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Financial analysis of Tesla research article
Financial analysis of Tesla
Strategic Management analysis
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| Research on Financial Analysis of Tesla |
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MSc in Accounting and Finance with Data Analytics
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| Research on Financial Analysis of Tesla |
Table of Contents
Overview: 3
Tesla: 3
Ansoff matrix: 3
Tesla Motors and Ansoff model: 4
Matrix comparison: 5
MS Kinsey matrix: 5
BCG matrix: 6
Comparison of Mickensey and BCG matrix: 7
Product Selection: 8
Tesla Attractiveness 8
Tesla strategy implementation: 13
Bowman strategy clock: 13
Generic strategy: 14
Cost leadership: 14
Differentiation leadership: 14
Roger model of Tesla Motors: 15
What is the selected market? 15
Our selected product: 15
What shall we win: 15
Sources required: 15
Management required: 15
Safe Framework for Tesla: 16
Alignment of goals and plan: 16
Built-in quality of Tesla cars: 16
Transparency: 17
Program execution methodology of tesla: 17
Product Leadership: 17
Conclusion: 18
Recommendation: 18
References 19
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| Research on Financial Analysis of Tesla |
Overview:
Tesla:
Tesla is a company incorporated in USA. The company was founded in the year of 2003 but after Elon musk joined the company, the potential of the company really started to show itself (Perez, 2020). Tesla business expects to sell about 23% of stock of its battery electric vehicles and 16% of stock of its plug-in hybrids globally by 2020.The true name tesla made in the market was by way of introduction of model S and Model X. Using these opportunities, tesla is investing in establishment of new factories around the world. This is also the best option for growth of tesla as more the future demand for electric vehicle is expected to rise.
Ansoff matrix:
The Ansoff matrix is used to determine which overarching strategy the company should utilise, as well as which marketing strategies should be implemented to properly aid with the overall strategy of the company (Leslie, 2022). Ansoff matrix is useful as it tells us about which strategic direction that we need to follow in order to successfully grow our business. Graphical representation of Ansoff matrix is given as:
There are four types of business strategies that are needed to be considered keeping in mind the fact that whether the criteria for such decision are met.
Tesla Motors and Ansoff model:
Ansoff matrix provide us with four quadrants based upon different market conditions. In light of those market conditions, we can classify our company as an entity of four quadrant. This is because of the fact that our company is operating in the market of electrical vehicle that is relatively new and the product that the company is trying to sell is also relatively new. (Dawes, 2018). This calls for diversification in the market and the product.
Diversification in the market is obtained by introducing many related but new products in the market. Because by doing do, the market customer base increase and the goodwill starts to build up. At the end, a point shall come when the market has now achieved total independence from other markets and is producing and selling products on its own. (Andrew, 2021).
Tesla can help in diversification of market by means of producing many related electric products. This was done by tesla in the form of introduction of its cyber truck. Along with its grand release hoisted by one and only Elon musk, cyber truck made everyone in the world turn their head towards the electrical market. (Yaqoob, 2021).
Matrix comparison:
The comparison between Mickens also known as the GE and BCG matrix is as follows.
The graphical representation of Mickensey matrix is given as:
Based on eh given criteria, our company lies on the cube where it occupies high amount of industry attractiveness that can is because of the market of electrical vehicle profitable. Also due to the past profits of the company along with eh amount of share that the company can raise, our company lies on the middle upper corner of the matrix. This mean that investment in the company shall be profitable decision (V.J.Thomasa, 2019).
BCG matrix:
The specimen for BCG matrix for tesla is as follows:
BCG Matrix
High market share
Low market share
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| Research on Financial Analysis of Tesla |
High growth rate
Featured-Star
Constant innovation
Cleaner energy production
Model 3
Question marks
Energy Storage
Solar energy
Miscellaneous accessories
Low growth rate
Cash cow
Sexy models like (Model S, Model X, Model Y)
Current best sellers along with
Power walls charger.
Deadweight-Dogs
Some manufactures complain about some issues with some models
BCG matrix put the condition of our company into four different quadrants. The explanation of these quadrants is given as
The star if our company is the continuous innovation along with the moto of cleaner production of cars. This shall help the company create market goodwill and as the market matures, this idea shall become a cash cow holding huge market share (FEEDOUGH, 2022).
Cash cow of tesla is the new model named model X and model S. These products have created a positive image of the company in the new market. And when the market ultimately matures, the company shall experience a cash cow phenomenon where the company will, due to economies of scale produce cars at less cost while the price remaining same hence profiting from its sale.
Dogs’ category shall be given to the solar electric cars. The company should not invest in this field as the market share along with market growth is slow. These products shall only create cost to the company and will be disadvantageous.
Question mark is the product of tesla named the wall charger. The market growth is high as the product will be helpful in a variety of ways but the market share is low. So, it creates a critical situation for the company as the product, on one hand can prove to be beneficial and on the other hand, due to public unacceptance, the product may flop.
Comparison of Mickensey and BCG matrix:
Mickensey matrix tells us about the decision that can be make on a specific product at a time like our model X and model S. These decisions are based upon several criteria like the geographical locations and the market potential. But BCG matrix takes into account all of its products at a time and evaluate about which one of those will be beneficial in the present or in the near future along with which one of those will create unwanted cost for the company.
Mickensey matrix have 9 grids of decision making. But those can only e applied on a single product at a time While BCG matrix has four categories of products and it account for all the products at a same time.
Mc Kinsey matrix provide the user with the financial decision on a product based upon its factors While BCG matrix tells us about the nature of our products along with their potential but no decision-making guidance is given along with it.
Mc Kinsey matrix compare the maturity of market along with the maturity of our product where BCG tells us about the market growth rate along with market share. BCG comparison is better as the market maturity is unrelated to our company if the market share of our product is low.
The model that is most acceptable to tesla is the BCG matrix as it uses the variables of market strength and market share as a whole which is more accurate than the market and product maturity. It also takes into account all type of products at the same time so that proper comparison can be conducted of those products.
In case of tesla, launching a new product as the Model 3 in this new market will result in the product being a star according to the BCG matrix along. Marketing these products shall require diversification, of suppliers and buyers according to the Ansoff matrix.
Product Selection:
Tesla has a number of products available to it that it can use for its strategy evaluation but we shall compare the model S. This shall be compared with the Volkswagen ID 4, a flagship electric cars series launched by Volkswagen. The following comparison is given as:
ID-4 has a much cheaper starting price at $40,760 as compared to Tesla’s model S that have a starting price of $94,990. This could result in Volkswagen to increase its market share by high amount of sales.
Tesla Model S is a total electric car having no available unit that consume any type of fuel whereas, Volkswagen’s ID-4 is semi electric and can also run-on fuel. This will increase the competitive strength of the company along with reducing the industry attractiveness as the industry is moving towards a green energy production plan that is against the use of fuel vehicles.
Tesla have sold 20,301 of its model-S in the year of 2020 while Volkswagen sold about 2755 of its units. This helps the company Volkswagen to increase its customer base and also in the diversification of its product in the market.
Tesla owns a huge overall market share in the electric industry. According to the financial data of the government, nearly 80% of all the electric vehicles registered in the US is a Tesla. This gives a window of maximum 20% market share to accommodate in for all of its competitors. In short, tesla is having a Monopoly on the market of electric vehicle.
Based on the analysis above, the company Tesla and Volkswagen seems to be equal of each other. But, due to the tesla vehicle being a total electric vehicle, the market attractiveness is high for the model S and the high profit margin on tesla vehicle is more than that of Volkswagen resulting in tesla ending up with more profits than Volkswagen.
Tesla Attractiveness
To decide whether it would be profitable for the company to invest in its new model
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| Research on Financial Analysis of Tesla |
Industry Attractiveness
Business Unit 1
Business Unit 2
Factor
Weight
Rating
W. Score
Rating
W. Score
Industry Growth Rate
35
0.5
17.50
0.7
24.50
Industry size
13
1
13.00
0.3
3.90
Industry Profitability
27
0.9
24.30
1
2 7.00
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| Research on Financial Analysis of Tesla |
Industry Structure
6
0.2
1.20
0.8
4.80
Trend of Prices
5
0.4
2.00
0.2
1.00
Market Segmentation
14
0.6
8.40
0.9
12.60
Total Score
100
66.40
73.80
COMPETITIVE STRENGTH
BUSINESS UNIT 01
BUSINESS UNIT 02
Factor
WEIGHT
Rate
W. Score
Rate
W. Score
Market Share
13
0.4
5.20
0.7
9.10
Relative Growth Rate
35
0.9
31.50
1.00
35.00
Company’s Profitability
41
1.00
41.00
0.3
12.30
Brand Value
7
0.5
3.50
0.1
0.70
VRIO Resources
2
1.00
2.00
0.4
2.00
CPM Score
2
0.4
0.80
0.9
0.80
Total Score
100
84.00
59.90
According to the financial data for tesla, the sector that is best suited for investment is the electrical car sector. This is because of the relative demand of tesla cars as compared to tesla battery. This can be easily explained through analysis of the financial statement of Tesla.
Tesla strategy implementation:
Tesla’s market attractiveness is at the all-time high in the past years. This is because of effective marketing and positive social image of Elon musk in the global market (Zhou, 2022). But, since the company has incorporated recently, the competitive strength of the industry is not at a stable level because of low amount of retained earnings as compared to its competitors. This result in the company to fall in the upper middle block of the mickensey matrix. This means that it is a good decision to invest in the industry and help in growth as the growth is probable to be profitable.
As for the Volvo, the competitive strength is high but the industry attractiveness has seen a dip in the previous years. This is because of the introduction of the electric vehicles in the market. That make the company fall in the middle-left block of the matrix. This means that it will be best for the industry to invest and grow as it has enough retained earnings to be competitive in the market.
Bowman strategy clock:
The Bowman Strategy Clock, often referred as Bowman's Business Plan, is a promotional strategy that allows a firm to analyse its position with respect to the offers of rivals. Cliff Bowman and David Faulkner, two analysts, formed it. Strategy Clock by Bowman illustrates how a company may position a product or its related service in the two dimensions (Khan, 2021). There's the price on one hand, and the perceived worth on the other. Examining various combinations of these two parameters within the Bowman Strategy Clock yields eight potential strategies grouped into four quadrants.
According to bowman strategy clock, our company, tesla is enjoying the price index of 6. That can be said as having risky high margin. The high margin Is because of the fact that our industry has little to no competition in the market of lithium-ion batteries and the electric cars. The products produced by tesla are termed as luxury items (Liang, 2022). This is because of the fact that our products have no other competitor in the market so, we can charge any type of amount for this. Tesla, if needed can even start a level 7 pricing that is known as monopoly pricing of its products. This is because Tesla have the highest market exposure then all of other companies that have entered the market and is aware of marketing strategy of these specific products.
In case of Volkswagen, the company has entered the market of electric cars and hence occupy the range of 4 to 5 in the bowman clock (Barabba, 2019). This amount is low because of the existence of tesla on the market and the number is higher than the Volvo because the market of electric cars is still yet empty.
Generic strategy:
Porter represented the generic strategies having 4 possible outcomes for our company. These are as follows:
Cost leadership.
Cost focus.
Differentiation leadership.
Differentiation focus.
Cost leadership:
The tesla company lies on the Cost leadership category, it is because of the fact that the company has a broad market competence along with distinction in cost leadership. This distinction is because of special research and development done by tesla in the field of battery and car production. The company has achieved ways of producing batteries of its vehicles in effective manner. The majority of the cost of an electrical vehicle comes from the cost of producing the lithium-ion battery (ThomasGreckhamera, 2021).
Differentiation leadership:
Tesla, in order to dominate the market, wanted one of a king individual to turn the corporation. For this reason, tesla appointed Zachary Kirkhorn as its CFO. Kirkhorn worked as a Senior Business Analyst for a well-known company named McKinsey & Company. He served in that company for for nearly three years. Kirkhorn reportedly joined the company Tesla as a Senior Analyst in the department of Finance in year 2010. He was then named as the Director of Finance in December of the year 2014, and ultimately the Vice President of Finance in December 2018. The Volkswagen has made its way to the market of electrical vehicles but, has not quite gotten a grip on understanding the market trends. It can, for now focus upon the cost focus strategy. According to this strategy, the company is to use its finances in researching better ways to reduce the cost of our selected product. Volkswagen because of long history of beneficial years of sales, has a large amount of retained earning avail that can be used to finance this research.
Roger model of Tesla Motors:
Rogers' innovation adoption curve is a model that separates innovators into groups based on the notion that some people are more adaptable than others. It's also known as Multi-Step Flow Theory or Diffusion of Innovations Theory. Innovators. Humans are naturally nice and imaginative, according to Rogers. They only become toxic when the value process is dominated by a negative self-concept or external limitations. Carl Rogers thought that being in a condition of congruence was necessary for self-actualization (poorghorban, 2021).
To account for this model, tesla needs to answer following questions:
What is the selected market?
Tesla has selected the market of electrical vehicles as the market is in its early development phases having little to no competitors. This decision was made taking into account the low amount of capital needed to enter and remain in the market.
Our selected product:
Tesla selected a product that has the ability to run totally on electricity. Negating the use of fuel that all the other cars on road desperately need. This was done to not only bring innovation but to also attract the general public who is now inclined towards a green future.
What shall we win:
In case tesla is able to build its goodwill in the market. It can work as a monopolistic company at the time when market matures. This is because of the fact that it will be able to gain buyers trust in the market and hence the only thing remaining shall be to maintain that goodwill.
Sources required:
Since Tesla has entered the market where no research and development were conducted by previous companies, the chances for potential drawbacks and initial losses were high enough to be virtually certain. To cope with this, tesla need a hefty amount of capital to build its infrastructure from the start.
Management required:
Tesla, in order to survive the market, need a good management otherwise its story will end even before starting. To cope with this issue, tesla hired Zachary Kirkhorn who is an MBA from Harvard. He, along with the business giant Elon musk, both are responsible for leading tesla into a brighter future.
One competitor of tesla is Volkswagen. Volkswagen is one of the early majorities when it comes to the market of electric vehicles. The company has set foot on the market where the probability of competition is comparatively low as compared to the market of vehicles that has now been clustered by many manufacturers. This company can enjoy a better and profitable future in the market as by the time the market is mature, the company has produced a positive goodwill in the market.
SAF Framework for Tesla:
You may use the SAF Matrix to rank Tesla's strategic choices based on Suitability, Acceptability, and Feasibility (SAF). Analysing a SAF Matrix is another term for this process.
SAF Analysis recommends that the approach with the highest score is the best alternative.
Suitability
A strategy's suitability is evaluated in terms of its capacity to help your company achieve its objectives. It's a critical question to ask since, ultimately, you're developing a plan to achieve certain goals and objectives.
In Suitability, does the suggested strategy meet the organization's most important opportunities and threats?
When assessing someone for suitability, there are several factors to consider. Consider not just if the strategy will help you achieve your goals and objectives, but also whether it is appropriate for the Tesla culture, market, and capabilities.
Acceptability
Suitability for service in the SAF Stakeholders' perspectives are crucial to the analysis. Managing stakeholders is a crucial part of strategy since you want to make sure everyone is on the same page and on the same page only.
Acceptability, like suitability, is linked to Tesla's strategic aims. You need to know what returns you may expect from this approach, as well as how much risk there is that those gains won't materialise.
However, despite the fact that a company's return or risk may not be simply based on financial considerations, acceptability is generally linked to the data. The usage of frameworks like PESTLE Analysis and the Five Forces model, which focuses on profitability, may be an important first step in developing an acceptable strategy.
Feasibility
When it comes to strategic planning, feasibility is critical since it questions whether the firm has the ability to carry out the strategy. The resources, talents, timeliness, changes in the market, and financial resources may all be taken into account while doing this SAF Analysis.
Program execution methodology of tesla:
Program execution is at the heart of Tesla’s plan, and it drives everything else in the framework. Teams and projects must be able to provide high-quality, functioning software and commercial value on a regular basis. The tesla company have the quality and the quantity of a particular type of vehicle which, in return, creates an opening for IT firms in the state which have ample experience in human and human behaviour machine interfaces, still some of the tech giants CEO believes in the fact that the IT giants will be more focused on the plan that is mainly focused upon creating the software in machine learning future companies which are already available in the general market and there shall be no more barriers to entry . those barriers have fallen as producing high volumes of car at low cost is very different to limited production of luxury vehicles which Tesla is trying to achieve.
Product Leadership:
Product leadership is the one of the most Only leaders can modify the system and create the atmosphere required for all of the basic concepts to be adopted, hence SAFe demands a lean-agile leadership style. One of the major concern is the pressure on the CEOs of the established car companies as the median tenure of a company CEO is 5 years and the new strategic initiative will require 7 to 8 years and not having a strong quarterly results mean you can't afford the luxury of conducting that strategy initiative the successful new entrant will be the leadership holding large shares or who are privately owned such as Tesla as they can have a leverage to pursue the technology, business model, markets trends while focusing on there long term strategy.
The Scaled Agile Framework's concepts are intended to benefit the entire firm by encouraging lean-agile decision making across functional and organisational boundaries. The principles are meant to influence not only leaders and managers' actions, but everyone in the organization's attitude toward lean-agile thinking, which includes methodologies like Lean Portfolio Management.
The competitors of Tesla like GM motors and Volkswagen have made an appropriate plan to infiltrate the market and take over the market that is still a new and immature market. Both the companies have the appropriate means of building the quality in the market because of efficient research and development department and a vast reserve of retained earnings.
Conclusion:
Tesla has made a proper plan to make its business make its mark in the financial market of electrical vehicles. It has formed a proper plan and appointed qualified leadership to make its plan into a reality. The program has been appropriately executed and the resultant. In short when it comes to the market of electrical vehicles, tesla has the upper hand.
Recommendation:
Tesla should invest in research and development department to further reduce the cost along with increasing the efficiency of its batteries. This is because of the reason that the industry is going to be more crowded in the coming years. Competition from competitor products along with demand of competitive product is bound to increase in the coming future. To cope with this future crisis, tesla is establishing its factories in new countries availing the current governmental subsidies that can reduce the cost of expansion. This step is critical as the probabilities of further subsidies is low making the infiltration of other industries in the market much harder than before.
References
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