Tesla’s Manufacturing and Production Costs

One of Tesla’s main goals is to lower their manufacturing and production costs. In order to achieve that goal, Tesla uses supply chain management. To lower manufacturing costs, Tesla has design and manufacturing under one roof. Tesla brought much of their production equipment at a lower price from struggling car manufacturers. As a result it is estimated that Tesla spent less than a third of what it would normally cost to make the plant operational. To reduce costs, Tesla designs and produces their cars’ electric powertrains and 90% of the Model S specific plastic parts at their plant.

They also fully assemble the Model S cars at the plant. Unlike other car manufacturers who sell their cars through independent dealers, Tesla built company-owned stores to reduce distribution cost.

They also pay their sales force a salary instead of a commission. As part of their marketing strategy for the Model S, they focused on the cost savings from gas, reduced service and repair cost, and lower maintenance cost.

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Tesla’s service operations are independent from their sales operation. Tesla has created several service options for their customers: they could go to a Tesla service center, call a mobile service and repair team, or have their car exchanged temporarily. Tesla also owns more than 15 supercharge stations where car owners can charge their cars and they also have a battery swapping service.

Tesla’s strategy for future growth includes expanding their sales to Europe by shipping 40,000 Model S cars per year starting next year.

Tesla has also began taking reservations for their next car, the Model X, anticipating high demand for the new vehicle. Tesla has also started production of the Gen 3 Model, which will be priced much lower than Tesla’s other models to attract more consumers. An important factor here would be the financial statements from Tesla Motors. Directing attention to the income statement, the revenues drastically increased between year 2012 and 2013 which helped Tesla have a net gain instead of loss which is common for a company starting out in addition to the popularity of electric cars during that time. On the balance sheet, it shows the semi-annual financial placement for the company during 2013.

This is about when the Model S came to fruition and the biggest operational issue present was how several of the car’s components were custom-designed, however the only assets that increased were inventory and construction in progress so it appears that Tesla Motors were able to cut down their cost in their assets. While this is great news this did not save them from their increase in the other side of the balance sheet, liabilities. The two main words in the world of finance are risk and reward and while Elon Musk has plans to expand the business with the Gen 3 model the company’s strategy for less costly parts in comparison with their financial status through the years this could potentially lead them into ruin. The car manufacturer world is tough to get into and stay in, so if they want to progress Tesla Motors will need to find a way to better way of handling their liabilities in terms of their expenses and liabilities to better synergizes with their lower cost of assets and greater revenue.