Tesla

Q:1
It was quite challenging from Tesla, Inc to have a proactive
vision about the future, technology and sustainability
combined together. Discuss the main schools of management
adopted at Tesla, Inc that fostered the use of innovation,
advanced technology and sustainability.
Answer:
Tesla adopted various schools of management to implement
its vision as followed:
 Strategic partnership management approach:
Tesla made strategic partnerships with big companies in the
automotive industry such as Toyota, Daimler, Mercedes Benz
smart fortwo E-cell and Panasonic that allowed tesla to
incorporate its technologies in those companies.
 HR management approach to innovation:
Tesla emphasised employee engagement and innovation
through various channels:
 creating a handbook that is written in a conservational
tone telling employees what is expected from them.
 Stating in that handbook to think different and achieve
new things enhance innovative thinking.
 Allowing for flexibility with even employees working
for other companies as long as it doesn’t affect their
performance at Tesla.
  Promoting Equity as performance appraisal for
employees will be against the same standards.
 Clear standards regarding the leave and vacation of
employees as stated in “No show policy” of Tesla.
 Enhanced engagement through answer bar in
headquarters that allows interactions with HR managers.

 Inspirational leadership:
Elon musk, CEO of Tesla inspired employees to do their best
whether through the vision toward sustainability or through
handbook stating that Tesla is a think different company to
achieve what never done before. Investing in research and
development and advanced technologies was obvious as Tesla
introduced such high end technologies to customers.
 Customer focused management approach:
Tesla focuses on customer preferences and takes it into
consideration that showed clearly in its car designs for each
target segment and also in providing needed electric energy
stations to complement its supply of electric vehicles.
 Vertical integration approach:
Tesla takes control on the supply chain process from design,
manufacturing and even distributing and selling directly to
end user that allows for direct interaction with customers and
avoids potential conflict of interest.
 Sustainable management approach:
Depending on renewable forms of energy and getting red of
gasoline is a core in Tesla mission either in each automotive
or energy storage and production department.
  Integrating product and service management approach:
Tesla did an exceptionally well job at not just providing
electric vehicles but also, providing means of recharging it
and follow up services from home making it a standout in the
competition.

Q:2
The personal brand of Elon Musk contributed to the strength
and marketing of Tesla’s corporate brand by which the brand
values of Tesla are matching with the values of Elon Musk
himself. Discuss this statement to explain the brand promise,
brand characteristics and brand value of Tesla, Inc. used in its
marketing approach.
Answer:
Elon Musk emphasised in the mission statement of Tesla on
the transition to sustainable energy which was a promise that
sustainability will be regarded in all products and services
offered by the company.
That reflected on the brand characteristics as follows:
 Electric Vehicles and solar-power based sources of
renewable energy and eliminating the use of greenhouse
gases and shaping the future of transportation.
 Tesla’s products were regarded as highly innovative with
smart solutions such as modern design, high-tech user
interface, all digital and touch sensitive displays.
Elon musk stated that it was necessary to introduce an
expensive product in the beginning to enter the market which
was executed by Tesla roadster race car, then introduced tesla
model 3 for mass markets in the aim of providing sustainable
electric cars worldwide.
That vision of Elon musk was obvious of Tesla’s marketing
strategy through targeting upper class business executives
with roadster and mass market with tesla 3.
Tesla’s brand value escalated aggressively spends zero dollar
on marketing Elon musk became the richest man on the planet
that Tesla was perceived in the mind of customers as
sustainable and electric automotive company with strong
brand name worldwide.
Tesla was top positioned in an industry it created as there is
no competitor offering the same electric capabilities with
luxury features.
In Tesla aim to emphasis direct interaction with customers, it
sells its own products directly without depending on franchise
partners.

Q:3
The ‘diffusion of innovation’ theory introduced by “Everett
Rogers” described the process by which an individual adopts
a new idea. Based on the news about launching Tesla’s new
smart phone, assess the market potential for the introduction
of this type of revolutionary smart phones and global effects
of Tesla’s innovation on the smart phone business.
Answer:
Elon Musk announced the release of tesla pi phone which
according to the theory will spread among individuals
gradually and inventors and early adopters are particularly the
first to come into action in this theory.
Assessing market potential as follows:
1. Market size:
Smart phone market is a huge market with size of 484.81
billion in 2022. That size reflects on the huge number of sales
and large companies that will be an opportunity for Tesla to
get a share from it as it has the financial resources required for
entry.
2. Market growth rate:
It’s forecasted to be of 7.3% growth rate from 2022 to 2029
that reflects opportunity for Tesla to growth fast in that
market.
3. Profitability:
Smart phone is a high profitability market. Tesla can benefit
from it through introduction of Pi Phone and emphasising on
its second to none features to capture a large share of it.
4. Competition:
Tesla’s pi phone will face strong competition from established
companies such as apple, Samsung and Huawei that have
broad customer bases. It will compete with its new unique
features such as solar charging, satellite connectivity and
phone brain interface from Neuralink.
5. Product and customer type:
Tesla’s pi phone is a mobile with satellite connectivity, four
camera’s, solar charging, ability to change its colour in a
modern design and a brain interface from Neuralink. That
product will be for tech-enthusiast, youth and trend lovers of
inventors and early adopters through its futuristic features.
Global effect of Tesla’s innovation on smart phone business:
 Tesla entry to Smart phone market will increase
competition with established companies like apple and
Samsung.
 Tesla introduction of new technologies such as solar
charging and satellite connectivity will force existing
competitors to adapt new technologies.
 New technologies offered by Tesla will raise customers
expectations from mobile phone market
 As Tesla adopts sustainability in its all products, that will
shift focus of competitors like apple and Samsung to
include that concept in their products.

Q:4
Strong rivalry may hinder firms from making profits. Firms
have various ways to evaluate the state of competition and
take specific competitive moves, however, Tesla used
coopetition. Analyze the widely used Porter forces of
competitive rivalry to explain how Tesla embodied
coopetition to reduce the rivalry of the existing competition.
Answer:
Porter five forces analysis of competition in electric
automotive industry:
 Threats of new entrant:
Tesla using coopetition strategy making strategic
partnerships with companies like Toyota and Dialmer
managed to incorporate its batteries in their products
and mitigated the barrier of entry by making use of
these established companies’ distribution and strong
brand name.
 Bargaining power of supplier:
Tesla made a successful partnership with Panasonic for
battery cells that allowed for mitigating bargaining
power of supplier by granting continuous supply of
needed materials.
 Bargaining power of buyers:
Through coopetition Tesla grants access to larger
companies’ customer bases like Toyota and Dialmer
also it provides unique features and emphasis
sustainability values position it well that reduces buyers
bargaining power.
 Threat of new products or services:
Tesla introduced unique and second to none strategy
integrating its electric vehicles with luxury high-end
features that reduces threat of new products.
 Competition rivalry:
Tesla coopetition with established companies in
automotive industry reduce the competition as it
partnered with Mercedes and Toyota as it introduced its
technologies in their products.
Q:5
“Tesla’s human resources management & organization culture
help the company gain a sustainable competitive advantage
through the strategic utilization of people”. Discuss how
Tesla’s human resources planning must be integrally linked to
its corporate strategy and what role might the company’s
mission, vision and values play in the selection of its
employees.
Answer:
Tesla have a corporate strategy that emphasis
innovation, technology and sustainability as core
aspects and that must reflect on the company’s human
resource planning:
 Employee selection and recruitment:
Tesla must adopt a criterion of employment based on
talents and innovative ideas’ that allow for going well
with its think different culture.
 Performance management:
Tesla adopts a good performance management system
that treats all employees equal as their performance is
valued against the same standards that aligns with
Tesla’s objectives.
 Employee training and career paths:
Tesla allows for direct interactions with HR through
Tesla answer bar and gather feedbacks on their benefits
and ask about their career paths also, Tesla needs to
provide continuous training programs.
 Employee engagement:
Tesla must focus on employee engagement whether
thought it’s ask bar with HR managers or thought hand
book that outlines employee roles and standards.
 Inclusive workforce:
As tesla aspires for an innovative workforce
diversification and including different types of
employees allows for achieving these goals.
 Role Tesla’s mission, vision and values play in
employee selection:
 Tesla’s mission that states transition to sustainable
energies provides criteria for employee selection
that must align with sustainability values and have
innovative ideas
 Tesla’s vision to build more affordable cars over
the years and becoming smarter requires selecting
talented, technology expert and smart thinking
employees
 Tesla’s values such as innovation, sustainability
requires selecting employees that are
environmentally friendly minded and align in their
thinking with innovation and technology
deployment.
Q:7
Profitability ratios:
Return on Equity Net Income / Avg.SE
(ROE)

2017 2018 2019 2020

ROE% -52.89% -21.59% -11.71% 3.88
This ratio This ratio This ratio this ratio
means means means means that
that Each that Each that Each each 1$ in SE
$1 in SE $1 in SE $1 in SE result in
result in result in result in income
income income income
increase by
reductio reduction decrease
n by by 21.59 by 11.71 %
3.88% ( or
Interpretation 52.89 % ( % ( or ( or each each 1$ from
or each each $1 $1 from SE SE generates
$1 from from SE generates 3.88 to the NI)
SE generate 11.71
generate s 21.59 Cents
s 52.89 $ Cents losses to
losses to losses to the NI)
the NI) the NI)

Analysis: Tesla managed in 2020 to generate income

from shareholders equity for the first time after losses
due to the introduction of new SUV model Y and
increases production rate to supplement the demand.

Return on Assets Net income / Avg.Total Asset

(investment) ROA

2017 2018 2019 2020

ROA % -7.82% -3.57% -2.26% 1.65

 this ratio this ratio this ratio this ratio
means means means that means that
that that every every $1 every $1
every $1 $1 from from from assets (
from assets assets ( or or funded by
assets will funded by equity and
( or generate equity and Liab ) will
Interpretation funded (losses) Liab ) will generate
by equity 3.57 cent, generate ( profit ) 1.65
and ( losses ) cent
Liab ) will 2.26 cent
generate
7.82 cent
losses

Analysis: Tesla managed over the years form 2017 to

utilize assets better as losses began to reduce from 2017
to 2019 and finally made a profit in 2020 as it managed
to utilize its assets through operational efficiency
through increases production to meet the growing
demand.
Financial leverage ROE-ROA

2017 2018 2019 2020

Financial leverage
(0.45) (0.18) (0.09) 2.23

Analysis: Tesla managed in 2020 to be a good choice

for investment with positive financial leverage as it
utilized debt to generate profits well.
Return on Capital
Employed ROCE EBIT / TA-CL (Capital employed)
 2017 2018 2019 2020
ROCE % -7.78% -1.96% -0.29% 5.26%
For each For each For each For each
dollar dollar dollar dollar
invested invested invested invested in
in Capital in Capital in Capital Capital
about about about 0.29 about 5.26
Interpretation 7.78 1.96 Cents Cents
Cents Cents operating operating
operatin operating loss is income is
g loss is loss is generated generated
generate generate
d d

Analysis: As in 2020 tesla invested capital in increasing

production capacity to meet demand and introduction of
new model Y led to profits.
Gross Profit Margin
(Sales Revenues – COGS) Gross
Ratio GPM
profit / Sales Revenues

2017 2018 2019 2020

GPM% 18.90% 18.83% 16.56% 21.02%
for for every for every for every 1$
every 1$ 1$ Sales 1$ Sales Sales
Sales revenues revenues revenues
revenues 18,83 16.56 21.02 cents
Interpretation 18.90 cents is cents is is Gross
cents is Gross Gross profit
Gross profit profit
profit

Analysis: in indicated Tesla is getting better than

previous years in operational efficiency and cost
containment.
Operating profit
margin EBIT/Sales Revenues
 2017 2018 2019 2020

OPM % -13.89% -1.81% -0.28% 6.32%

means - means - means - means 6.32
13.89 % 1.81 % of 0.28 % of % of the
of the the sales the sales sales
sales loss loss is loss is revenue is
is operating operating operating
operating expense expense or profit or for
expense or for for every every 1$
or for every 1$ 1$ Sales Sales
Interpretation every 1$ Sales losses 0.28 Revenues
Sales losses Cents 6.32 Cents
losses 1.81 (0.28%) is (6.32%) is
13.89 Cents operating operating
Cents (1.81%) is expense. profit
(13.89%) operating
is expense.
operating
expense.
Analysis: It is getting better with years but lower than
industry standard.
Net profit margin
Net Income / sales revenues

year 2017 2018 2019 2020

NPM % -19.06% -4.95% -3.15% 2.73%
(Each $1 (Each $1 (Each $1 (Each $1 of
of sales of sales of sales sales
revenue revenue revenue revenue
Generate Generate Generates Generates
Interpretation s losses s losses losses of profit of
of 19.06 of 4.95 3.15 cent 2.73 cent of
cent of cent of of net net income
net net income
income income

Analysis: Tesla managed to make a trend going from

losses to profit in net profit margin due to operational
efficiency and higher production capacity that shoed in
2020 as each 1$ of sales revenue generated 2.73 cent of
NI.
Utilization (Activity) measures:
Total Assets Sales revenues / Avg. Total assets
Turnover

Year 2017 2018 2019 2020

Total Assets
Turn over 0.40 0.67 0.57 0.60
for every $1 for every for every $1 for every $1
invested in $1 invested in invested in
total assets invested total assets total assets
yields to in total yields to yields to 0.60
Interpretation 0.40 $ of assets 0.57 $ of $ of sales
sales yields to sales revenue
revenue 0.67 $ of revenue
sales
revenue

Analysis: Tesla managed progressively to increase sales

revenue from total assets turn over due to better asset
utilization and increased production rate.
Fixed Assets Sales revenues/ Avg.Fixed assets
Turnover

2017 2018 2019 2020

Fixed Assets
Turnover 0.46 0.98 1.03 1.24
for every $1 for every for every $1 for every $1
invested in $1 invested in invested in
Fixed assets invested Fixed assets Fixed assets
yields to in Fixed yields t0 yields to 1.24
Interpretation 0.46 $ of assets 1.03 $ of $ of sales
sales yields to sales revenue
revenue 0.98 $ of revenue
sales
revenue
Analysis: Tesla invested well in new production areas
besides to China like in Germany, Austin, Texas and
Berlin that expansion in factories in 2020 lead to high
FATO.
Current Asset Sales Revenues/ Avg. Current assets
Turnover

2017 2018 2019 2020

Current Asset
Turnover 1.58 2.10 1.27 1.18
for every $1 for every for every $1 for every $1
invested in $1 invested in invested in
Fixed assets invested Fixed Fixed assets
yields to in Fixed assets yields to 1.18
Interpretation 1.58 $ of assets yields to $ of sales
sales yields 1.27 $ of revenue
revenue 2.10 $ of sales
sales revenue
revenue

Analysis: the highest CATO was in 2018 where Tesla

production of electric cars was not yet meeting the
demand but after 2019 with new factories and increased
production the decline in CATO can be attributed to
larger inventory and As Tesla implements instalment
plans than can lead to increase in account receivable.
Cash Sales Revenues/ Cash
Turnover

2017 2018 2019 2020

Cash
Turnove
r 3.49 5.82 3.92 1.63
Interpretatio This means This This means This means
n that for means that for that for every
 every 1$ of that for every 1$ of 1$ of Cash,
Cash, the every 1$ Cash, the the company
company of Cash, company generates
generates the generates about 1.63$
about 3.49$ company about 3.92$ Sales
Sales generates Sales Revenue
Revenue about Revenue
5.82$
Sales
Revenue

Analysis: the decline in cash turnover after 2018 peak

is due to investments in building new factories to
increase production capacity and introduction of new
products (Tesla model Y SUV).
Account Credit Sales revenues / Avg.AR
Receivable
Turnover

2017 2018 2019 2020

Account
Receivable
Turnover 16.06 18.88 15.31 16.72
Average Age of
Receivables
22.72 19.33 23.84 21.83
Interpretation this means this this means this means
that the AR means that the that the AR
were that the AR were were
generated AR were generated generated
and generate and and
collected d and collected collected
about 16 collected about 15 about 17
times about 19 times times
through the times through through the
year.. The through the year..The
cycle of the year..The cycle of
generating year..The cycle of generating
and cycle of generating and
collecting generati and collecting
the AR is ng and collecting the AR is
about 23 collectin the AR is about 22
days g the AR about 24 days
 is about days
19 days

Analysis: Tesla achieved best AR turnover in 2018

where its production was limited compared to the level
of demand it collected money faster than later years
when it increased production capacity and sold more
unites with different plans and had larger inventory all
these contribute to the decline in 2019 and 2020.
Inventory COGS /Avg. Inventory
Turnover

2017 2018 2019 2020

Inventory
Turnover 3.55 5.23 5.36 6.07
Average days'
supply in
inverntory 102.89 69.83 68.10 60.10
the the the the
company company company company
buy and buy and buy and buy and sell
sell the sell the sell the the
inventory inventor inventory inventory
about 4 y about about 5 about 6
times in 5 times times in times in one
Interpretation one in one one year...it
year ...it year...it year...it took about
took about took took about 60 days to
103 days about 70 68 days to sell the
to sell the days to sell the inventory
inventory sell the inventory
inventor
y

Analysis: tesla got better over the years in managing its

inventory through its implemented just-in-time
production that reduce storage time of inventory.
Account COGS / Avg.AP
Payable
Turnover

2017 2018 2019 2020

Account
Payable
Turnover 3.29 4.86 4.18 4.12
Average Age
of Payable 110.87 75.17 87.40 88.68
this means this this this means
that means means that
company that that company
buys from compan company buys from
suppliers y buys buys from suppliers on
on credit from suppliers credit and
and pay supplier on credit pay about 4
about 3 s on and pay times
times credit about 4 during the
during the and pay times year … and
Interpretatio year … about 5 during the the
n and the times year … company
company during and the pays to the
pays to the year company suppliers
the … and pays to every 89
suppliers the the days
every 111 compan suppliers
days y pays every 87
to the days
supplier
s every
75 days

Analysis: the fluctuations in account payable turnover

can be attributed to coopetition strategy with suppliers
such as Panasonic and that can lead to changes in AP of
Tesla.

cash Avg Collection period+days in

conversion
cycle ( Net inventory -days payable
Trade
cycle )
 2017 2018 2019 2020

Net Trade
Cycle 14.74 13.99 4.53 (6.75)
it took 15 it took 14 it took 5 days Tesla collected
days to days to to convert cash before
convert convert investmnent even time to
investmnen investmnen in inventory pay to supplyer
t in t in into cash by 7 days
Analysis inventory inventory flow indicating
into cash into cash efficiency in
flow flow mangning AR,
AP and
inventrory
turnover

Debt Measures:
Debt Total Liabilities / Total Asset
ratio

2017 2018 2019 2020

Debt
ratio 0.80 0.79 0.76 0.54
this means this means this means this means
that the that the that the that the
company's company's company's company's
total assets is total assets is total assets total assets
Interpretatio financed by financed by is financed is financed
n 80% debts 79% debts by 76% by 54%
and 20% and 21% debts and debts and
owners Equity owners Equity 24% owners 46%
Equity owners
Equity

Analysis: Tesla decreased reliance on debts from 2017

to 2020 which indicates better financial management
strategy and utilizing SE to generate income that can be
more profitable.
Debt to Total Debts / SE
Equity ratio

2017 2018 2019 2020

Debt to
Equity 5.43 4.76 3.96 1.28
this means this means this means this means
every $1 of every $1 of every $1 of every $1 of
SE has $5.43 SE has $4.76 SE has SE has
accompanied accompanied $3.96 $1.28
from debts … from debts … accompanie accompani
in other in other d from ed from
words the the words the the debts … in debts … in
Interpretation company has company has other words other
$5.43 debt $4.76 debt the the words the
for every $1 for every $1 company the
Equity Equity has $3.96 company
debt for has $1.28
every $1 debt for
Equity every $1
Equity

Analysis: Tesla seems to investors as a company

financed by debts, although it managed progressively to
reduce reliance on debts over the years as a results of
improved operational efficacy and production capacity
from new factories.
Equity ratio SE / Total Assets

2017 2018 2019 2020

Equity ratio
0.15 0.17 0.19 0.43
Interpretation this means this means this means this means
that the that the that the that the
company's company's company's company's
total assets total assets is total assets total assets
is financed financed by is financed is financed
by 15% 17% debts by 19% by 43%
debts and and 83% debts and debts and
85% owners Equity 81% owners 57%
 owners Equity owners
Equity Equity

Interest Coverage EBIT / Interest Exp.

Ratio

2017 2018 2019 2020

Times interest
earned 3.47 0.59 0.10 2.67
this means Each $1 Each $1 this
that the from from means
company Interest is Interest is that the
profits covered by covered by company
covers the $0.59 from $0.1 from profits
interest EBIT, EBIT covers the
about 3 interest
Interpretation times Or about 3
Each $1 times Or
from Each $1
Interest is from
covered by Interest is
$3.47 from covered
EBIT, by $2.67
from EBIT,

Analysis: for creditors this measure evaluates Tesla

ability to cover its interests that indicated risk in 2018
and 2019 but became good in 2020 due to increased
operational efficiency and production capacity that
increased profitability.
Capital structure LTL / (LTL + SE) or LTL/Capital
ratio (CSR)

2017 2018 2019 2020

Capital structure
ratio (CSR)
1.67 1.31 1.22 0.52
 this means this means this means this
that for that for that for means
every $1 of every $1 of every $1 that for
capital is capital is of capital every $1
Interpretation financed by financed by is financed of capital
$1.67 from $1.31 from by $1.22 is
LTL LTL from LTL financed
by $0.52
from LTL

Analysis: In 2020, Tesla stock price rose over 700% so

it reduced reliance on LTL.

Solvency (liquidity) measures:

Current Current assets / Current Liabilities
ratio

2017 2018 2019 2020

Current
ratio 0.86 0.83 1.13 1.88
this means this this means that this means
that each $1 means each $1 of that each $1
of current that each current liability is of current
liability is $1 of covered by $1.13 liability is
Interpretati covered by current of current assets covered by
on $0.86 of liability is $1.88 of
current covered current
assets by $0.83 assets
of current
assets

Analysis: Tesla managed to cover its CL successfully

with CA in 2019 and 2020 due to building new factories
in 2019 that increased production capacity to meet large
demand size.
Quick or (Current assets – Inventory) / Current Liabilities
Acid
ratio

2017 2018 2019 2020

Quick 0
Ration 0.56 .52 0.80 1.59
this means this this means that this means
that for means for every $1 of that for
every $1 of that for current liabilities every $1 of
current every $1 is covered by current
liabilities is of $0.80 of company liabilities is
covered by current most liquid covered by
$0.56 of liabilities assets …. For this $1.59 of
company is year the company company
most liquid covered can not repay its most liquid
assets …. by $0.52 short term assets …. For
For this year of liabilites with this year the
the company company only liquid assets company can
Interpreta can not most repay its
tion repay its liquid short term
short term assets …. liabilites with
liabilites For this only liquid
with only year the assets
liquid assets company
can not
repay its
short
term
liabilites
with only
liquid
assets

Analysis: Tesla could in 2020 repay its short term

liabilities with only liquid asset that enhanced liquidity
is due to the 700% rise in stock price of Tesla in 2020
which financed the company well.
Cash (CA – INV. – AR – S.T. Invest)/CL -- or cash
ratio in kind / CL

2017 2018 2019 2020

 Cash
Ratio 0.44 0.37 0.59 1.36
this means this this means that this means
that the means the company can that the
company can that the only repay 59% of company can
only repay company its current repay 1.36%
44% of its can only liabilities usning of its current
Interpreta current repay cash or cash liabilities
tion liabilities 37% of equivalents using cash or
usning cash its cash
or cash current equivalents
equivalents liabilities
usning
cash.
Analysis: according to references a ratio higher than
50% in preferable which occurred in Tesla from 2019
due to establishment of new factories and enhanced
production capacity that met the demand and increases
profit also in 2020 due to the 700% rise in stock price of
Tesla that led to huge cash funding.