9-Step Assessment Process for Company’s Future Financial Health TESLA
Step 1: Analysis of Fundamentals: Goals and Strategy
The goal of Tesla is to create the most compelling car company in the Twenty-first century as the rest of the world transitions to electric vehicles. This requires the creation of the highest quality of electric vehicles. The company’s vision is to design and build the highest quality of a car. The stakeholders, such as the employees, customers, and shareholders, are engaged in implementing the mission (Cagle, 2019). The company also believes in implementing modern technology to mitigate risks related to road safety. Get legit paper writing services on company’s future financial health now!
Therefore, Tesla’s business strategy involves accelerating the globe’s transition towards more sustainable energy. This includes creating high-performing electric cars with the use of cutting-edge technology. The provision of variety ensures that the cars are affordable to people of different levels in the socioeconomic spectrum (Hess & Andiola, 2018). This includes the capitalization in the company’s competitive advantage by reducing the cost of manufacturing car batteries.
Research and development are very critical in the case of Tesla, with a focus on software updates, material cost, and automation. This is a strategy that requires significant investment to produce cutting-edge products. Creating Tesla products requires a very sophisticated supply chain for raw materials such as car chips and finished products. Therefore, the product ought to be produced at an affordable price. Manufacturing occurs in China, Germany, and the United States (Cagle, 2019). One of the hindrances is the requirement of lithium which is abundant in Australia and China.
Human resource is at the center of Tesla’s production is required in the efficiency and effective management. This is because rapid growth requires long working hours (Hess & Andiola, 2018). This is something that the company management ensures is well compensated and improves the total quality management.
Step 3: Investments to Support the Business Unit Strategy or Strategies
The company’s future financial health is its ability to meet the financial obligations that guarantee the survival and thrive of the company. It indicates the long and short-term sustainability of the company. For a company to be financially healthy, it is essential to determine whether there are investments that facilitate the sustainability of the strategy whose goal is to develop and attain the company’s direction and vision.
In the case of Tesla, the company focuses on long-term research and development on software updates, material costs, and automation. In 2020, the company invested $1.5 billion in research and development to facilitate the acceleration of the attainment of sustainable energy. This is significantly higher than the amount invested by competitor companies like Volkswagen, BMW, Ford, General Motors, Daimler, and Toyota.
Furthermore, seventeen percent of the company’s profit thus it is more likely to retain its position as the leading electric car manufacturer. Human resources play a critical role in developing and implementing the business unit strategy. The company culture incentivizes intense work in the pursuit of consistent innovation. The potential workers are subjected to an intense recruitment process, thus providing an environment for research and development.
Marketing is an acritical aspect of the company’s business unit strategy, something that has been guaranteed by making electric vehicles affordable, readily available, promoted via social media, and of good quality. This is expected to increase the company’s market share and attain sustainable energy use through electric vehicles. Therefore, Tesla has invested significantly in creating a sustainable business strategy unit.
Step 5: Tesla’s Future External Financing Needs
External financing needs are the requirement of monetary income from sources beyond the control of the management or outside the company. This can be attained by selling shares or debt, with the company taking loans (Zhao, 2021). There are various reasons why Tesla, Inc. may require external financing. This is because the company requires capital to finance the production growth, facilitating an increase in future sales; furthermore, even though it takes 90 minutes to create a car, for example, a Tesla Model 3.
It takes time to convert the working capital into the finished good, and finally, the price. In addition to this, Tesla has a healthy profit margin of 29 percent. However, this is relatively low, which presents external financing. There has been a global campaign to gradually replace the vehicles that use gasoline and other petroleum products as fuel with electric vehicles.
With Tesla being the leading electric vehicle manufacturer, it is expected that the car’s production will significantly increase in the medium to long term. Tesla may need to seek external financing (Vaznyte & Andries, 2019). The company has been forced to take loans from the government, for example, in the bailout after the 2008-2009 financial recession.
This may not be expected due to public relations concerns, but the company can borrow its rapid growth and profitability; it is expected to be relatively easy from external sources. It would be easier for the company to sell its shares. In one of the most interesting strategic decisions, Tesla licenses its autopilot technology to its competitors (Cooke, 2020). This means that the competition may be quite stiff relatively in the future. This presents the need for future external financing needs.
Step 7: Viability of the 3-5-Year Plan
Tesla’s overall objective involves promoting sustainable energy, which involves a significant reduction in the emissions that come from networking fuels. Therefore, the company’s primary product is electric vehicles with zero emissions. Long with pushing for sustainable energy, Tesla Inc. seeks to manufacture and use car batteries that are not hazardous to the environment. The company has one of the most famous master plans as relayed by the company’s CEO and Chairman Elon Musk.
In 2006, the company sought to manufacture a sports car, the proceeds from the sale of the sports car, the Roadster would then be used to make a less sophisticated by affordable car (Hoelzlhammer, 2018). The company would then invest the consequential proceeds in an even more affordable car, something that would help reach a wider market. The company’s three-year plan seeks to resolve some of the challenges that have risen so far. These will be resolved with the three-five year plan.
For example, Tesla Inc. sought to manufacture an affordable car, Model 3, with significantly lower profit margins. To make its manufacture cost-effective, Tesla Inc. seeks to utilize extensive software systems within the facilities. This cost of manufacturing the affordable models has continued to push the company into debt (Shiddiq, 2020). The company’s branding is a critical aspect of the marketing and the overall improvement in the revenue generated.
The manufacture of the futuristic Cybertruck seeks to diversify the company’s target market and thus the overall competitiveness. Therefore, it is evident that Tesla’s five-year plan is congruent with the initial master plan as pronounced by CEO Elon Musk in 2006. Furthermore, the company has a viable five-year plan to optimize the shareholder wealth over the medium to long term.
Step 8: Stress Test under Scenarios of Adversity
The future financial health of a company involves its ability to overcome adversity. Even though the company has had recent success, the continued investment in research and development in an electric vehicle by the company’s competitors in the electric vehicle sector. One of the real-life scenarios that may help tell whether the company can overcome adversity in the future is its response to the recent COVID-19 pandemic.
The company was able to influence the governments in the United States, China, and Europe to facilitate the continued manufacture of cars (Yan et al., 2020). This means that the company’s leadership can negotiate with the political authorities for the best interest of the optimization of the shareholder capital. This is because the company has an overall objective of guaranteeing sustainable energy, which has a net social benefit to humanity.
The company also took advantage of the loans from various governments, such as the Chinese government, to the acquisition facilitating that would facilitate production even during the COVID-19 pandemic. Additionally, as a result of the pandemic, there has been a rise in the cost of material, which translates into the company’s cost of production. One of the effects of the COVID-19 pandemic is the global shortage of chips, which has affected the company’s production of electric vehicles.
Even with the pandemic and the shortage of batteries, the company continued manufacturing electric cars to meet its current market demands (Shiddiq, 2020). The company has overcome adversity by utilizing financial instruments such as debt from public and private sectors. Therefore the COVID-19 Pandemic was an effective stress test for Tesla Inc, indicating that the company mag has a healthy financial future.
Step 9: Current Financing Plan (Tesla Inc.)
Tesla’s current financing plan summarises the business projections and financials for the company’s growth. A financing plan offers a comprehensive picture of the company’s current finances, financial goals, and strategies. Therefore, the company management sets realistic expectations for the business’s success. The company expects to keep increasing its revenue beyond the $53.82 billion attained for the financial year ended 31st December 2021 (Tesla, Inc., 2022).
Therefore, it would be relatively likely that the company would keep increasing the number of units sold, increasing the cost of goods sold. The increase in the number of electric vehicles sold aligns with the company’s goal of accelerating the global transition from fossil fuels to sustainable and clean energy. The company is expected to facilitate the creation of sustainable energy through other projects like Solar Roof, Powerpack, and Powerwall. Therefore research and development are a critical part of the company’s financing plan.
Even though there is an increase in the cost of goods sold as the company seeks to expand its revenue, its profitability has been increasing. Furthermore, as the operating expenses increase, the company’s operating income increases. The growth in the company’s operating income indicates that the company’s overall profitability may grow exponentially in the future, given the current economic climate.
The attempt to create more and more affordable electric and autonomous vehicles may reduce the company’s overall profit margin (Qin et al., 2021). This makes the company more cost-competitive and thus increases revenue and profits. The company’s supply chain is a critical aspect of Tesla’s financial plan, based on the fact that the company has hundreds of suppliers. Any hiccup involving any of the suppliers may significantly impair the overall running of the company.
Ethical implications in the assessment of Tesla’s future financial responsibility
It is important to note that the company’s management is responsible for maximizing the shareholder wealth in both the long and short run. The company is also committed to ensuring that the manufacturing process is conducted in an environmentally responsible manner. Additionally, the manufacturing and supply chain workers are also treated with dignity and responsibility something. This ensures that the worker’s morale is protected, ensuring a smooth marketing process.
Furthermore, the company avoids legal action that could result from worker maltreatment or accidents (Hoelzlhammer, 2018). In the nine-step assessment process in assessing a company’s future financial health, we realized that the company has several ethical critiques, something that may be relevant in the long run. The company has had fraud allegations after buying SolarCity, where the company CEO was accused of enriching himself from the deal. This is an allegation that may come up in the future, hindering the financial prosperity of the company.
Furthermore, the company CEO has been accused of spreading misinformation using social media. This led to a $20 million fine imposed on the company chairman. Therefore Elon Musk’s use of Twitter is of critical consideration in assessing the company’s future financial position. Furthermore, the company has allegedly been engaging in accounting fraud through the misleading of investors.
The company’s current financial standing may be a result of fraud related to the self-driving or autopilot mode, which has increased both the profit margin and sales (Hoelzlhammer, 2018). The full self-driving mode has been accused of deceptive marketing used to differentiate the company from its close competitors like General Motors. Even though we concluded that Tesla is more likely to have a financially sound future, it is also evident that the lack of ethical considerations might hinder this.