Tesla Strategic Case Analysis: EV Market Challenges 2018
This paper presents a comprehensive strategic case analysis of Tesla as of 2018, examining the rapidly changing electric vehicle market and Tesla's position within it. The analysis covers the general environment and competitive landscape, noting the entry of virtually every major automaker into the EV space. It then evaluates Tesla's company profile, its sustainability-driven mission, and the serious financial challenges it faces, including persistent cash burn, credit downgrades, and negative working capital. Four strategic recommendations are offered: fulfilling product promises (especially the $35,000 Model 3), addressing reliance on government tax credits, committing to a clear pricing strategy, and overhauling its over-automated manufacturing process. The paper also addresses leadership concerns surrounding CEO Elon Musk and draws on Porter's competitive strategy framework to chart a path forward.
- Industry Overview: The EV Competitive Landscape: Major automakers flood EV market, threatening Tesla's first-mover advantage
- Company Analysis: Tesla's Mission and Financial Realities: Sustainability mission vs. serious liquidity and profitability challenges
- Problem Analysis: Liquidity Crisis and Operational Failures: Moody's downgrade, cash burn, and Musk's misleading public statements
- Recommendation 1: Deliver on Product Promises: Tesla must deliver the promised $35,000 Model 3 immediately
- Recommendation 2: Tax Credits, Pricing Strategy, and Manufacturing: End tax credit dependence, fix pricing strategy, replace robots with workers
- Implementing the Recommendations: Board must replace Musk and apply Porter's competitive strategy framework
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- Grounds every claim in specific, cited evidence — from Moody's downgrades and Morgan Stanley projections to Tesla's own 10-Q disclosures — giving the analysis credible financial weight.
- Moves logically from broad environmental context (competitive EV landscape) to company-level analysis to problem identification to actionable recommendations, creating a coherent strategic consulting structure.
- Uses concrete detail (e.g., Tesla burning "$6,500 every minute," 500,000 pre-orders raising $500 million) to make abstract financial arguments tangible and persuasive.
Key academic technique demonstrated
The paper integrates applied strategic frameworks — particularly Porter's competitive forces theory — alongside real financial data and news reporting to evaluate a live business case. This blending of theoretical scaffolding with current evidence is a hallmark of strong undergraduate business case analysis, demonstrating that academic models can generate actionable, specific recommendations rather than generic observations.
Structure breakdown
The paper follows a classic strategic case analysis format: (1) external environment/industry scan, (2) internal company analysis, (3) problem diagnosis, (4) a numbered set of strategic recommendations, and (5) an implementation section. Each recommendation is grounded in earlier analysis, and the implementation section introduces HRM and leadership dimensions not present in the diagnosis, appropriately expanding scope as a real consulting memo would.
Industry Overview: The EV Competitive Landscape
The automobile industry is changing quickly, with more and more competitors entering the electric vehicle (EV) market. Jaguar is introducing its I-Pace, a premium EV with a base model price under $70,000. Audi is introducing its E-Tron Quattro E-SUV and an E-Tron Sportback. Porsche is bringing its Mission E Cross as its second EV. Mercedes plans an EQC Electric SUV. And then there are the lower-priced models — the Hyundai Kona Electric, with a 250-mile battery range, and the Chevy Bolt EV with a base MSRP of $37,495. GM, Nissan, and Volvo all have plans for EVs — as do Volkswagen, BMW, Toyota, Mazda, Infiniti, Peugeot, Citroën, and Ford. Virtually every major auto manufacturer is entering the EV space, which means Tesla's novelty is soon to be no more (Spiegel, 2018). Tesla was the first to bring the all-EV to mass market, but the market has seen Tesla's popularity and is responding accordingly. All major manufacturers are investing in EV, so that even if it turns out to be only a passing fad, competition will be stiff for as long as the trend lasts.
A look at the global economy, the industry, what competitors are doing in the field of EVs, and the consumer interest their vehicles are generating all demonstrate that the industry is changing rapidly and that Tesla by no means holds a dominant position. While investors are happy to back a growth company that is forward-looking and promotes sustainability, consumers may not be so loyal to one EV brand over another if they all produce the same level of style, luxury, and efficiency.
Company Analysis: Tesla's Mission and Financial Realities
Tesla is a forward-looking company, and one reason its stock has enjoyed such a significant run-up is that many stakeholders view it as a growth company. Musk continuously sets high goals for the company, and though they are not always met on time, stakeholders are pleased with the CEO's forward vision. Tesla is viewed as having a high degree of commitment to corporate social responsibility and the imperative for companies to "go green" to address global warming and climate change. Musk has articulated this in Tesla's vision and mission statements over the years. Tesla's mission statement is: "to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible" (Tesla, 2013).
By building its brand around the idea of sustainability, Tesla has identified both a market and a product. With sustainability serving as its reason for being, Tesla aims to meet the needs and desires of its green consumer base, which wants above all else to see the company remake the modern world in its image. The problem is that this vision may be far more idealistic and utopian than reality will currently tolerate. Tesla's CEO and supporters show no signs of being deterred by such realities, however: they are driven and adamant about promoting the sustainability concept. Sustainability serves as the foundation of the company's mission and vision, but reality shows that Tesla faces significant hurdles in terms of liquidity, operating efficiency, capital structure, and profitability. These are the real challenges Tesla must address in order to achieve sustainability — not only for the planet, but for its own business model.
Problem Analysis: Liquidity Crisis and Operational Failures
In March 2018, Tesla's credit rating was downgraded by Moody's due to the firm's persistent cash burn, failure to meet production goals, and the likelihood that it would soon need to raise more capital (Weinstein, 2018). Tesla bonds have been declining ever since, with Smith (2018) reporting a veritable "free fall," with Tesla notes hitting "a low of 86 cents on the dollar." Moody's analyst Bruce Clark stated that Tesla "faces liquidity pressures due to its large negative free cash flow and the pending maturities" (Weinstein, 2018).
Tesla is expected to undertake a substantial near-term capital raise in order to refund maturing obligations and avoid a liquidity shortfall (Weinstein, 2018). The problem is rooted in the fact that after 15 years of operating, Tesla has yet to make an annual profit. The approximately $2 billion it will likely need to raise to cover its cash burn, along with $1.2 billion of debt due the following year, is putting pressure on its bonds, as investors are realizing that the company essentially burns through approximately "$6,500 every minute of every day" (Smith, 2018).
Meanwhile, Musk boasted via Twitter that the company's liquidity is fine and that a capital injection is not needed in the short term (Denning, 2018). According to Morgan Stanley's projections, however, Tesla's short-term liquidity crisis is just around the corner. Tesla's working capital is substantially negative — $2.27 billion as of March 2018 (Denning, 2018). The Economist estimated Tesla would need upwards of $3 billion in capital injection by year end. Musk responded with a taunting tweet: "The Economist used to be boring, but smart with a wicked dry wit. Now it's just boring (sigh). Tesla will be profitable & cash flow+ in Q3 and Q4, so obv no need to raise money" (Durden, 2018).
Tesla noted in its own 10-Q nonetheless: "We may need or want to raise additional funds in the future, and these funds may not be available to us when we need or want them, or at all. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected" (Tesla Form 10-Q, 2018, p. 41). Tesla clearly has to get its house in order, if only to meet its financial obligations. To get the house in order, Tesla may need to clean house — starting first and foremost with Musk and anyone else preventing the company from staying focused on the present.
References
Boudette, N. (2018). For Tesla, production hell looks like the reality of the car business. Retrieved from https://www.nytimes.com/2018/04/03/business/tesla-model-3.html
DeBord, M. (2018). Elon Musk promised a Tesla alien dreadnought factory — but what we got was a tent. Retrieved from https://www.businessinsider.com/tesla-is-failing-to-build-the-factory-of-the-future-2018-6
Denning, L. (2018). What does $3 billion even buy Tesla these days? Retrieved from https://www.bloomberg.com/view/articles/2018-05-16/tesla-stock-sale-of-3-billion-wouldn-t-help-liquidity
Durden, T. (2018). Tesla admits it may need more capital. Retrieved from https://www.zerohedge.com/news/2018-05-07/tesla-admits-it-may-need-more-capital-reveals-300mm-sales-came-accounting-change
Hawkins, A. (2018). Tesla relied on too many robots. Retrieved from https://www.theverge.com/2018/4/13/17234296/tesla-model-3-robots-production-hell-elon-musk
Levine, M. (2018). Elon Musk's funding. Retrieved from https://www.bloomberg.com/view/articles/2018-08-13/funding-for-elon-musk-s-tesla-buyout-wasn-t-so-secure
Mahmood, M. (2015). Strategy, structure, and HRM policy orientation: Employee recruitment and selection practices in multinational subsidiaries. Asia Pacific Journal of Human Resources, 53(3), 331–350.
Matousek, M. (2018). Elon Musk says he agrees that there are too many robots on the Model 3 production line. Retrieved from https://www.businessinsider.com/elon-musk-says-model-3-production-using-to-many-robots-2018-4
Morris, D. (2018). Tesla starts fulfilling Model 3 orders. Retrieved from http://fortune.com/2018/02/25/tesla-model-3-preorders/
Mullen, J., & Shane, D. (2018). Weed, whiskey, Tesla and a flamethrower. Retrieved from https://money.cnn.com/2018/09/07/technology/elon-musk-joe-rogan/index.html
SEC. (2018). Tesla convertible notes due. Retrieved from https://www.sec.gov/Archives/edgar/data/1318605/000119312517086195/d349123dfwp.htm
Smith, M. (2018). Tesla bonds are in free fall. Retrieved from https://www.bloomberg.com/news/articles/2018-03-28/tesla-bonds-down-to-86-cents-start-to-flash-warning-signals
Spiegel, M. (2018). Tesla is still a zero. Retrieved from https://www.scribd.com/document/378373211/Tesla-Still-a-Zero#from_embed
Tesla. (2013). Mission statement. Retrieved from
Tesla Form 10-Q. (2018). Retrieved from https://www.sec.gov/Archives/edgar/data/1318605/000156459018011086/tsla-10q_20180331.htm
Trefis, T. (2018). Why Tesla is smart to prioritize premium versions of the Model 3. Retrieved from https://www.forbes.com/sites/greatspeculations/2018/05/24/why-tesla-is-smart-to-prioritize-premium-versions-of-the-model-3/#6a1815b03877
Weinstein, A. (2018). Tesla cut by Moody's on production. Retrieved from https://www.bloomberg.com/news/articles/2018-03-27/tesla-cut-by-moody-s-on-production-issues-liquidity-concerns
Wright, P. (1987). A refinement of Porter's strategies. Strategic Management Journal, 8(1), 93–101.
Wolverton, T. (2018). Elon Musk says he was thinking like a Vegas casino owner. Retrieved from https://www.businessinsider.com/tesla-ceo-elon-musk-funding-secured-tweet-vegas-odds-2018-8
Zoeller, S. (2016). How to use marketing segmentation: A Mercedes-Benz success story. Retrieved from
Always verify citation format against your institution’s current style guide requirements.