OPERATIONS MANAGEMENT PROJECT

REPORT

OPERATIONS MANAGEMENT: THE TESLA

WAY

PGDM – INTERNATIONAL BUSINESS

K. J. SOMAIYA INSTITUTE OF
MANAGEMENT STUDIES AND RESEARCH

Dibyesh Das (18)

Gourab Mukherjee (20)
Amisha Jain (24)
Pratim Kumar Datta (39)
Under the Guidance of
Prof. Ravindra Baliga

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 Table of Contents

Serial No. Title Page No.

1 Executive Summary 3

2 Introduction 4

3 Market Analysis 6

4 SWOT Analysis 8

5 Demand Forecasting of Tesla Model S 9

6 Corporate Strategy 11

7 Operation Strategy 11

8 Inventory Management 14

9 Supply Chain Management 15

10 Product Development Process 20

11 Production Process 25

12 ERP System used in Tesla 25

13 Quality Management 26
14 Financial Statements 27

15 Conclusions 31

16 References 32

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Executive Summary
In the world of fast, sleek electric cars, Tesla has made a name of its own. Companies have
been there in the electric car segment before and companies have been there after Tesla,
but none have created such an impact on the world as Tesla did. Whether it is due to its
charismatic and outspoken CEO Elon Musk or the company’s relentless pursuit of making
sustainable transport a reality, Tesla has changed the perception of electric cars.

The report begins with the introduction of the company and discusses how the company
wants to change the future of transport. The report deals with the Model S offering of Tesla.
The report delves into the market analysis of electric cars with a focus on how the Model S
fares in comparison with other offerings. The SWOT analysis and demand forecasting are
done for the Model S which tells us about the demand for the car in the market and what
competitive advantage the company has over its rivals. We study the corporate and
operation strategy of the company and find out where the company focuses its attention.
Tesla inventory management is discussed in brief. Tesla’s supply chain is one of its kind in the
automobile industry. Tesla takes complete ownership of the supply chain from the
technological vision of the company to the end consumer experience. Tesla designs
manufacture, sells, and services through their own sales and service network. Product
development process is discussed in brief which gives an idea of how the Model S concept
was conceived. The production process explains how Model S is produced and what type of
ERP system is used in Tesla. Quality management in Tesla is touched upon in brief and
financial analysis of the company is done to understand how the company is performing
financially and at the stock market.

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Tesla Motors

Introduction
Tesla, Inc. formerly known as Tesla Motors, an American multinational corporation, was
founded in 2003. The company was founded by Elon Musk, Martin Eberhard, JB Straubel and
Marc Tarpenning. It was named after the electrical engineer and physicist Nikola Tesla. The
company specializes in electric vehicles (EVs), energy storage and solar panel manufacturing
(through its subsidiary company SolarCity). In this article, our focus will be on the Electric
Vehicles and more specifically, Tesla Model S. As of June 2018, Tesla sells the Tesla Model S,
Model X, and Model 3 vehicles.

Elon Musk, Tesla’s current CEO is an inventor and a maverick entrepreneur, one of America’s
youngest billionaires. He had envisioned the three things that would most affect the future of
humanity - the internet, making life multi-planetary and sustainable energy, and that’s what
ties up his companies, PayPal, SpaceX and Tesla, Inc. Tesla Motors is Elon’s sustainable
energy brainchild that only makes completely electric vehicles, no hybrid and no alternative
fuels. The carbon dioxide emission is 50% lesser even if most of its electricity generation is
from coal power plant.

Currently priced at a starting price of $75,700, Elon Musk envisions Tesla as a technology
company that will eventually offer electric cars at affordable prices to the average
consumer. Tesla’s Model S, launched in June 2012 is competing with the top gasoline cars
in the premium car segment with BMW or Aston Martin.

The Model S is a completely electric-powered car, and Tesla believes it can revolutionize the
face of motoring forever. It is the first ever mass-made sedan powered purely by electricity,
designed to have speed and range. Tesla Model S has combined safety, performance, and
efficiency, and has changed the world’s expectations from a 21st century car, by providing
the longest range of any electric vehicle, over-the-air software updates, and a record 0-60
mph acceleration time of 2.28 seconds. It’s a family sedan that can go from a naught to a
hundred in under six seconds and further on a single charge than any other electric
production car.

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 source: National Geographic
https://www.youtube.com/watch?v=ncw4ISEU5ik

The company's Model S was the world's best-selling plug-in electric car in 2015 and 2016.
Global sales of the Model S reached the 200,000 unit milestone during the fourth quarter
of 2017.

Table 1
source: http://carsalesbase.com/us-car-sales-data/tesla/tesla-model-s/

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Market Analysis

The Tesla Model S lies in the luxury car segment with the other luxury cars like BMW, Audi,
Mercedes and Aston Martin. The target segment for Tesla is the elite class that wants and
can afford luxury cars, and to whom social status matters. There are not many people that
fall in this category, so Tesla cannot do mass marketing for its products.

The tech-savvy people are the ones that are attracted to Tesla’s Model S since it
revolutionized the way that the automobile industry works. Even the ones that cannot afford
this car are drawn to it. So, if Tesla can somehow lower its costs, it already has a huge
potential market waiting for its products. Tesla has positioned itself as a high-tech luxury car
with high safety features and one which promotes sustainable energy.

The Tesla Model S faces competition from Nissan Leaf, Ford Focus and Kia Soul EV in the
Electric Vehicle (EV) category. It also faces competition from its own products. The sales for
Tesla’s Model S dropped after the launch of Tesla’s Model 3 in 2017.

source: http://carsalesbase.com/car-sales-comparison/#

China is a potential market as well as a threat for Tesla, as it has the maximum number of
electric vehicles’ manufacturing industries. According to Forbes, Chinese automakers
churned out 680,000 all-electric cars, buses, and trucks in the year 2017 which was more
than the rest of the world combined.

The global electric vehicle market was valued at $118,864.5 million in 2017 and is projected
to reach $567,299.8 million by 2025, growing at a CAGR (Compound Annual Growth Rate) of
22.3% from 2018 to 2025.

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source: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/dynamics-in-the-global-electric-
vehicle-market

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Swot Analysis

Strengths:

 Brand recognition – Tesla has become a well-recognized brand. People associate

luxury, higher technology, innovation, high performance, sustainability and safety of
the brand Tesla.
 Sustainable innovation - Tesla is best known for sustainable innovation. Its focus is
to guide the world toward a better and more sustainable energy source.
 Engineering and technological expertise – Tesla has brought about a change in the
automotive industry with its technical innovations. Not just the Tesla Model S, but
also the production factory boasts of high technical and design expertise.
 Fast growing supercharger network – Tesla’s growing supercharger network enables
higher sales of Tesla’s Model S. Its network has expanded throughout North America,
Europe and Asia, thus resulting in higher sales for Model S in these regions.
Weaknesses:

 High cost – Tesla’s Model S lies in the premium category segment, and hence mass
marketing for this product is not possible.
 Limited presence – Tesla’s sales network depends on its supercharger network. This
network is expanding, but it is still limited.
 High production and operation costs – Tesla’s production and operation costs are
very high, and it is currently undergoing losses. Tesla has tried to bring down these
costs for Tesla Model S by ramping up its productions, but it is still very high. Because
of the high production and operation costs, the price of Model S cannot be brought
down.
Opportunities:

 Growing demand of sustainable products – Sustainability is not a fad but a

megatrend, and it here to stay. Oil is a non-renewable resource that is quickly
depleting, and its prices have also gone up. Pollution caused by transportation is the
second largest contributor to the increasing level of carbon-dioxide. There is a very
high need for sustainable energy sources, and it opens up a huge potential market
for Tesla if it can bring down its costs and make it available to the middle class also.
 Supply chain, sales and maintenance network in Asia – Asia is one of the biggest
markets for most products because of the huge population, especially in China and
India. Tesla needs to expand its supply chain, sales and maintenance network across
Asia. There are various countries in Asia that have high socio-economic differences
like UAE, and Tesla can target these countries to increase their sales.
 More low priced models to tap into the rising middle class – Tesla has a great
opportunity to enter into this market if it lowers its price. The middle class
constitutes the biggest portion of the Socio-Economic class, and targeting this
market would be a huge boost for Tesla’s sales and eventually revenue.
Threats:

 Competition - Tesla faces immense competition from both the luxury brands as well
as the environment-friendly brands, since this is a very lucrative segment, and
sustainable energy is the future.

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Demand Forecasting

According to the sales data available in Table 1, we have tried to forecast the demand for
the year 2018 using a 3-month simple moving average, and the errors are also calculated.

2015 2016 2017 2018 Demand Error

Forecast
January 2250 850 900 800 - -
February 2000 1550 1750 1125 - -
March 1200 3990 3450 3375 - -
April 1700 800 1125 1250 1766.666667 -516.6667
May 1700 1200 1620 1520 1916.666667 -396.6667
June 1700 3700 2350 2750 2048.333333 701.6666
7
July 1700 1954 1425 1200 1840 -640
August 1700 2852 2150 2625 1823.333333 801.6666
7
Septembe 1700 4350 4860 2191.666667 -
r
October 1730 925 1120 1912.5 -
November 1700 1400 1335 2625 -
December 3600 5850 4975 - -

source: https://cleantechnica.com/2017/12/25/tesla-vehicle-revenue-2022-73-7-billion/

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Tesla’ Corporate strategy

Tesla’s corporate strategy is to “ to accelerate the world’s transition to sustainable energy.”

The company wants to become the leader in providing sustainable energy solutions and
products that utilise sustainable energy. The firm’s focus on producing batteries, Tesla power
wall, energy storing solutions are some of the ways it is trying to create a renewable energy
ecosystem. The electric car or in general the electric vehicle offerings in the form of sports
cars, a sedan, a mass-market car as well as an all-electric semi-truck forms a larger corporate
strategy of providing all in one sustainable energy solutions. Tesla’s strategy is to become
the market leader in sustainable energy solutions by proving quality offerings. It wants to be
perceived as a company that offers supreme quality products, takes extreme care of its
customers and innovates constantly. One of the important features of the company is its
dedication to innovation and that forms a core part of its corporate strategy.

Producing electric vehicles is only a part of the larger corporate strategy of becoming the
most innovative and competent company in the domain of sustainable energy solutions.
Building a sustainable energy ecosystem is crucial to the long-term success of the company.

Tesla’s Operation strategy

Tesla has a different operation strategy for different products. The scope of the report limits
us to the understanding of the operation strategy deployed by Tesla for the production of
the Model S variant of its electric car offering.

There are five options for operation strategy formulation namely:

 Product portfolio
 Process
 Capacity
 Technology
 Supply chain

Product portfolio

As Tesla is the first electric automotive start-up in 99 years of automotive history, it wanted
to start with a low volume, high priced product. It wanted to create an image of quality

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among the consumers. Therefore it started with an electric sports car called the Tesla
Roadster. After having established itself in the industry and proved the concept of an electric
car is equal to a gasoline car, it started producing the Model S, an all-electric sedan, priced
at a lower value than the roadster.

Tesla wanted to keep its product portfolio small in order to concentrate on one product at a
time. It was basically designing everything from scratch and hence such a strategy was
imperative for the company to succeed. Also, limited colour choices were available and
modifications and upgradations were done through software updates.

Process

Tesla follows an intermittent or batch flow process. There is a high level of integration.
Different parts of the Model S is made in different parts of the factory and then assembled
together. There are lots of processes which are followed by Tesla which do not have any
precedence in the automotive industry like fitting an electric motor and a battery pack in the
car. All these processes make the process flow different from the traditional automobile
industry.

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Capacity

Capacity is the maximum number of output per unit of time. As per the announcement made
by Tesla at the end of Q3. 2016, the manufacturing facility at Fremont, California has a
capacity of producing 2000 vehicles per week.

Tesla has the following way of measuring productivity in the organisation:

 Powertrain units per day (Automotive production plant facility productivity)

 Automobiles per day (Tesla car production plant facility productivity)
 Inquiries addressed per day (Customer service productivity)

Technology

Being primarily a technological company, Tesla focuses on the latest technology. Some of its
manufacturing processes have no precedence in the automobile industry. Tesla uses
automation to the fullest. There are more than 160 robots working on the Model S sedan.
Tesla also makes many parts itself, a rare phenomenon in the automotive industry. Tesla has
developed the technique of using the lithium-ion cells in a particular way to increase the
range of their cars.

Supply chain

The supply chain of Tesla differs from traditional car manufacturers. It does most of the
manufacturing in-house which reduces its dependency on external suppliers and also helps
it in quality management. In this strategic decision area, operations managers focus on
adequate supply and an effective and efficient supply chain. Tesla has a global supply chain
aimed at supporting its manufacturing processes. For example, high productivity of the
company’s manufacturing plants in the U.S. benefits from timely shipment of materials from
overseas. As an automaker that focuses on manufacturing in the United States, Tesla’s
operations management automates major areas of the supply chain, while constantly
looking for strategic partners in the industry.

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Suppliers and Inventory Management
Suppliers

Pic courtesy: https://blog.sprinklebit.com/wp-content/uploads/2013/08/tesla-info.jpg

As Tesla works on the latest technology, a large number of components are manufactured
by the company in-house. But Tesla sources more than 2000 parts from over 300 suppliers,
the majority of them are single-source suppliers for the components. The picture above
shows the various suppliers of different parts of the Model S.

Inventory Management

Tesla’s inventory has primarily four parts namely:

 Raw materials
 Work in progress
 Finished goods
 Service parts

Tesla tries to minimise risk and hence keep very little inventory. It places customers on a long
waiting list and produces cars based on the demand. Tesla practises Just in Time (JIT)
principles of inventory management. It gives emphasis on waste reduction and reducing non-
value added activities. By keeping low levels of inventory and producing based on demand,
Tesla minimises the risk and the cost involved with storing a lot of excess inventory. The lead
time in delivering a vehicle is compensated by the company by providing free updates to the
vehicle, which the customers may not have paid for. By freeing the resources from storing
inventory, Tesla allocates those resources to fuel growth and innovation. According to their
May 2013 Form 8-K, better inventory management contributed over $30 million in cash and
reduced logistics costs. This is an impressive achievement considering sales in the same
quarter was $526 million, meaning direct savings from better inventory management was
around 5.3%.

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Supply chain Management
The automobile sector has an impressive number of supply chain innovations. Ford's
assembly line to Toyota's lean manufacturing, all were highly valuable for the development
of supply chains in other industries.

Now It turned for Tesla. Tesla stands out as the EV maker that has uniquely captured the
public’s imagination. Tesla’s corporate strategy has been central to optimizing the customer
experience and bringing into the market a product that people would want. However, none
of this was possible without an immensely sophisticated supply chain system that
simultaneously reflects Tesla's values.

Made in America – complete ownership of supply chain

Tesla’s business model works on an idea that had been critical for their success - to take
complete ownership of the supply chain, from the technological vision of the company to the
end consumer experience. Tesla designs, manufacture, sells, and services through their own
sales and service network. Tesla currently produces cars in California. This is against the
conventional wisdom about low-cost labour manufacturing locations should be targeted for
production. In a conventional way, Ford is planning a new $1.6 billion factory in Mexico.
However, Tesla’s plant is 30 km away from company headquarters in Palo Alto, One of the
most expensive real estate prices anywhere. Tesla can do this because of its advanced
robotics, most of which is designed for M2M communication and interaction with thousands
of workers on the shop floor. To achieve this initially prices were kept very high. But in 2017
Q2 explosion of pre-orders for close to 300,000 Model 3s for $35,000 per piece Strengthen
on the premise that affordable cars can be made in the U.S – to achieve that end to end
supply chain should be cost optimized.

Vertically Integrated

Outsourced manufacturing became the corporate and operations strategy in the 1990s. It
was because of NAFTA and the rise of Chinese manufacturing. Tesla is rapidly going the other
way.

The Fremont facility a full-service auto plant. Taking integrated manufacturing beyond that,
Tesla is building The Tesla Giga-factory 1, an absolutely giant battery factory in nearby
Nevada. This plant will take in elemental raw materials like copper and aluminium to produce
finished battery packages for integration.

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15
On top of that, Tesla is also continuing invest in a network of supercharger stations around
the country. This should ensure that customers have a viable alternative to the gas stations
we take for granted when driving ordinary internal combustion engine vehicles.

Tesla’s Giga-factory Supply Chain Vertical Integration:

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17
Embracing the digital disruption - Digital Supply Chains

In the era of digital disruption, Tesla has embraced the practice of shipping product digitally
rather than physically. It is amazing how the instrument panel, big navigation screen and
amazingly even the engine control algorithms update over the cloud automatically whenever
the company ships a new product.

Because of designing the vehicle from the ground up as a hybrid of mechanical technology
and digital technology, Tesla is positioned to indefinitely sell new capabilities to existing
customers. These include not only information features like gauges, GPS enhancements or
entertainment systems but also physical add-ons like speed, braking etc. It is like Tesla is
really just selling a giant iPhone with state of the art software capabilities.

Microsoft, Google Facebook and the mega-cloud providers like Amazon Web Services, Azure
all have an infrastructure as a service (IAAS) strategy that depends on a stack of technology
from silicon to screen. In this cloud based digital world, in which most of us will work in or
buy from for decades to come is heavily being invested upon.

There is a strategic parallel between winning in the cloud and leveraging it for supply chains
that are faster, cleaner, cheaper and closer to the customer.

Tesla’s strategic architecture looks a bit like Apple. Virtually integrated supply chain stack
from software to retail. It also looks a lot like the 1920s Ford taking iron ore, glass, rubber
and other raw material in at one end of the factory and rolling out Model Ts from the other.

Tesla is transforming the rules of the supply chain with the digital wave.

Unique inventory management and direct selling to the consumer:

Tesla has rejected the traditional franchise-dealer sales model. They prefer to sell directly to
their consumers. The savings for consumers in the direct-to-consumer model is around
$2,225 for a $26,000 vehicle or around 8.6%. Customers can view cars in showrooms, but
have to complete orders online and will have cars shipped in from elsewhere. To minimize
risk, they keep very little inventory. They have chosen to place most of their customers on a
several month long waiting list. By keeping a little inventory and by producing on the
demand, they minimize the amount of capital and risk tied up with storing excess
inventory. In this method consumer can also customize according to their needs and Tesla
can deliver accordingly – not possible in immediately drive a stock car off the lot. Inventory
management contributes to over $30 million in cash and reduced logistic costs - direct
savings from this inventory management was around 5%

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Product development process
The idea behind the Tesla Model S:

Tesla was founded in 2003 by a group of engineers who wanted to prove that people don't
need to compromise on driving electric cars - electric cars are better, faster and more
interesting than gasoline cars. Today, Tesla is not only manufacturing all-electric vehicles but
also manufactures unlimited scalable clean energy generation and storage products. Tesla
believes that the world will stop relying on fossil fuels and move toward zero-emissions as
soon as possible. It aims to accelerate the world’s transition to sustainable energy.

Musk wants to help with some environmental issues and really change the reference frame
when each of us considers buying the next car. Musk’s vision of making electric cars
competitive in terms of luxury and accessibility is bold, but it’s hard to beat him. Think of
companies like Coke, Dove, and Zappos: they have a higher purpose than the products or
services they sell. When you consider Coca-Cola and connections, pigeons and
empowerment, Zappos and unconditional services, you'd better add Tesla and world
changes to the list.

As a tone setter, before going for a mass production, Tesla wanted to create a good user
experience for its product. People and Govt. were all fed up with the problems arising from
fossil fuel consumption. Since fuel is a limited resource, sometime in future it will run out of
the stores. The number of cars in use is increasing day-by-day thereby putting more pressure
on the non-renewable energy. Tesla’s intentions is to reduce this dependency.

Launched in 2008, Roadster introduces Tesla's state-of-the-art battery technology and

electric powertrain. From there, Tesla designed the world's first premium all-electric sedan,
the SM model, from the ground up - it has become the best of its kind in its class. Combining
safety, performance, and efficiency, the Model S resets the world's expectations for 21st-
century cars, with the longest range of an electric car, making it a better wireless software
update over time, and a record 0- The 60 mph acceleration time measured by Motor Trend
is 2.28 seconds.

What is Tesla doing that will keep it ahead of its

competitors?
Tesla is not just a car company; it is a technology company that builds technology platforms.
With this, it also positions itself as a leader in the energy industry and the sharing economy.
It will bring the same integration, data analysis and elegance to cars in these industries.

The Tesla car was designed from the ground up as a computer on wheels. Almost all features
are controlled by software, which enables companies to continuously analyze data and
optimize its functionality - just like Google Search and Apple Siri. With billions of miles of
driving data, Tesla is expected to offer comprehensive autonomous driving capabilities.

Tesla's high-tech, 0% emissions - from the car anyway - in the 3.2-second car 0 to 60 mph is
the disassembly of the model S. Model S has got the highest safety rank in the USA. IHS
technology reveals the car's infotainment and instrumentation system. "The cost structure
of electronic products, the use of large displays in the cabin, touchscreen-based controllers,
mobile microchips - everything in this design makes the Tesla experience more like a media
tablet or a high-end smartphone than a traditional car," Andrew Rassweiler, senior director

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of IHS materials and cost benchmarking, said. The media control unit of Model S is built
around a 17-inch display which is, according to the report, some 10 inches larger than the
typical screen sizes seen in most automotive head units, and its 1,920 by 1,200 resolution is
far higher than the norm in cars. "The mobile device-like approach to the user interface of
Model S represents a very deliberate choice by Tesla," Rassweiler said. "The company
wanted to do things differently and employed virtual controls—rather than physical knobs
and buttons—to take over the user experience. This approach required a heavy investment
in big displays and touch panels, similar to the approach Apple took when designing the
iPhone and iPad."

In July 2016, Elon Musk announced that Tesla will use these technologies to build a shared
sharing platform called Tesla Network, through which owners can rent their cars as
automatic taxis and contribute to their Investments from profits. As per his explanation,
“Since most cars are used by car owners only 5% to 10% of the day, the basic uses of a real
autonomous car may be several times more than this. The sought-after cars can account for
a significant share of the car-sharing economy – an economy that is expected to change the
transportation industry and disrupt the auto market.

In a nutshell, below are the things that come with Tesla and its Model S

 Annual inspection (or every 12,500 miles)

 24-hour roadside assistance
 System monitoring
 Remote diagnostics
 Software updates
 New features

What goes into making one unit of Tesla Model S:

 To create a Model S, Tesla starts with 50-60 coils of various types of aluminium, each
coil weighing up to 20,000 pounds.

Source: https://www.businessinsider.in
 The coils are unwound & the aluminum is flattened. Then it is fed into a blanking
machine.

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 source: https://www.businessinsider.in/Heres-How-Tesla-Builds-The-All-Electric-Model-S-In-Just-3-Days/The-coils-
are-unwound-and-the-aluminum-is-flattened-then-fed-into-a-blanking-machine-/slideshow/21291295.cms
 The blanking machine processes these pieces then cuts them into flat and even
pieces. Sometimes a laser is also used to cut the blanks, as can be seen here.

source: https://www.businessinsider.in/Heres-How-Tesla-Builds-The-All-Electric-Model-S-In-Just-3-Days/The-
blanking-machine-processes-the-pieces-and-cuts-them-into-flat-even-pieces-Sometimes-a-laser-is-also-used-to-
cut-the-blanks-as-seen-here-/slideshow/21291296.cms
 These new blanks are fed into press lines and then "stamped" into different shapes
that will later form the panels of the car. One part gets stamped every 6 seconds in
the factory.

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 Next, the newly stamped panels are brought to the body shop and are put together
to create the body of the Model S.

 Tesla uses one of the five different methods to join parts: industrial-strength
adhesive, self-piercing rivets, cold metal transfer welding, new delta spot welding,
or conventional resistance welding as seen here.

 The body leaves the frame area as a complete outer casing, which is conveyed down
the conveyor belt where it is primed and ready for painting. The paint shop is a very
clean environment - dust, dust or other visible particles are not allowed to affect the
surface of the car. The painted body is then sent to the assembly where it is run by
the robot along the assembly line and the robot follows the magnetic pattern
embedded in the floor. Tesla has 160 multitasking robots at its Fremont plant. Here
you can see an advanced robot mounting the seat in the Model S at precise angles.
The same robot that mounts the seat can pick up the windshield, apply glue to it,
and install it into the car in seconds. Of course, the robot can't do everything. In this
photo, the design engineer will check the new model S before sending it. The
Fremont factory has approximately 3,000 employees. Thanks to the help of
hardworking staff and sophisticated robots, the Model S can be completed in just
three days.

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ERP System in Tesla
Tesla Motors has proven that it can build the world's most modern car. Elon Musk
insisted that they have their own IT systems and e-commerce platforms.

CIO Jay Vijayan said that most of Tesla's IT are native. The reason: the traditional
enterprise resource planning (ERP) system did not cut it, the company had a vertically
integrated operation and needed a custom environment.

Vijayan said that the speed and flexibility that Tesla needed in an ERP environment could
not be found on the market. SAP's ERP technology clearly does not apply to other car
manufacturers, and Vijayan knows what is needed to implement and update the SAP
environment.

Within four months, Vijayan and his more than 250 teams built the ERP system, which is
the basis for the operation of electric vehicle manufacturing. Now every department
uses the same system without having the need of custom connectors, so different
systems can work together.

The company has also established a world-class e-commerce system designed to help
people buy cars as seamlessly as possible.

Tesla built its own IT and its own e-commerce system because of the fundamental
differences in its business model. For decades, automakers have sold their cars through
local dealers, which are fixtures in every town in the United States. But Tesla sells cars
directly to customers. All materials, processes, and functions require uniquely designed
operations so that Tesla can sell cars online.

Tesla is another example of how young companies are building their own things for their
business models to reshape technology.

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Quality management

Tesla has said many times its quality control process is extremely rigorous, designed to flag
and correct the tiniest imperfections. However, In quality management, Tesla is not doing
well. Cars regularly require fixes before they can be sent to the factory. Quality checks have
intermittently revealed defects in more than 90 per cent of Model S and Model X vehicles
inspected after assembly. For the most efficient players, such as Toyota - the average post-
manufacturing error is fewer than 10 per cent of their cars. Tesla says the majority of its post-
assembly defects are minor and resolved in a few minutes. Tesla has amazed consumers with
sleek designs, state of the art technology and legendary acceleration on its high priced cars.
A Consumer Reports survey showed 91 per cent of Tesla owners wanted to buy again though
many owners have complained about web portals of irritating rattles, buggy software and
poor seals that allow rainwater to get into the trunk or interior.

Build Fast, Fix Later:

Employees who all worked on Model S and Model X described tremendous pressure to keep
the assembly line moving, even when problems encountered. For example Batches of cars
being sent through with parts missing - windshields, bumpers - because they are not
available. The strategy is that these and other flaws would be fixed later. Allegations are
there that not every team follows the same rulebook, resulting in gaps of different size.
However, Tesla has denied that its quality control is inconsistent and said its intense and
extensive process for locating and fixing errors was extremely successful. Tesla does not
publicly inform on which sigma level they work or if they follow lean strategy. From the
reports of internal workers defects are very high and quality management is very bad at
Tesla.

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Financial Statement Analysis:

Income Statement:

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Balance Sheet:

Current Assets:
Current asset is an item in the balance sheet that shows the value of all assets that can be
expected to be converted into cash within one year. This includes cash and cash equivalents,
accounts receivable, inventory, prepaid expenses, marketable securities and other liquid
assets that can be readily converted to cash.

Long-Term Assets:
Long-term assets or Fixed assets are the value of a company's property, equipment and other
capital assets, reduced by depreciation. This is reported on the balance sheet. Be aware that
long-term assets are usually recorded at the cost price at which they were purchased and do
not always reflect the market value of the asset. Long-term assets include long-term
investments such as stocks and bonds or real estate. Capitalized property, plant and
equipment (PP&E) are also included in long-term assets.

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Financial Ratios: (comparing for 5 years)

Current Ratio:
The current ratio is a liquidity ratio that measures a company's ability to pay short-term and
long-term obligations. To gauge this ability, the current ratio considers the current total
assets of a company (both liquid and illiquid) relative to that company’s current total
liabilities. The formula for calculating a company’s current ratio is:
Current Ratio = Current Assets / Current Liabilities
The current ratio is called “current” because, unlike some other liquidity ratios, it
incorporates all current assets and liabilities.
For a healthy organization, the CR value should lie between 1.5 and 3.

Quick Ratio:
The quick ratio is an indicator of a company’s short-term liquidity, and measures a company’s
ability to meet its short-term obligations with its most liquid assets. Because we're only
concerned with the most liquid assets, the ratio excludes inventories from current assets.
Quick ratio is calculated as follows:
Quick ratio = (current assets – inventories) / current liabilities

Cash Ratio:
The cash ratio is the ratio of a company's total cash and cash equivalents (CCE) to its current
liabilities. The metric calculates a company's ability to repay its short-term debt; this
information is useful to creditors when deciding how much debt if any, they would be willing
to extend to the asking party. The cash ratio is generally a more conservative look at a
company's ability to cover its liabilities than many other liquidity ratios because other assets,
including accounts receivable, are left out of the equation.

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Conclusions
The automotive industry has not seen such unprecedented disruptions as it is seeing in the
last decade. Global giants are finding it more and more difficult to stay competitive in a
changing automotive industry. Tesla has come across as a disruptor in the industry and has
changed the perception of electric vehicles. It has single handily made owning an electric car
a status symbol.

Through demand forecasting, the report analysed that there is a rise in demand for the
Model S in the subsequent years and our calculations also show the same. Tesla has a
corporate strategy to take the lead in moving the world towards sustainable energy and has
its operating strategy designed to achieve the same. It has a unique method of maintaining
inventory and almost sources all its raw materials from a single source. Its supply chain differs
from the traditional automobile industry supply chain and relies on state of the art
technology to get much of the work done. The way they sell the car is also vastly different
from other automobile company, choosing to sell directly to customers which result in cost
savings for the end consumers. The production process for the Model S has a high amount
of automation build into it. It uses more than 160 robots along with around 3000 workers in
its factory. Quality is something of an issue for the company as it relies on build fast fix later
approach where it aims to bring the car to market and later fixes the issues in the car as they
surface. Tesla operates in a region where they are the benchmark and hence it is very difficult
to establish a quality control benchmark and the company should focus on building one.
Financially the company was making losses as it was using much of its cash reserves on
research and development and building the nascent electric car supply chain. This is
synonymous with other Silicon Valley start-ups which burn cash now hoping to make it big
later. This sentiment is resonated by the investors as its stocks are valued highly and are on
an upswing continuously.

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References:
1. https://www.tesla.com/sites/default/files/tesla-model-s.pdf
2. https://studylib.net/doc/9508302/tesla-motors-erp-systems
3. https://www.businessinsider.in/Heres-How-Tesla-Builds-The-All-Electric-Model-S-
In-Just-3-Days/articleshow/21291291.cms
4. https://singularityhub.com/2017/07/24/this-is-teslas-greatest-competitive-
advantage/#sm.0005lb9ao13ryf1nrnd1qf6549lnc
5. https://www.forbes.com/sites/scottdavis/2014/02/24/tesla-tesla-tesla-building-a-
power-brand-from-scratch/#5b00ff777e31
6. https://techcrunch.com/2013/10/31/being-a-cio-at-tesla-motors-a-startup-that-
builds-cars-and-its-own-it/
7. https://www.nasdaq.com/symbol/tsla/financials?query=income-statement
8. https://www.investopedia.com/terms/q/quickratio.asp#ixzz5RBMXdVx8

9. https://www.forbes.com/sites/kevinomarah/2016/04/07/tesla-and-the-21st-
century-supply-chain/#6705bbec2584

10. https://www.wikipedia.org/

11. https://www.wired.co.uk/article/tesla-model-3-production-news

12. https://www.supplychain247.com/photos/telsas_gigafactory_supply_chain_vertica
l_integration

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