Tesla Motor Co. Case

Tesla Motors

3500 Deer Creek

Palo Alto, CA 94304

650-681-5000

650-681-5101

I.

I. Background and Introduction

The focus of this analysis is on Tesla Motors and the electric vehicles they design, develop, and manufacture. Tesla Motors was incorporated in 2003 and using technology developed at the headquarters in California the company introduced the Tesla Roadster in 2008 (Tesla Motors, 2010b). On June 28, 2010 the company filed an initial public offering that was accepted by the SEC. They have also become business partners with Toyota Motor Corporation to develop an electronic version of the Toyota RAV4 to be sold in 2012 (Tesla Motors, 2010b).

The importance of this analysis is two-fold. First, if a company can successfully develop a fully electric vehicle that is affordable and has mass market appeal it would mark a realistic solution to the diminishing worldwide oil supplies. Second, the technology that would be developed could be used as a springboard for the entire automotive industry.

As with any business that is being hinged on new technology, there are significant risks and issues that could potentially be detrimental to the company. Being a new company, there is a very limited operating history for potential investors to go by (Tesla Motors, 2010b). Therefore, future earnings cannot be predicted based on past earnings.

The company is losing money and in the SEC filing for the last quarter they state that they expect to keep losing money for the foreseeable future (Tesla Motors, 2010b). Reasons why the company is losing money are somewhat unclear. For the time being, only one vehicle is offered and is out of the price range of most individuals. What money the company does bring in is being used to fuel research and development. Going into debt for the short term does not seem to be a problem for Tesla.

The automotive industry has undergone some radical changes in the past two years and the public must be willing to buy and drive an electronic car over a car that uses both an electric and combustion engine. Tesla is taking huge risks by using assumptions about the public, relying on new technology, and using a business model that introduces less affordable vehicles to begin with.

Tesla has a management team led by co-founder, product architect, and CEO Elon Musk. Musk has experience in starting up companies; he was a founder of Paypal and is currently a CEO and CTO of SpaceX and a Chairman of SolarCity (Tesla Motors, 2010d). He helped design the first electric vehicle Tesla manufactured and must be considered as one of the driving forces behind the company. JB Straubel is the other co-founder and oversees "the technical and engineering design of the vehicles" as the chief technical officer (Tesla Motors, 2010d).

Vision Statement:

The closest I came to finding an explicitly stated vision statement was in a blog entry by Elon Musk, co-founder of Tesla Motors. Musk (2006) states that "our long-term plan is to build a wide range of models, including affordably priced family cars" and to accomplish that the company would build a sports car and use that money to fund research and development to build a more affordable car and to use the money from that to again, fund research and development to continue the cycle until a fleet of cars has been developed.

There are several issues here with the key issue being it took several hours of research to find anything close to a vision statement and it came from a blog post from a cofounder in 2006. A company needs to have a clear cut vision statement and it needs to be out where everyone can see. Potential investors should not have to spend valuable time to search for something so basic. It does not send the message that needs to be sent to investors.

Looking into more recent documentation from the company, Tesla (2010c) states "we intend to be a leading global manufacturer and direct seller of electric vehicles and electric vehicle technologies" (pp. 112). This is a nice broad statement of where the company wants to be in the future but does not give any sort of timeline. This should not be totally unexpected given the state of flux a new company can be in. I would expect the vision of Tesla Motors to evolve as the company matures.

The vision statement is intended to direct audiences to the future of the company. It is intended to give a vision of what the company will look like when it is completely successful. In those terms the lack of a direct vision statement from Tesla Motors is completely unacceptable. To unite workers and potential investors the following statement could be used: Tesla Motors vision is to create a fleet of world renowned electric vehicles using state of the art technology developed with the notion of helping develop a greener and sustainable world.

It is important in a vision statement that a company makes the focus of its business clear to all who read it. In terms of what Tesla Motors wants to accomplish and how technology supports that purpose, it is clear. This statement lets whoever reads it or hears that know that the purpose of Tesla Motors is to create sustainability in the automotive industry by use of electric vehicles. This is what Tesla Motors wants to accomplish and this is what the long term vision of the company is.

Mission statement:

The Tesla website provides the following mission statement:

"Tesla's mission is to increase the number and variety of electric cars available to mainstream consumers. We're catalyzing change in the industry. Tesla vehicles and EVs powered by Tesla are fun to drive and environmentally responsible" (About Tesla, n.d.).

In the prospectus filed on June 29, 2010, Tesla offered several strategies on how they will accomplish this. The first of these strategies is the successful development and launch of the Model S which is the first family oriented and affordable car that Tesla will offer ("Form 424B4", 2010). The other important aspect of the Model S is that the basic engineering of the vehicle will be the foundation for every other vehicle that Tesla produces. Continuing on that same line of thought, because the Model S is the foundation for every other vehicle that will be produced, it is essential to get up and running the necessary production facilities that actually make the components necessary for these vehicles ("Form 424B4", 2010). To get more vehicles to mainstream consumers Tesla will also need to continuously develop ways