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1) Tesla, an American automobile manufacturer based in California, has hired you as a business strategy consultant. Tesla is the leader in electric luxury cars across the world. Over the last five years, their sales have increased due to consumer and political concerns over the environmental impact from combustion- based automobiles. Increased demand worldwide has resulted in increased competition from established companies (Ford; GM; Mercedes; Toyota; etc.), as well as smaller start-ups. Because of the Covid-19 pandemic, lags in the supply chain, and a doubling of fuel prices, recent costs have skyrocketed. Consider the following questions:
A) While American consumers purchase over 17 million new cars annually, electric cars account for less than 3%, lagging substantially behind Europe and China. Discuss why this discrepancy exists. How do you recommend that Tesla approach the challenge of competing in the existing US market in short-term? What can Tesla and others do to foster increased demand for electric cars in the US over the next 5 to 10 years?
B) Costs for Tesla manufacturing in the US have increased by 50% over in the last 18 months. Tesla employs a labor force of 5,000 people across 3 factories (California; New York; Texas). Tesla utilizes both general and custom-made parts to manufacture its cars. General parts have increased in price by 30% and custom parts have increased 500% in the last year alone. Another costly input is computer electronics which accounts for 20% per machine. The cost distribution is as follows:
Total Cost: $50,000
Labor Cost: $35,000 Electronics: $10,000
Parts / Other Inputs: $5000
Discuss your top 3 strategy options for combating the rising cost of their US manufacturing.
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