Tesla CEO Musk has been vocal about the company’s prospects of future prospects leading to its roughly $60 billion dollar valuation.
Missionary. Pioneer. Entrepreneur. Whenever one thinks about either one of these words, or a combination of all three, Elon Musk comes to mind more often than not. Founder of Space-X, Pay Pal, Hyperloop and SolarCity to name a few. But perhaps what Musk has generated most fame by is his automobile manufacturing company Tesla. A household name,especially in North America, Tesla has accumulated a reputation for being a pro-environment manufacturer with tremendous potential for the future. Which leads to the current criticism that the company faces: When will this future ultimately arrive?
Tesla faces one problem that doesn’t have a simple solution: How does it penetrate into the mainstream sedan market that is already so saturated? One approach that CEO Musk has tried is setting up over-ambitious production targets which include increasing production five-fold over the next year. Also, meeting production for it’s latest mainstream Sedan called the Model 3 is turning cumbersome. When the Model 3 was announced it generated positive reviews because it was priced (at nearly $ 35000) (1)to compete with mainstream fuel consuming vehicles. The response was so huge that it generated a wait list of almost 500,000 consumers.(2) However, Tesla has failed to deliver on its promises .
The Model 3 has received a positive response due to its sleek shape and good mileage.
Tesla has only delivered 220 Model 3 sedans so far and has only produced 260 more in the entire third quarter.(3) When a customer on the wait list inquired about the status of the Model 3, Musk simply responded through twitter that currently Tesla is in “production hell” (3) and he would communicate the status as soon as he himself knew. This could have severe implications for the brand reputation of Tesla as customers would eventually grow tired of unprofessional responses and not seeing concrete work done. Furthermore, Tesla has recently fired several employees after poor performance reviews (2) due to the overburdened staff not being able to deliver quality work. Thus, the over-ambitious approach that Musk has taken could’ve backfired.
One of Tesla’s main arguments in its value proposition is that it provides a car that consumers can drive with the surety that it is neither harmful to the environment nor violates any other ethical law. Thus, the entire authenticity of Tesla’s value proposition could be in jeopardy if the Model 3 crisis is not resolved.
One simple way to resolve the crisis could be to have tighter accounting procedures and budget controls installed and a better communication set up within the hierarchy. This would ensure that the targets set are achievable keeping in mind the company’s current potential and that all stakeholder’s are satisfied. As Stakeholder Theory states, a company will remains profitable as long as it aims to satisfy the needs of most stakeholders in an efficient manner. Thus, the explosive creativity of Musk needs to be hit with the cruel reality of financial limitations in order for a viable product to be produced.
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Citations:
1 Danielle Muoio, Here’s the real price of a Tesla Model 3,http://www.businessinsider.com/tesla-model-3-price-2017-8
2 Associated Press in Palo Alto, California, Tesla Motors fires hundreds of workers for poor performance reviews, https://www.theguardian.com/technology/2017/oct/15/tesla-motors-fires-hundreds-workers-performance-reviews
3 Reuters, Tesla in “production hell” to meet model 3 deadline, says Elon Musk, http://www.smh.com.au/business/innovation/tesla-in-production-hell-to-meet-model-3-deadline-says-elon-musk-20171006-gyw790.html