Since Tesla was founded in 2003, its business is constantly changing. The company considers Elon Musk, Jeffrey Brian Strobel, and Ian Wright to be its principal founders. Elon Musk is also the CEO and Chief Product Architect of Tesla; however, after the scandal with a remark on Twitter about the decision to make Tesla a private company in August 2018, he was deprived of the right to head the board of directors for three years. This paper aims to analyze two significant changes introduced by Elon Musk and discuss mistakes and competitive advantages achieved through implemented innovations.
Improving the Product Range
One of the most winning solutions for Musk, who spends much time in production, was the release of new Tesla car models. As of 2016, the Model X was the latest Tesla electric elite-class car, which did not bring tangible profits to the company. Model X fulfilled its objective, putting Tesla on par with the most expensive and technologically advanced cars. Therefore, Musk decided to change the target audience and presented the Model 3 in April 2016 – an affordable sedan with 350 miles per charge capacity (Garces, 2018).
Its price amounted to $ 35,000; therefore, after the presentation, 325 thousand people reserved the car on the company’s website, making a prepayment of $ 1,000 (Garces, 2018). Sales of Model 3 were so high that Tesla finally reached positive profit figures in Q3 2018 (Garces, 2018). Besides, to support the sales of Model 3 and another upcoming Model Y, Tesla built a network of convenient and fast Supercharger stations throughout the United States and in Western Europe.
Although the improvement of the product range is not a super-innovative solution, it proved to be an effective developmental change. First, the start of sales of Model 3 was promised for 2012 (Garces, 2018). Therefore, the company possibly postponed the release of this economically advantageous model for some reason. According to the branding rules, Model 3 could not have appeared earlier than Model X. This would have assigned Tesla the label of “budget” electric car manufacturer since the Roadster and Model S looked outdated by 2012.
Launching Roadster into orbit changed the situation significantly, being a brilliant branding and marketing solution. However, without an expanded product range, this advertising trick would not have such popularity. The introduction of developmental change implies improving the existing conditions or characteristics of a given element of the business. In the case presented, enhancing or expanding the range of cars was a logical and predictable decision. Model 3 gained so much popularity due to the improvement of technologies that become more convenient and affordable over time.
Merging Solar City
Another developmental change was the acquisition of Solar City, a solar panel company. Musk and his cousins were the previous owners of Solar City, but now it has become a subsidiary of Tesla, which the company acquired for $ 2.6 billion (Gilson & Abbott, 2018).
Today, Musk often recommends his customers to use solar roofs and panels for in-house energy needs, including home-based recharge of electric cars. Creating a network of charging stations throughout the US and in Western Europe was an excellent solution for increasing sales of electric vehicles. Musk claims that today every resident of the US lives within 150 miles of the Tesla Supercharger station. A pleasant bonus was the offer of lifetime free charging for luxury models purchased before the stations were constructed.
Musk Leading the Change
Therefore, the decision to expand the product range was a standard step for a company that produces cars. However, one cannot call usual Elon Musk’s approach to implementing these changes. Tesla’s CEO has an exceptional attitude to his business. When he announces a particular achievement of Tesla, it always attracts public attention. The company’s future-oriented vision, Musk’s charismatic personality, and unobtrusive style of Tesla brand promotion all contribute to its popularity among customers. Therefore it will be interesting to determine Musk’s leadership style.
There are six types of emotional leadership styles: visionary, coaching, affiliative, democratic, commanding, pacesetting. Scientists point out that Musk is a “visionary, inspirational, and extremely hard-working leader” (Harrysson, Hesseborn & Weber, 2019, p. 1). Tesla’s CEO has developed this style since he is genuinely dedicated to his projects. Musk spends a lot of time at production, trying to monitor all the stages and processes (Bariso, 2018).
Besides, his involvement in the work is extraordinary – some say that Musk spends 70 hours a week at work, although he did not confirm this information (Bariso, 2018). Scientists also note that, despite excessive optimism in determining deadlines, Musk sets an excellent example in terms of speed and quality of task performance (Garces, 2018). Moreover, although he puts high demands on employees, he does not make excuses for himself.
Therefore, Elon Musk has the specific characteristics of a pacesetting leader. It is noteworthy that Tesla employees show a very high job satisfaction level of 85%, and declare that they would recommend working at Tesla to their friends (Garces, 2018). Critics sometimes mention Musk’s authoritarian approach since he often makes difficult sole decisions (Garces, 2018). Tesla’s CEO is also criticized for lacking a coaching approach in his leadership style. Despite his interest and respect for employees, he probably believes that at work, everyone has to rely on themselves.
As a leader, Musk usually implements a combination of pull-push motivation. Interestingly, pull motivation implies a eustress attitude that inspires subordinates – “do what you must do to achieve the future you dream of” (du Toit, para. 11). At the same time, push motivation adopts a distress attitude – “do what you must do, or the enterprise will die” (du Toit, para. 11). Besides, Tesla’s CEO prefers participative leadership instead of a top-down approach. It is highly likely that the combination of the above methods makes Musk so popular among employees.
Mistakes in Implementing Changes
It is noteworthy that when implementing changes, even the best leaders make mistakes. The most common are misunderstandings related to relevance and meaning, changing governance, strategic discipline for change, capacity, culture, leadership modeling, human dynamics, engagement, and communications. In the case presented, no critical errors were made during the expansion of the model range. On the contrary, the changes were introduced very competently and consistently.
At the same time, most critics agree that the acquisition of the Solar City “would burden Tesla with excessive debt,” as well as cast doubt on the viability of the merger (Gilson & Abbott, 2018, p. 1). In support of this view, it is argued that neither Solar City nor Tesla has shown positive profitability dynamics for a long time. Therefore, the decision’s relevance and meaning were called into question, and its necessity was disputed. Besides, in this case, Tesla showed problems with changing governance, since both companies operated under Musk’s leadership, who had more than 20% of Solar City shares (Gilson & Abbott, 2018).
Therefore, critics blamed Musk for having in mind exclusively his benefit and ignoring the interests of the company. To relieve such suspicions, Musk could delegate some responsibility to any of the chief Tesla stakeholders. Besides, greater openness to the partnership could strengthen Musk’s position if such a work style was comfortable for him.
Stakeholders and their Influence
Any public company has investors, shareholders, and stakeholders who own the most substantial amount of outstanding shares. Elon Musk holds a 21% stake, making him the main stakeholder, along with another four companies that jointly own a 23% stake: Susquehanna Securities, Baillie Gifford & Co., Capital World Investors, and Citadel Securities LLC (Reiff, 2020). Perhaps that is why Musk can make many sole decisions, adhering to the board of directors only in exceptional cases.
Many remember the scandal with the famous Musk’s tweet when on August 8, 2018, when he announced that he wants to take Tesla private and buy back shares at $ 420 apiece. In a preliminary agreement with the Securities Exchange Commission (SEC), Musk and the main stakeholders agreed that Musk would use Twitter to release the material information (Simpson, 2018). Therefore, his tweet was taken more than seriously on Wall Street. It led to the collapse of the exchange and a sharp increase in Tesla’s share prices from $ 356 to $ 379 per share during the day (Simpson, 2018). Share prices continued to rise until Musk made a new statement on Twitter on August 24 that he had changed his mind about making the company private.
It was an ill-conceived step by the CEO of Tesla. The exchange’s reaction followed immediately – the shares fell to $ 319 apiece (Simpson, 2018). Moreover, the SEC launched an investigation against Musk, accusing him of intentionally disclosing false information to obtain personal profit. On September 21, the conflict was settled – Musk and stakeholders were required to pay $ 20 million to the state treasury each. Besides, Elon Musk was deprived of heading the board of directors for three years (Simpson, 2018). This case illustrates that stakeholders have to reckon with each other’s opinions since they are responsible for each other’s actions.
Besides, stakeholders are jointly responsible for the success of the company and may lose significant amounts invested in its shares. Therefore, there is a board of directors providing stakeholders with an opportunity to consult and make informed joint decisions. It may include both company owners and employees since the main task of the board is to make decisions related to doing business. After Elon Musk had been banned from heading the board of directors, he chose Robin Denholm, who worked at the Australian telecommunications company Telstra to replace him.
It is noteworthy that immediately after the scandal, Elon Musk also decided to appoint several new heads of various departments and directions. Thus, Jerome Guillen was appointed to lead automotive operations, program management, and the company’s automotive supply chain, and Chris Lister became a top manager leading Model 3 production (Logan, 2018). Besides, Kevin Kassekert and Felicia Mayo became senior managers of the HR department (Logan, 2018). Such a shake-up in top management was likely to help the company continue to conduct its business successfully.
The introduced developmental change has led to a significant increase in net profit and additional competitive advantages. In particular, for the first time in more than a decade, Tesla posted a profit of $ 310 million in Q3 2018, compared with a $ 710 million loss in Q1 (Garces, 2018). The next two quarters were also marked by positive indicators, beginning a continued trend of the following year. The primary source of profit was the revenue from sales of Model 3.
Scientists note that Tesla takes the first place among electric cars, both in terms of production volumes and technical characteristics of models. In particular, it competes with the corresponding models of BMW, Mercedes, Audi, Lexus, Toyota, Acura, Jaguar, the Volt from General Motors, and the Nissan Leaf; two last are electric vehicles (Garces, 2018). At the same time, Tesla leads the competition in production volumes, which is very important, since Volkswagen and Toyota also plan to become electric car manufacturers. The network of Supercharger stations is an additional advantage of Tesla and has no analogs with competitors.
Selling solar panels, however, does not have equally stunning success. It can be assumed that the merger was more of a strategic decision designed for the long term. Especially when considering that since the company was founded in 2003, it has not made any profit (Garces, 2018). Therefore, Tesla investors supposedly do not expect an immediate funds return and give Elon Musk carte blanche to implement his unique strategy.
CSR and Ethics Involved in Change
Tesla’s strategy is, in many ways, designed to acquire the sincere sympathies of potential buyers. In an interview, Elon Musk admitted that “we don’t spend any money in advertising or endorsements, so anyone who buys our car, just bought it because they like the car” (Bariso, 2018, para. 5). The company’s website states that Tesla builds its business with respect for its employees and the environment (“Elon Musk,” 2020). This statement is not mere advertising rhetoric since, indeed, Tesla is the only company in the world that produces exclusively environmentally-friendly electric vehicles. For example, General Motors or Volkswagen cannot say the same about their companies (Garces, 2018). Moreover, the company’s vision complies with the requirements of Corporate Social Responsibility or CSR.
The company’s CSR is an imperative factor that customers consider when choosing a product. Besides, a high level of CSR usually makes it easier to do business since many state and global programs are supporting socially responsible companies. For example, there is a mandatory quota for all car manufacturers in the United States to produce non-polluting vehicles. Tesla produces exclusively electric cars and significantly exceeds this quota, which allows them to sell surpluses to General Motors (Garces, 2018). Besides, a conscious attitude towards nature is considered when a company needs to obtain a state permit for the construction of production facilities. At the same time, a positive CSR image attracts highly qualified professional employees who invest their time and energy into the company’s prosperity.
Tesla is a highly transparent company in terms of ethics and moral responsibility. Environmental ethics is part of the vision of a company whose business is mostly about changing society’s attitude to the environment. Elon Musk, who likes to speak in public, often says that “the future starts today,” meaning that the ideal community can be achieved earlier than many people believe (Bariso, 2018, para. 2). It is noteworthy that not only Tesla solar roofs and solar panels contribute to the development of green energy; its network of charging stations is also powered by solar energy.
The developmental changes had a notable impact on marketing since the company introduced new products, expanding its product range. In particular, this decision allowed Tesla to grow the audience of potential buyers. Model 3, designed for the mass market and luxury Model Y, entered the market. Besides, in 2021, the release of the Tesla Cybertruck pickup truck and the Tesla Semi truck is expected. Model 3 gained high popularity among young people, who were the target audience of the product.
Selling cars directly through the website with the possibility of pre-ordering at a reduced cost was the right solution. However, at the moment, the minimum price for Model 3 has increased to $ 43,000 (“Model 3,” 2020). At the same time, Model X and Model S are aimed at business class customers, and the minimum price for them is $ 79,000 (“Inventory,” 2020).
Besides, everyone can pre-order Model Y at a reduced rate of $ 46,900 (“Model Y,” 2020). Tesla also offers to buy cars of all existing models in installments, making $ 500-800 monthly payments (“Inventory,” 2020). This offer is valid only for used vehicles with a mileage of no more than 12 thousand miles (“Inventory,” 2020). Customers can also pre-order Cybertruck for a minimum of $ 39,900, depositing only $ 100 (“Cybertruck,” 2020). Judging by the super-modern design and the fact that the car prototype took part in the filming of the Mad Max movie, the company probably relies on the popularity of this model among the younger generation.
Notably, with the release of the Semi model, the company switched to B2B sales. Companies or individuals involved in the transportation of goods are likely to prefer this model, which, according to the manufacturer, will help them save up to $ 200,000 in fuel per year (“Semi,” 2020). Interested customers can make a pre-order on Semi by making a minimum payment of $ 5,000 from a credit card or $ 15,000 through wire transfer (“Semi,” 2020). In addition to saving on diesel fuel, the model has many technical advantages, such as stability, fast acceleration, mighty draft power, and the innovative design of the driver’s cab.
Besides, after the acquisition of Solar City, customers can now order a solar panel or a solar roof on the company’s website. Elon Musk hopes that in the future, “people will buy Solar Roofs and Solar Panels to charge their Tesla cars at home” (Bariso, 2018, para. 6). Tesla’s CEO also acknowledges that customers are not yet used to the idea that a car can be charged right at a personal garage with no need to visit charging stations (Bariso, 2018). However, he is sure that buyers will surely appreciate the advantages of this method after having tried it. This idea has good potential since it attracts buyers who use cars within the city, and there is a network of charging stations for longer trips.
Tesla in Colors of Green
The environmental approaches of Tesla should be described according to the ‘Colors of Green’ model. According to this model, Tesla has the characteristics of the bright-green and dark-green segments. The dark-green approach implies that the company and its leader have spiritual ideas about humans and their place in the universe. In his interviews, Elon Musk often speaks on this subject. In particular, he has repeatedly stated that he likes the ideas of Isaac Asimov regarding the future development of humanity (Bariso, 2018).
Besides, the notorious Starman, a pilot of Tesla Roadster launched into space, was named after the soundtrack by David Bowie “Starman,” which, according to Musk, was set in the Roadster audio player during its trip to orbit (Bariso, 2018). Therefore, Tesla’s CEO and Chief Product Architect is the ideological inspiration of the company. He advocates the idea of the spiritual development of humankind by conquering space and creating an enabling environment for life on Earth.
Tesla also has many characteristics of the bright-green sector. Tesla’s management is committed to the idea that the shortest path to achieving the necessary social change is through the adoption of new technology. It is typical for companies from the bright-green sector that apply innovative technologies, improved design, and alternative forms of social organization to resolve current environmental problems. The production based on environmentally-friendly energy sources is a remarkable example of the realization of such a vision. Besides, Tesla widely applies the improved design in the development of new models of electric cars, such as Cybertruck or Semi. Moreover, alternative forms of social organization are implemented in promoting new approaches to the production and use of energy.
Implementing USDN Goals
When analyzing the company’s leadership style within the framework of CSR, it is also useful to consider a leader’s qualities associated with the realization of USDN goals. In particular, a leader of a socially responsible company typically applies skills, styles, competencies, and actions that drive to implementing environmental goals. Elon Musk rarely speaks about environmental protection, but he uses his outstanding scientific and business skills to successfully conduct a business that makes a meaningful contribution to environmental protection. Unfortunately, the company has not yet been able to develop charging stations that would be 100% powered by solar energy. Therefore, despite zero emissions, Tesla electric cars partly continue to use electricity from a shared network, which is produced in an old-fashioned way. Thus, Tesla only partially fulfills the USDN goal of reducing CO2 emissions.
Making and Keeping Promises
Elon Musk is often criticized for being overly optimistic about the time needed to complete certain tasks. Perhaps that is because he sometimes makes overly optimistic statements about the release of new models or other company projects. In particular, Model 3, according to the first promise, was supposed to go on sale in 2012, but this framework was not met (Harrysson, Hesseborn & Weber, 2019).
When making such announcements, Tesla’s CEO does not take into account the existing resources or capacity of the company. On the other hand, sooner or later, Musk fulfills his promises. Therefore such observations usually do not affect the popularity and marketability of new models.
Thus, two significant changes introduced by Elon Musk to reach the objectives of Tesla were analyzed. Mistakes and competitive advantages achieved through change, as well as Elon Musk’s leadership style and Tesla’s CSR and ethics, were discussed as well. Two significant changes that improved the company’s financial performance and the popularity of its brand were the expansion of the range of products and the acquisition of Solar City. The change was implemented thanks to the visionary and pacesetting leadership style of the company’s CEO. Moreover, the decision to introduce change added a competitive advantage to the company, and a responsible CSR approach strengthened its market position.
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