Can Elon Musk Turn Tesla Around?
Case Code: BSTR594
Case Length: 18 Pages
Pub Date: 2020
Teaching Note: Available
Organization: Tesla, Inc.
Industry: Electric Vehicles
Themes: Strategic Management, Leadership and Change Management, Turnaround, Organizational Crisis
Abstract Case Intro 1 Case Intro 2 Excerpts
Tesla in Trouble
Fulfilling Musk's "Secret Master Plan," in March 2016, Tesla unveiled its Model 3 – a low-priced, high-volume EV for the masses priced at US$35,000. After being announced, the Model 3 quickly garnered 450,000 pre-orders. Since Tesla sold its products directly to consumers without relying on a dealer network, customers made the required US$1,000 deposit. The car’s production began in 2017. Musk claimed that to make the standard version of Model 3 available at US$35,000, a weekly production of 5,000 cars of the premium versions (Model X and Model S) would need to be achieved. In an earnings call in May 2016, Musk announced the company’s intention to deliver the first batches of the Model 3 in 2017 and predicted that the company would make between 100,000 and 200,000 in the second half of 2017 and complete 500,000 total vehicles in 2018, about 6 times its 2016 production level. In May 2016, Tesla sold US$1.46 billion in stock to raise money to increase the production of the Model 3..
A Rocky 2019
The big question on the minds of analysts was, however, whether Tesla could maintain its momentum in 2019 as the phase-out of the federal EV tax credit for Tesla began. In January 2019, the federal EV tax dropped from US$7,500 to US$3,750. As a result, Tesla's vehicles were set to become more expensive, thereby impacting consumer demand. To complicate matters, the elimination of the federal tax credit prompted some customers to cancel their Model 3 orders...
Going forward, one of the biggest challenges for Tesla would be to continue to ramp up production of its US$35,000 version of Model 3 Sedan, which, according to analysts, was crucial for it to continue being profitable on a sustained basis. Musk reportedly told investors that "it's a super hard grind” to come out with an affordable version of Model 3 and to profitably mass-produce electric cars. Tesla expected to increase its Model 3 production rate to about 7,000 units per week by the end of 2019...
Can Tesla Bounce Back?
Though Tesla successfully raised US$2.7 billion in May 2019, Musk in an email to employees said the company would run out of money in 10 months if it continued to burn cash at such a rapid rate. Musk said "This is a lot of money, but actually only gives us about 10 months at the Q1 burn rate to achieve breakeven! This is hardcore, but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable." ..
Exhibit I: Bestselling EVs Brands and Models (Jan 2017-September 2017)
Exhibit II: Tesla: Consolidated Statements of Operations
Exhibit III: Tesla Model 3 US Deposits and Refunds
Exhibit IV: Executive Departures at Tesla (2018-2019)*
Exhibit V: Tesla: Summary of Key Metrics
Exhibit VI: Tesla: Consolidated Statements of Operations
Exhibit VII: Tesla Vehicle Production and Deliveries (Q3 2017-Q2 2019)
Exhibit VIII: Tesla Market Capitalization (2016- July 2019)
Exhibit IX: Tesla: Cash Balance and Cash Flow
Exhibit X: Tesla Stock Price Chart (2015-July 2019)
Exhibit XI: Top 10 Electric Cars — Worldwide Sales (2018)
Exhibit XII: 2018 Global EV Sales
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