented then employees
can be internally motivated and work hard so that they can be rewarded
accordingly.

12.References:

Anthony J. Jannetti, Inc., (2012), "A REPRESENTATION: INCORPORATING A

NEEDS ASSESSMENT AND GAP ANALYSIS INTO THE EDUCATIONAL DESIGN”

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REPRESENTATIONS OF OCCUPATIONAL JURISDICTION"

Bass, B. M., (1985), “LEADERSHIP: GOOD, BETTER, BEST. ORGANIZATIONAL

DYNAMICS”

Business Insider, (2015), “TESLA HAS 2 MAJOR PROBLEMS, AND THEY HAVE
NOTHING TO DO WITH ITS CARS”, by Matthew DeBord

Business Insider, (2017a), “NEW DRONE FOOTAGE SHOWS JUST HOW HUGE
TESLA'S GIGAFACTORY REALLY IS”, by Cadie Thompson

Business Insider, (2017b), “TESLA FACES 3 MAJOR TESTS IN 2017 — AND IT

HAS TO PASS THEM all”, by Matthew DeBord

Business Insider, (2017c), “TESLA WANTS TO BUILD SPECIAL CHARGING

STATIONS THAT SELL FOOD AND COFFEE — AND IT COULD BE A HUGE
OPPORTUNITY”, by Matthew DeBord

Burns, J. M., (1978), “LEADERSHIP”

Dessler, G. & Phillips, J., (2007), “MANAGING NOW”

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Express, (2017), “TESLA MODEL 3 RELEASE DATE FINALLY REVEALED AS
ELECTRIC CAR FIRM ANNOUNCES LAUNCH DATE”, by David Snelling

Fortune, (2017), “TESLA FIRES HUNDREDS OF WORKERS AFTER THEIR

ANNUAL PERFORMANCE REVIEW”

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INTELLIGENCE FOR TRAINERS”

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START WITH THE CUSTOMER”

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TRANSACTIONAL LEADERSHIP”

Julian Gasper, (2010), “INTRODUCTION TO BUSINESS – DIFFERENT TYPES OF

ORGANIZATIONAL STRUCTURES”

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FAIL”

NBC News, (2017), “IS TESLA’S MODEL 3 LIKELY TO SINK THE COMPANY?”,
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Onkvisit, S., & Shaw, J. J., (1986), “COMPETITION AND PRODUCT

MANAGEMENT: CAN THE PRODUCT LIFE CYCLE HELP?”

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RELIABILITY PROBLEMS” by Trent Eady

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Vroom, V. H., & Jago, A. G., (2007), “THE ROLE OF THE SITUATION IN
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