Tesla is a world-renowned company producing electric vehicles, solar roofs, and solar panels, led by Elon Musk, who is also the head of the SpaceX project. Over the past week, Elon lost his status as the wealthiest entrepreneur: his fortune fell by 49 billion and now stands at $ 145 billion (Tesla stock loses a quarter of a trillion dollars, 2021). The losses are associated with the withdrawal of funds by investors, who hope to take advantage of the uncertainty caused by the end of the pandemic and invest in new projects related to the economic recovery. The sharp drop in stock prices was associated with Joe Biden’s adoption of a $ 1.9 trillion economic stimulus plan (Ponciano, 2021). Since January 26, the company has lost $ 308 billion in market value, which was previously $ 848 billion (Ponciano, 2021).
Experts are divided into two camps regarding predictions of further developments – some say that stocks will gradually return to normal, others predict a further decline. Withdrawal of investments has nothing to do with the production processes and cannot be stopped by optimizing them. However, the fall in market value may affect the volume of funding, and Elon Musk may have to reconsider his plans for some projects. This paper aims to provide a meaningful discussion concerning Tesla’s fundamental business processes, its alignment of resources to market opportunities, and describe how the company manages its quality imperative for global competition while also giving advice on improving some practices.
Aligning Resources to Market Opportunities
Internal Capabilities and Limitations in the Context of Current Operations
Since the pandemic outbreak, Tesla was forced to suspend production in Fremont, California, in February 2020 (Tesla operational update, 2020). Aside from the Fremont factory, Tesla has factories in New York, Nevada, Shanghai, service, and Supercharging networks (Tesla operational update, 2020). The Fremont factory produces the Model X, Model S, Model 3, and most of the car’s components. The New York factory was closed in March 2020, excluding parts and materials for maintenance, infrastructure, and critical supply chains.
Operation of the Nevada factory, producing lithium-ion batteries and electric vehicle components, service network, and Supercharging network did not stop during the pandemic. Therefore, supply and charging services were carried out during the pandemic. Moreover, the delivery of cars to customers was performed through the “contactless delivery” procedure (Tesla operational update, 2020). Tesla states that “thanks to the unique wireless connection of our vehicles, customers can unlock their new vehicles in the parking lot for delivery through the Tesla app, and sign any remaining relevant documents that have been placed in their vehicle” (Tesla operational update, 2020, para. 5).
Consequently, the company ensured the continued functioning of its production and service infrastructure thanks to the quality organization of processes, which comply with local and federal legislation. Notably, Tesla’s Fremont factory provides 10,000 jobs for plant employees and 51,000 jobs in California, including positions in the supply chain (Tesla factory. (2020). Tesla is committed to caring for its employees and adheres to customer communication standards during the pandemic. Therefore, the main limitation was the temporary suspension of the main production facilities while the supply and service system continued to function.
Expansion and Business Development Opportunities
According to the company’s official statement, by the end of 2019, its cash position was $ 6.3 billion, and by the end of March 2020, it increased by $ 2.3 billion (Tesla operational update, 2020). According to management, this level of liquidity should have been sufficient to live through the pandemics. Moreover, by the end of 2019, the company received a credit line of $ 3 billion (Tesla operational update, 2020). This amount included working capital lines for the continued operation of existing production facilities, supply, and service systems. From this amount, the management also intended to provide funding to expand the Tesla Gigafactory in Shanghai.
The electric vehicle market in Asia is more saturated and competitive than in Europe and the US. Therefore, a relatively quick end to China’s pandemic was extremely beneficial for Tesla’s business. Despite government incentives for electric vehicles’ production by Chinese manufacturers, Tesla kept up the competition with major players such as NIO, SAIC, Geely, Enovate, BYD, Seres, and FAW Group (Ravenscroft, 2019).
Tesla currently sells more vehicles in the Asian market than in the domestic market, so expanding the Shanghai plant is worthwhile. Tesla’s unique innovation is an essential technological factor that allows the company to maintain its leadership position. Besides, many models’ relatively inexpensive cost makes Tesla’s products attractive to the growing middle-class segment.
There are three basic cost-saving types – cut cost, avoided cost, and opportunity cost, applied depending on the circumstances (Henricks, 2018). Given the need to suspend electric vehicles’ production at factories in the United States, it is difficult to talk about cost-saving opportunities in the production process. On the other hand, on a larger scale, the shutdown of factories in California and New York is a successful implementation of avoided cost-savings. In particular, despite the costs from the loss of profits, the company saves on costs associated with sustaining production facilities.
By and large, even though the closure of factories was a forced measure, given the stock market crisis, it can be considered as a practical measure associated with a possible further reduction in the level of investment in the company’s business. On the other hand, given the growth rate in Tesla’s cash position before the pandemic, it is highly likely that the stock market crisis will not affect its business.
The Gigafactory in Shanghai has been expanded and continues to operate, providing the final assembly of Model 3 and, from January 2021 – Model Y (Here’s a glimpse at Tesla’s Model Y production, 2021). Today Tesla is China’s first fully foreign-own manufacturing facility, but thankfully so far, there have been no reports of government obstructions. In terms of economic factors, Tesla has a significant share of the Asian market and feels confident among the competitors. Tesla’s factories usually comply with all labor safety regulations and standards. The company maintains a fair employment policy, which can be viewed as avoided costs from potential problems that dishonest policies could cause. Therefore, Tesla already implements effective cost-saving practices applying avoided and cut cost strategies.
External Threat Factors in Domestic and Global Markets
The competition in the Chinese market is tense enough, so Tesla is running its business in a challenging environment. On the other hand, due to the pandemic, company leader Elon Musk has more free time to expand capacity in the Asian market. In terms of technology, the new Gigafactory in Shanghai has a competitive edge and is well-positioned to provide a sufficient production level to meet the strong demand in the Chinese market. Fortunately, the expansion of production in China has not met political adversaries from the Chinese government. Simultaneously, the Chinese’s financial security allows them to buy Tesla electric cars that offer a competitive price.
As for the domestic market, the situation is uncertain due to the negative impact of the pandemic on the US and European economies. Therefore, sales in China create an additional safety cushion for the company’s business. Given the recent victory of the Democrats in the US presidential election, the political situation should be stable. Besides, despite the negative impact of the withdrawal of investments and the fall in the market price of Tesla, the total effect of the infusion of 1.9 trillion dollars for the US economy promises to be positive and in the long term will create preconditions for an increase in demand.
Social factors are also mostly favorable, as purchasing an electric car in consumers’ minds is associated with participation in the struggle with climate change and sustainable development. Tesla has demonstrated a high level of functioning of the supply chain and charging services by implementing technical innovations. Consequently, the domestic market does not yet provide expansion opportunities, while the addition of a new production line at the Shanghai plant can be considered a successful solution.
Managing the Quality Imperative for Global Competition
TQM Means to Strengthen Organizational Performance
Total Quality Management is “a continuous process of identifying and reducing or eliminating production errors, optimizing supply chain management, improving customer service and ensuring that employees have time to complete training” (Barone, 2020, para. 1).
The main goal of TQM is to involve all parties in the production process to ensure the high quality of service or product. In other words, TQM aims to improve core business processes and the performance of company participants to guarantee higher customer satisfaction. Primary elements of TQM include customer-focus, total employee involvement, process-centering, integrating system elements, strategic and systematic approach, continual improvement, fact-based decision-making, and communications (What is total quality management, n.d.). Tesla can apply the following TQM to strengthen organizational performance: improve communications and employee involvement.
The rest of the TQM elements are already implemented by the company, given its highly effective customer services and integrated process-centered business system. The company always makes well-informed decisions and utilizes a consistent business strategy. Improving communications is justified because often critical news messages remain unanswered by the company, which creates tension concerning its public image. Besides, there is always room for improvement in employees’ working conditions, including the emotional environment, since increased job satisfaction positively affects the quality of services.
ISO 9000 Standards to Employ
The ISO 9000 family represents the various standards vital for TQM. The most well-known ISO 9000 standards include seven quality management principles: customer focus, leadership, engagement of people, process approach, improvement, evidence-based decision-making, and relationship management (Quality management principles, 2015). Moreover, ISO 9000 and ISO 9001 offer direct advice regarding the actions one can take to implement these standards, rationale, and key benefits. Tesla should employ relationship management and engagement of people practices to strengthen its organizational performance since it already realized the other measures in full.
According to the ISO 9000 official document, relationship management with interested parties ensures sustained success. In the case presented, some work should be done to manage relationships with investors in considering the stock market crisis.
For instance, the investors could be provided with performance feedback to enhance collaboration. Besides, Tesla could encourage and recognize investors’ achievements and improvements and establish some collaborative improvement activities. Due to the pandemic and the shutdown of factories in California and New York, employees may feel frustrated. Therefore, the company should implement practices aimed at the engagement of people. Tesla can communicate with its employees – directly or through a company statement to acknowledge their contribution. The company may also conduct surveys to evaluate employee’s job satisfaction, discuss the results, and take necessary actions.
Global Practices to Strengthen Organizational Performance
Given the discussion above, the company should continue existing practices and introduce several new ones. First, Tesla successfully implements procedures to improve product quality, including TQM and ISO 9000 elements like being customer-focused, process-centered, implementing the integrated system that considers horizontal processes, and presenting the long-standing development and improvement.
Practices of communication, employee involvement, and relationship management should be implemented and further receive particular attention. Tesla ensures high customer satisfaction, introducing innovations that allow customers to experience maximum convenience at all stages of purchasing and using products; therefore, the customer service is close to perfection. Cost containment is already done through the suspension of factories in California and New York. The company also implements the practice of cut costs due to innovative technologies at a factory in Shanghai. Since this practice is proven effective, Tesla should use robotic innovations in its US factories.
Thus, a meaningful discussion concerning Tesla’s fundamental business processes was provided. Besides, the recommendations were given to ensure that the company meets the best ISO 9000 standards and adheres to TQM principles. Critical observations include the necessity to utilize the relationship management and employee involvement practices to improve relationships with investors and reduce the level of frustration among the US employees. Tesla’s cost-savings policy looks very effective since it is based on innovations and an informed decision-making approach.
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