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Examination Tesla Inc., formerly Tesla Motors, is a wholly owned American automaker and energy storage company based in Palo Alto, California. The business was founded in 2003 by Martin Eberhard, Marc Tarpenning, and Elon Musk. It mostly focuses on hybrid vehicles and lithium-ion battery energy storage. Essentially, there has been a surge in global demand for high-quality electric cars. As a result, the industry has seen a slow increase in competition as large car manufacturers have since entered the market. The main challenge facing Tesla is whether it would be able to satisfactorily meet the rising demand and associated production requirements. It is estimated that the company has currently witnessed one of the highest pre-orders in the history of productions and in this case for the latest Model 3 which is still at its initial stages. Regardless, since 2012, the company has recorded a substantial growth with stocks increasing by over 600% in that year. Certain aspects are however critical in ascertaining the future of the company. For instance, its stock value is totally unclear and not quite promising as prior projected. Uncertainty in electric cars is inevitable as a result of the escalating fear of overvaluation forcing some investors to engage in an extensive speculation with conservative ones avoiding the idea completely.
Analysis of Competitors and Customers
Based on the fact that Tesla is an exclusive American made electric vehicle, this analysis will generally focus only on other all electric vehicles available in America. Introduced in 2012, Tesla Model S has a projected new base of $70,000 with an estimated range of 270 miles (Tesla, 2016).
The Nissan Leaf: - Nissan Motors is exclusively a car manufacturer based in Japan. It also has major factories within America. It was founded in the year 2010 and currently has an approximated new base $29,000 with an est. range of 107 miles (Nissan USA, 2016).
The Ford Focus EV: - Was started in 2011 and currently holds an estimated new base cost of $29,000 with est. range of 100 miles (Ford Focus Electric, 2016).
The Chevrolet Spark EV: - The idea was conceptualized in 2013 and currently has an estimated new base cost of $25,000 est. range 82 miles (Chevrolet, 2016).
As indicated in a reputed online debate known as the “Tesla Motors Club”, most of Tesla Model S buyers are generally the upper middle class in the ages 36 to 40 who generate an annual income of $80,000. However, there is not sufficient data indicating how the aspects of gender, race, or marital status influence the buying of the vehicle (Tesla Motors Club, 2016).
Comparative Advantages and International Trade Opportunities
It is quite difficult to point whether the company has or had comparative advantage mainly on the basis that it has evidently shown inconsequential profits margins. Rather, and based on the fact that the company was started recently in the year 2003, it has in a way depicted its profits basically in terms of aspects like advancements. Just like any other companies, in its initial stages development, Tesla has generally focused on the strategy of growth. As a result, gross profit dollars i.e. revenue less cost of goods sold is subsequently channeled back into the growth drivers. This included such strategies like penetrating into newer markets like China and England as well as the ongoing further product developments like the Model X (Ditchek, 2014). Quite in contrary to other manufacturers in the sector and beyond, the company lacks independent forms of dealerships. The scenario is further complicated in the essence that there are substantial amounts of electric vehicles within the road. In this case, the growth can be attributed to the available forms of advertisements. Basically, this is one of the ways through which the company has been able to maintain its comparative advantage. Evidently, Tesla has a unique type of business model as compared to other players in the sector. Based on the manner in which it has approached online sales, sales costs per unit have to be lower than projected. Currently, it is using its revenue for purposes of advancements and establishment of international manufacturing pants hence providing no opportunity for an international trade.
Factors affecting the demand, supply and prices
As a distinct company specialized in the manufacturing of electric vehicles, Tesla has adequately factored all the parameters that basically influences the demand, supply and pricing of its products. One way of meeting this obligation has been directed on creating strategic “filling” stations referred to as the Superchargers. These Superchargers are strategically positioned along major highways with the capacity of meeting the available traffic. Besides, it has dedicated further efforts on creating Destination Charging by partnering with other stakeholders like restaurants, resorts, shopping malls and other places mostly frequented by motorists. In this way, Tesla owners especially those with Model S cars will have the opportunity to recharge their vehicles in the most convenient manner. This is by doubt an added advantage for the company on a long term basis. Having sufficient mechanisms strategically focused on satisfying the needs of the customers automatically propels product demand consequently increasing supply and product pricing policies. The cost of fuels will however remain the paramount factor in this area.
Factors affecting Total Revenue
In any company, the ultimate goal is to maximize on profits. On this case, the total revenue is of vital importance. Calculating total revenue should take into consideration the generated income and expenses incurred. Profits are achieved from amount the company receives from sales or output. The figure is then obtained by deducting the total value of inputs based on the prevailing conditions. Nonetheless, Tesla has had higher gross margins as compared to other major companies like Ford and General Motors.
Price Elasticity of Demand
Tesla products are essentially influenced by numerous factors when it comes to pricing. This includes the cost of gasoline, the desire to lower carbon footprint and the culture of of absorbing into the technology. Costs of gasoline fuels are uncertain offering the company the leverage to promote its products. Additionally there is the need to cut down greenhouse gas emissions hence an advantage to the company.
Factors that Influence Productivity
Productivity is one of key aspects of running any business. In creating a high level pf productivity such aspects like efficiency are paramount. This is realized by maintaining constant levels of spending and productions with substantial use of the available resources. Both internal and external factors as well as own and foreign factors are taken into consideration (Bueno, 2016). To enhance productivity, such influences like profit maximization at the point of production are likewise essential. In this case, marginal revenue equals to the marginal cost. Additionally, marginal revenue matches demand and price. In this case, the average revenue cost is assured. Review of economic verse accounting profit and production function with marginal product to find the total cost curve is also vital. As the level increases in production, diminishing return starts to take place.
Productions costs in a company generally includes opportunity costs linked to the overall output. This includes, but not limited to financial or monetary costs, the cost of lost time and effort, forgone output, and the loss of benefit or pleasure. Tesla Motor Company has equated to its electric vehicles and the investments done in clean energy especially solar power. It has as such diversified in other areas such as the use of lithium technologies for power storage purposes.
Externalities and Government Public Policy
Tesla Motor Company has hugely benefited from federal grants and state programs. In the year 2010, the company received an equivalent of $465 million dollar loan from the Energy Department. This is more that the amount it obtained from IPO later on and even more than those raised by its private shareholders. This was however without criticisms. Besides the loans, there are federal grants associated with the buying of electric vehicles. A discount of 10% is imposed on Model S with a number of states following suit. This mostly involves numerous incentives like property tax exemptions or reductions, tax rebates, and sales tax exemptions amongst others. In several ways though some of them have worked against the wellbeing of the company. A number of states have prevented direct transactions between the company and customers. Since its inception, it is attributes that the company only profited in a three month period and mostly through money obtained from credit purchase program. In the first quarter of last year, the company recorded a net loss of $282 million despite the numerous pledges by its founders it was makig profits.
Maximizing Profit-making Potential
Based on the second quarter of the company’s 2016 update, it was evident that the main stakeholders had reached a limit especially in the view of its banking partner (Fernholz, 2016). To meet production deadline regardless of the existing barriers, the company was compelled to focus on other areas such as clean energy and solar powered energy industry. By July 2016, the company was able to acquire Solarcity which exclusively finances the installation of solar panels in homes and supplementing power from other companies (Fernholz, 2016). However, there are imminent challenges in the sector considering that it is quite difficult to capture excess solar power and store in adequately for future use. This can however be substituted by the use of batteries to store that extra power. It has such started constructing a Gigafactory to make the most advanced battery in the world. As such, Tesla and Solarcity’s merger is an economically viable strategy aimed at capitalizing on the sector.
In utilizing an economic market structure, it is vital to consider factors a product will compete with and this involves adequately analyzing such like aspects of competition in order to determine customer base. Analyzing comparative advantages provides a room for establishing any international trade opportunities. Like, it is important to understand factors that affect supply and demand as well as the prices of the product. Lastly, other factors such as aspects of total revenue, price elasticity, opportunity costs, externalities and other factors especially those influence rate of productivity are as well crucial in the analysis. Having these in consideration, evaluation of market structures are much easier and manageable.
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Ditchek, B. (2014). Tesla: A Valuation Model for a High Gross Profit Automaker. Retrieved from: http://seekingalpha.com/article/2453065-tesla-a-valuation-model-for-a-high-gross-profit- automaker?page=2#
Mankiw, N., (2015). Principles of Microeconomics. Stamford, CT: Cengage Learning.
Parker, J., (2016). Why Is Tesla Underperforming in 2016? Retrieved from: http://marketrealist.com/2016/02/teslas-margins-surprise-market-2016/
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