Tesla Case International Business

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Issues of Capital

The automobile market is a highly capital-intensive industry and innovative companies like Tesla are no exception to this rule. Tesla faces one key aspect that limits its response time, freedom to follow its strategies, and reach of its products: lack of financial support.

The company faces many issues by not having a strong financial back, which are mentioned in table 2.

Table 2 Capital related issues

Capital related issues

Description

Mass production

Tesla is facing a transition. If it wants to lead this market and become a profitable company, it needs to increase sales. To do so, it needs make a significant investment to go from its low level of production to mass production.

Sales distribution

Tesla’s strategy eliminates agents between them and its consumers, which removes the need for external sales dealership network. This, however, creates the burden of establishing own dealership network that significantly increases cost and takes time to set up. In contrast, Tesla’s competitors have extensive sales distribution channels which is a catalyst to boost sales

Post-sale services

As in sales distribution, Tesla’s strategy eliminates agents between them and its consumers. This means Tesla requires significant capital to establish a reputable post-sales service and maintenance network. Which is required to provide confidence for clients before buying the product

Competitors

Tesla has positioned itself strategically as a first mover in the pure EV market segment, although it significantly lacks the financial support, which its competitors have, to sustain its position or to increase its response time to movements in the market.

Financing

Until the company gets higher streams of revenue, it’s forced to either, finance its activities through debt or to gain capital through emission of shares. The latter forces the company to lose ownership.

The issues of Tesla’s battery-related issues

The aim of EV mass production has triggered the issue of Lithium-ion battery. In the attempt of increasing sales by manufacturing higher volume of cars, Tesla is going to face some possible battery-related issues that may affect the success of mass production.

The company faces many issues considering its batteries of lithium-ion, which are mentioned in table 3.

Table 3 Battery related issues

Battery related issues

Description

Proprietary right issue

The proprietary rights of Tesla in battery technology might not fully safeguard its competition against other EV makers, in other word, the patent may not be that efficient in preventing competitors joining the EV sector in mass market. The main reason is because other EV makers have already developed their products which are technologically inspired from Tesla’s battery model. It is known that Toyota hydrogen cars, Honda Fit EV, and Ford Focus Electric cars are developing with similar technology to address the need of green cars.

Environmental issue of lithium-ion batteries

In the long run, the lithium-ion batteries may be an issue that makes Tesla go against its go-green principle. The lithium usage in EV production is proved to be harmful to the environment if not recycled properly; the air and soil pollution due to lithium extraction process increases by 2 percent for every extracted ton of lithium (Kushnir & Sandén, 2012). Therefore, using lithium in EV production is not a healthy practice for an environment-oriented product such as Tesla’s.

Natural scarcity of lithium mineral issue

Lithium is a limited natural mineral in the Earth yet the amount of annual lithium needed for Tesla battery production is presumable to be high. It is because of thousands of EV orders coming to Tesla. The natural lithium deposit is exhausted by 2090 (Kushnir & Sandén, 2012) – it is arguably not a favourable condition for Tesla in securing its lithium supply for future batteries manufacturing. Under the theory of demand – supply, the increasing demand for lithium will lead to the increase of lithium price in the market.

Outsourcing issue

The dependence of Tesla on outsourcing its battery manufacturing to Panasonic is an issue. In the event of going mass production, single outsourcing contractor might restrict Tesla from approaching other potential outsourcing contractors. If Panasonic – the supplier of the lithium-ion cells that form the foundation of Tesla's batteries increased the price of battery cell – due to the effect of Panasonic’s high investment on lithium extraction, Tesla would mostly likely incur extra cost of production. It might against the benefits of shareholders due to lower profit margin.

Technical and consumer issues

The effect of the technical and consumer shortcomings has profound impact on the sales and promotion of Tesla products among its customers. The company faces issues within technical areas, which are mentioned in table 4.

Table 4 Technical related issues

Technical related issue

Description

Range

The limited range of the lower end models (87 to 124 miles) is considered as a drawback in comparison to the conventional vehicles from the customer's point of view. This is a direct reflection of the cost reduction of technical components in the mass produced version of the BEV. Even though the daily usage of 75% of the commuters is less than this threshold level the idea of Taking frequent recharging breaks is not appreciated on a general note.

Performance

The key performance indicators of BEV like the loading capacity, endurance, acceleration and top speed are still not a direct comparison to the incumbent competitor due to the higher pricing associated with it.