Tesla, Inc: An Organisational Performance Analysis

Analysis of Tesla

Established in 2003 in California, the United States, by a group of young engineers who were enthusiastic about making the world’s most advanced electric cars, Tesla has grown into a leading company in the fields of manufacturing electric cars and developing related technology.

While being praised for its commitment to high quality, efficiency, and sustainability, Tesla still exhibits several weaknesses that can be improved. This article evaluates key areas of Tesla's performance management as of 2017 and makes recommendations for future improvements.

1. Organisational Performance Management and Performance Measurement

For any organisation, performance management plays an important role in monitoring and ensuring that the organisation meets all of its prescribed goals and targets, as well as in communicating these achievements effectively to its key external stakeholders (Robbins & Coulter, 2012). In the case of Tesla, the company imposes various techniques and measurements to keep track of the company’s performance, which is primarily based on productivity.

For example, the company measures its manufacturing performance based on the number of cars produced a day; for the customer service division, it considers the number of inquiries resolved, emails answered, and complaints handled (Christopher, 2016). In addition, Tesla also establishes Key Performance Indicators (KPIs) to monitor its production and inventory and to generally assess the success of achieving the goals within the predetermined duration (Karamitsios, 2013). In fact, for prospective managers at Tesla, familiarity and experience with applying and monitoring KPIs for a particular area are not just huge advantages but also part of job responsibilities (Anon., 2017).

2. Communicating Performance to Stakeholders

Tesla’s key stakeholders include its investors, directors, employees, suppliers, shareholders, partners, the government, financial institutes, and the public. Communicating performance to these entities is not limited to disclosing the company’s financial reports but also informs them about the company’s visions, strategies, targets, milestones, key issues, and major accomplishments (Ekwueme, et al., 2013).

Tesla has maintained regular and efficient communication with its stakeholders. The company publishes its annual report on its website, disclosing key financial data, the company’s strengths and values, potential risk factors, its products, services, network and infrastructures, and other important information (Tesla Motors, Inc., 2016). The company also communicates with its stakeholders by organizing annual meetings for its stockholders with webcasts for those who cannot attend in person, Q&A conference calls to share the company’s quarterly financial results and factory tours for those who want to have a closer look at the company’s manufacturing and operations (Tesla Motors, Inc., 2017). The company also manages its own blogs and official pages on social media websites, including Facebook and Twitter, to keep stakeholders abreast of the company’s latest developments and achievements.

In case some major crisis happens, the company also responds very promptly to keep the crisis under control. For example, when a video showing a Tesla Model S catching fire went viral on YouTube in 2013, Elon Musk, Tesla’s CEO, quickly shared a post on the company’s blog to explain the reasons behind the accident, regain customers’ trust in Tesla’s vehicles and reaffirm the company’s potentials with the investors (Russolillo, 2013).

3. Risk Management

Risk management includes recognizing risk, evaluating it, finding a way to control it, and utilizing managerial resources to reduce or prevent future risks (Berg, 2010). As evidenced from its annual reports, Tesla is quite proactive in identifying potential risk factors faced by the company which exist not only in its external environment but also in an internal environment.

Some risk factors include delays in launching new products, inability to meet increasing production demand, failure to complete the Gigafactory on time, suppliers’ inability to provide the necessary goods and components, volatile currency markets, changes in regulations, etc. (Tesla Motors, Inc., 2016).

In response to each type of risk, Tesla has different risk mitigation plans. For example, to prepare for increasing demands for its products in 2014, the company imposed higher productivity requirements for its manufacturing division to increase production capacity, built a new assembly line and moved production there, and enhanced the company’s body center (Tesla Motors, Inc., 2016). One consistent tactic Tesla has used to alleviate the negative impacts of major potential crises is to involve of top executives at all stages. For instance, when the company faced a major media crisis after a deadly crash involving Tesla’s Model S sedan, Chief Executive Elon Musk immediately took the lead to investigate the incident and communicate effectively to major media outlets to keep the situation in check (The BCM Blogging Team, 2016).

4. Quality Management and Improvement

For manufacturing firms, especially one that boasts high quality as one of its main comparative advantages, quality management and continuous improvement remain crucial. While the definition of quality depends on the perspectives of the people defining it, generally it is agreed that quality refers to the value and usability of a product for the users, including its price, its conformance with standards, and its satisfaction of some psychological criteria (Sanders & Reid, 2012). A company can choose from among various quality management tools and apply them across different departments.

Tesla's manufacturing process it strictly applies the LEAN approach (Tesla Motors, Inc., 2017). LEAN aims to reduce waste during the manufacturing process without compromising productivity (Kumar & Suresh, 2009). As a complement to the LEAN production, Tesla also applied just-in-time manufacturing philosophy for its production to enhance the company’s efficiency and further minimize waste (Tesla Motors, Inc., 2017). The application of these management methods not only ensures the quality of the company’s products but also facilitates the flow of raw materials from suppliers and the delivery of final products to customers, improves communication with both suppliers and users, and reduces production costs by decreasing defects and wastes (Kumar & Suresh, 2009).

Nonetheless, due to its special characteristics—serving a niche market by offering relative luxurious electric cars and using newly-developed technologies—the company still scores low on some metrics related to LEAN and Just-in-Time, such as inventory turnover, which is far below that of its rivals such as Toyota, Ford, and GM.

As for as quality improvement, Tesla has always been praised for bringing disruptive technologies into the playing ground, and the company often boasts about its continuous quality improvement. For example, its battery technology is one of the best in the industry, featuring the most durable battery life, and the company also provides an extensive network of supercharging stations to help its customers with their energy needs (Kelty, 2009).

Not being complacent with its current achievement, in August 2016, the company launched a new 100-kilowatt-hour battery pack that consists of thousands of lithium-ion battery cells and a cell cooling system. The new battery pack aims to help Tesla’s vehicles to speed up faster and drive for longer on one charge (Fehrenbacher, 2016). In terms of new product development, for every new product, the company offers some new and exciting features that capture the public’s attention and interest. For example, if the Tesla Roadster is the world’s first luxury sport electric car that can run over 320 km on one charge, the newest upcoming Model 3 holds a new concept, aiming at a mass market to spread sustainable development (Tesla Motors, Inc., 2016).

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5. Financial Performance

There are various financial data a company can reveal to the public and its stakeholders, communicating different aspects of its financial performance and financial viability (Needles & Powers, 2013). As for Tesla, with regards to the market niche of electric vehicles, all of its vehicle models released so far have remained the best-selling electric car models around the world. In December 2016, Tesla sold nearly 190,000 electric vehicles in all markets, making Tesla the second largest global pure electric car manufacturer across the globe (Hoffman, 2016).

The forthcoming Tesla Model 3, which is expected to come out in 2018, promises another successful product for Tesla, with more than 400,000 pre-orders through sales on the company website (Tesla Motors, Inc., 2017). Tesla conducted its IPO on NASDAQ exchange in 2010 with an initial price per share of USD 17, and it sold out more than 13 million shares almost overnight. As of today, its share price skyrocketed to USD 325, up nearly 20 times compared to its starting price.

As impressive as its increasing trend of its share price and sales revenue is, Tesla's financial statement for the year of 2016 showed that the company experienced a loss of USD 674 million, resulting in negative earnings per share of USD – 4.5. Similarly, its estimated P/E ratio for the year 2017 is USD -42.71.

That these two important ratios are negative might raise serious concerns among Tesla's investors. Nonetheless, the company attributed most of its loss to its enormous spending on research and development to achieve its ambitious growth and production plan and is expected to recoup these investments soon (Vlasic, 2016).

6. Customer and Client Perspectives

Customers and clients are those who buy a company’s products and determine the success of the business. Most companies want to achieve customer satisfaction – what a customer perceives when a product or service exceeds their expectation (Ilieska, 2013). It has been argued that customer satisfaction is highly positively correlated with customer retention and loyalty, ensuring that the customers will come back to use a company’s product or service or refer other customers to the company (Al-Hersh, et al., 2014).

Research by Cahill, Davies, and Turrentine (2014) showed that while buyers regarded their purchase experience at plug-in vehicle dealers as worse than at conventional vehicle dealers, Tesla’s retail stores were reported to give buyers a more positive experience. According to the Consumer Reports’ Annual Owner Satisfaction Survey, more than 90 percent of Tesla’s buyers expressed that they were satisfied with their cars and would want to buy from the company again in the future. That is the highest score in the car industry (Irwin, 2016).

By committing to providing high-quality products and capitalizing on the growing green consumerism trend, Tesla has been able to win its customers’ approval and loyalty. To maintain its positive customer relationship, Tesla administers regular surveys to get feedback from its customers to understand their demands and concerns. In addition, for its customer service personnel, the company imposes certain criteria such as turnaround time to answer customers’ inquiries, number of complaints, number of returned products, etc., to measure their performance (Tesla Motors, Inc., 2016).

7. People Perspectives

A company’s human resource management strategy dictates its organisational structures, values, decision-making process, leadership style, hiring and firing procedures, and reward and incentives system to boost its employees’ productivity and performance (Fottler, et al., 2010).

Tesla established an organisational structure that allows centralized managerial control, underscoring the philosophy of global leadership for the company’s long-term plan of expanding internationally. Among members of its Board of Directors, Elon Musk remains the most prominent figure, not only contributing the most to the company’s finance but also orchestrating most of its product designs, perceptions, and visions (Larcker & Tayan, 2011). Elon Musk manages much of the product development and design of the company’s products and participates in the management of other important aspects of the business, such as human resources, marketing, communication, etc.

To hire the best employees for the company, Tesla conducts extremely intense hiring procedures. Candidates have to go through an extensive interview process with multiple interviewers who ask highly complicated questions and constantly put interviewees under great pressure. Once passing that stage, the candidates have to persuade Elon Musk himself to hire them (VoiceGlance, 2015). Nonetheless, with its generous pay and benefits, as well as the exciting and challenging work environment, Tesla is still able to attract and receive thousands of applications for many vacancies around the world (VoiceGlance, 2015).

In addition, Tesla emphasizes employee engagement in its management strategy, calling employee engagement the major driver of customer satisfaction. To promote active employee engagement, Tesla starts with garnering commitment from the company’s top leaders, ensuring communication transparency across the organisation, and carrying out a periodical Tesla360 survey to understand its employees’ concerns and aspirations (Alexander, 2015).

8. Recommendations for Improvement

It has been argued that a sustainable organisational performance system has to exhibit certain pervasive characteristics: high-level ambitions; strategic business plan; performance measurement system; objectives; execution; monitoring; authentication; communication; review and assessment; continuous sensitivity; and commitment of leaders and staff at all levels (Mackie, 2008). Therefore, from the above analysis, it is recommended that Tesla adopt several strategies to improve its current management system.

First, although the existing communication strategy is quite effective, to better communicate with its key stakeholders, the company needs to improve its protocol and procedures. For example, in the case of crisis communication, the response time needs to be made faster and across more channels than now. The company can consider utilizing some platforms, such as social media websites, to reach out to its customers more quickly and efficiently. Another example is that when addressing its financial position to its investors, the company should not just simply brush off its current issues but should instead elaborate on how the future revenue from its new products can facilitate the situation.

Second, in terms of target setting, while Elon Musk can secure the support of most of the company’s top leaders, he should consider a more reasonable short-term and long-term goal to reduce the financial pressure Tesla is experiencing at the moment. Ambitious goals motivate the employees to aim high but can easily backfire if these goals cannot be met.

Third, as for human management practice, the company needs to set up a more objective and consistent reward and incentive system. For example, it has been reported that the assessment of a team’s performance is highly dependent on Elon Musk’s opinions, and in the past, he has been known to disregard employees’ efforts simply because he changed his mind about a product (Eadicicco, 2015). In addition, due to the high demands of working at Tesla, many employees find it hard to balance their work and personal life. To retain the best talents and motivate them to contribute further to the company, Tesla should address these issues soon.

Fourth, regarding the company’s quality management system, to keep its leading position in the field of electric vehicles, the company should consider more techniques to improve its current practice. For example, it can apply total quality management, or ISO 9000 for manufacturing, to both facilitate its international expansion and ascertain the commitment to productive performance of its staff.

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.