Business management internal assessment

How has technological development affected Tesla's profitability ratios?

Student code: hzn090

Word count: 1323

May 2022

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 Table of content

Introduction………………………………………………………………………………………..3

Discussion…………………………………………………………………………………………3

- PEST...…………………………………………………………………………………...4

- SWOT……………………………………………………………………………………..5

- Gross profit margin………………………………………………………………………..7

Conclusion………………………………………………………………………………………...8

Bibliography………………………………………………………………………………………

Appendices…………………………………………………………………………………………

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Introduction
Tesla Motors is an American company which produces electric cars. According to Tesla's

website, "Tesla builds not only all-electric vehicles but also infinitely scalable clean energy

generation and storage products. Tesla believes the faster the world stops relying on fossil fuels

and moves towards a zero-emission future, the better"(Tesla, n.d). Their cars are in favor of

millions of people over the world with four different car models. Models S, Y, 3, and model X.

Tesla even produces solar panels/solar roofs. Tesla’s business model is different from that of

most automobile manufacturing companies because it owns the entire supply chain from

manufacturing to distribution. This strategy is driven by the ultimate goal of lowering

manufacturing costs and costs of goods sold, thereby assuring the business’ sustainability. This

article aims to find out how has technological development affected Tesla’s probability ratios,

with the help of 3 tools that are used in order to analyze different aspects of businesses like the

external and internal factors that affect them, their assets and liabilities, strengths and

weaknesses, and more.

Discussion

Different types of tools need to be used to understand the technological developments that

have affected Tesla's profitability ratio. Firstly, we have to analyze Tesla’s swot, swot is the

strengths, weakness, opportunities, and threats that a business has. Swot analysis is a way for

assessing those 4 elements of your business. Swot analysis looks at both internal and external

factors and what is happening inside and outside the business. Secondly, the tools that a business

uses is pestle analysis which contains the political, economic, social, technology, environmental,

legal aspects. All businesses need balance sheets in order to know a summary of their business

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assets, liabilities, and shareholders equity. Balance sheet is one of the three financial factors that

evaluates a business.

PEST

Political: The US government has showed interest in renewable energy and electric vehicles, and

Tesla was granted a $465 million low-interest loan from the Department of Energy. While Tesla

has paid off the loan, they may not have been able to attract as many investors if it had not been

for it. Tesla aims to distribute vehicles directly from the manufacturer to the consumer,

bypassing the private-owned dealerships as a third-party intermediary.

Economic: In the United States, growth is modest, but it hasn't stopped consumers from buying

automobiles on credit with "offers" like 0% financing. The trick, which most people are unaware

of, is that when the automobile is sold, the interest is already factored into the MSRP, increasing

the base price while giving the impression that the customer is receiving a good bargain in the

long run. Sales have returned to where they were before the market collapsed. Tesla has been

able to emerge from the recession with steadily rising stock prices.

Social: Most residents support putting our charges into feasible energizes and items utilizing

maintainable assets. Indeed, even after most organizations who were given enormous

government advances neglected to appear into effective organizations; Americans are as yet

strong of the undertakings to make a reasonable economy.

Technology: Tesla gathered a group that was a blend of experts from the vehicle business and

individuals with their foundations in Silicon Valley. Musk accepted that Tesla's Silicon Valley

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roots gave it a significant advantage when it arrived at this sort of development. Their

enhancements in batteries, optimal design, and moving opposition are prompting an expansion of

40-half in range proficiency for the model Roadster 3.0; making it the main vehicle to have a

normal scope of 400 miles ( Rakesh, 2018 ).

Swot analysis:

Figure 1 SWOT analysis of Tesla

Strength:

Unique position in the auto market: Tesla is not always the best vehicle mobile producer that

gives electric powered vehicles, it has created, and dominated, the marketplace for luxurious,

long-variety electric powered automobiles. This marketplace is awesome from the only for much

less high-priced electric powered vehicles, in addition to the marketplace for luxurious gas-

powered vehicles.

Robust sales growth: Tesla has grown rapidly in recent years, largely due to the public's

enthusiasm for the car. Revenues in 2015 increased 27% after a 59% increase in the previous

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year. The extraordinary growth was driven by strong global demand for the Model S. Orders for

the Model X, introduced in the third quarter of 2015, gradually increased five-fold in the first

quarter of 2016.

Weakness:

Burning through cash: This is mainly due to a considerable investment Research and

development of innovative car technology. Top automakers recorded sales of over $ 200 million

in 2011, but in recent years have reported sales of over $ 4 billion.

High debt load: The company has a relatively high debt burden. As of March 31, 2016, Tesla's

balance sheet had nearly $ 2.5 billion in long-term debt and leases, or about 72% of total assets.

Opportunities:

Model 3: Tesla’s newest brand was recently introduced to much excitement and fanfare in late

March of this year. The Model 3 is priced much lower, at $35,000, the value tag puts the

vehicle within the same price range as lower-end Mercedes-Benz and Audis. Elon Musk, CEO of

Tesla, stated that “you won't be ready to buy a more robust car for $35,000, even with no

options” (Tesla, n.d)

Cost reductive initiatives: To be able to finally report profits for Tesla, we need to reduce costs.

that is Take action to achieve this goal. As mentioned earlier, the company is manufacturing

batteries for vehicles at a low cost, which can be as much as 30% lower than what you are

currently paying.

Threats:

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Funding for scale: There are concerns that Tesla may not be able to fund its ambitious production

launch in the coming months. Tesla surprised many when it announced in 2018 that it would

produce 500,000 units two years earlier than planned, but many wondered how exactly it was

planned.

Competition: Tesla is in its own position, but the car market is very competitive. Given the high

prices of current products, most of the competitors are other luxury cars, all of which currently

use standard internal combustion engines.

Gross profit margin:

Profitability ratios are ratios used to calculate the profit that a business gain. They can be divided
into two different ratios: gross profit margin and net profit margin. Gross profit margins are
calculated by dividing gross profit by the sales revenue and multiplying it by 100 to gain the
percentage. On the other hand, net profit margins are used to measure the profit of a business
after subtracting the costs from the sales revenue. Net profit before interest and tax is divided by
sales revenue and multiplied by 100, though for this investigation only gross profit margin is
used.

The gross profit margin for Tesla is:

gross profit US $ 4,847,000

= ×100=27.35 %
sales revenue US $ 17,719,000
Tesla generates a gross profit margin of 27.35 % this means that for every 100 dollars of sales $
27.35 is its gross profit.

Conclusion
This results of this study indicate that Tesla is a profitable company with many areas for growth.

Tesla’s PESTE analysis shows that they are developing new methods and technologies while

coping with governmental norms and the Covid-19 pandemic to bring forth the most profitable

state of the company. Tesla has an active corporate social responsibility and aims to make their

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products carbon-neutral in order to alleviate the environmental situation which will also increase

their market share by becoming more diverse. Along with its many opportunities and areas for

growth, Tesla also suffers from a lot of costs which can be considered as a weakness to their

business infrastructure; however, this may be combated with the release of new products like the

Cybertruck and new models.

Bibliography

Chinta, Rakesh. (2018). Tesla PESTEL Analysis – Harvard. Retrieved from:

https://www.researchgate.net/publication/325746549_Tesla_PESTEL_Analysis_-_Harvard

Chinta, Rakesh. (2018). TESLA SWOT Analysis (Harvard). Retrieved from:

https://www.researchgate.net/publication/325746360_TESLA_SWOT_Analysis_Harvard

Hoang, Paul. Oxford IB diploma programme business management. Oxford, 2014.

[PDF]. (2021). Austin, Texas: Tesla. Retrieved from:

https://tesla-cdn.thron.com/static/WIIG2L_TSLA_Q4_2021_Update_O7MYNE.pdf?
xseo=&response-content-disposition=inline%3Bfilename%3D%22tsla-q4-and-fy-2021-
update.pdf%22

Tesla. (n.d.). About Tesla | Tesla. Retrieved from www.tesla.com website:

https://www.tesla.com/en_EU/about

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Appendices

1. Tesla company logo

Foley, J. (2021, December 29). We still can’t get over this hilarious Tesla logo

resemblance. Retrieved February 19, 2022, from Creative Bloq website:

https://www.creativebloq.com/news/tesla-logo-secret

2. Tesla Cybertruck

Pritchard, T. (2022, February 8). Tesla Cybertruck price, rumored release date, interior,

specs and latest news. Retrieved from Tom’s Guide website:

https://www.tomsguide.com/news/tesla-cybertruck

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 3. Tesla company website

Tesla. (2019). Electric Cars, Solar Panels & Clean Energy Storage | Tesla. Retrieved from

Tesla.com website: https://www.tesla.com

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