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Tesla Inc.’s Business Controversies Essay

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Updated: Jul 21st, 2021

Introduction

Tesla Inc. is one of the most unique, innovative, and massively popular corporations in recent years. Thriving under the leadership of the brilliant entrepreneur Elon Musk, the company has become synonymous with pushing technological boundaries and disrupting the status quo in the automotive and energy industries. It remains one of the most rapidly expanding and investor-attractive firms in the United States. Tesla maintains a management style and organizational structure which supports its R&D capabilities and business growth; however, recent events surrounding its practices are a cause for concern.

Background

Tesla Inc. previously known as Tesla Motors was founded in 2003 by Martin Eberhard and Marc Tarpenning with the purpose of creating an electric sports vehicle. It was a venture project, gaining much of initial funding from Elon Musk who served as chairman for many years. In 2008, the company introduced its first electric vehicle which broke numerous records on travel distance on a single charge, efficiency, and environmental emissions. This propelled the company into the spotlight. At this time, the founders left the company with Elon Musk becoming CEO and becoming a public company.

Over the years, the company has introduced new vehicle types and technologies for electric automobiles (lower emissions and self-driving cars), significantly pushing the industry into this direction while gaining government and policy support. The company has also invested in solar panel and battery technology development although no widespread commercial products are yet available. Although most of Tesla’s products are high cost, it is making significant strives to lowering costs and expanding production to meet overwhelming demand. The company’s primary mission is to create products and technological ecosystems which will “accelerate the world’s transition to sustainable energy” (Tesla, n.d., para. 1).

Organizational Structure

The uniqueness of Tesla as a company also reflects on organizational structure. Although there is no official structure available, it is speculated that the company utilizes a divisional approach with a functional or U-form organization. The company maintains structural groups of employees based on functionality and divisions such as engineering or sales. Corporate characteristics are present at Tesla, but at a lesser rate than other automakers.

The key to Tesla’s structure is a function-based hierarchy which defines its global organizations. While similar aspects are seen in other companies, Tesla has a functional organization which represents its international operations including chairman and CEO, finance, technology, global sales, engineering, and legal. Furthermore, Tesla uses a centralization approach to structure, where managerial control is concentrated in the hands of Elon Musk with limited autonomy of its divisions. The divisions consist of automotive and energy generation and storage which implement different strategies and operations (Meyer, 2018).

Musk is consistently improving the management and organizational structure of Tesla Inc., flattening it to streamline operations, improve communications, and combine functions while eliminating aspects which are not vital to the company’s success (Dudovskiy, 2018). Tesla takes the divisional approach to a new level according to reports. It has been revealed that Elon Musk has 29 people reporting to him directly.

The flat organizational structure has certain competitive advantages by saving money on executive strategies. However, there is a certain lack of transparency about Tesla’s leadership team outside the almost cult-like personality of Musk. Centralization is beneficial to an extent, with Musk only being able to do so much in a day while reducing trust and lacking delegation necessary to run a large company (Zetlin, 2018). Therefore, while interacting with employees far below him may be positive in some respects, a lack of clear hierarchy may be damaging to Tesla in the long run as demonstrated by recent events.

Management Style and Communication

Under Elon Musk, Tesla’s inner management style has been aggressive and combative, largely due to the mercurial nature and high demands of its leader. Musk reportedly berates both executives and low-level of employees, consistently challenging their competency, and expects people to work exhaustingly for a prolonged period of time, something he himself is known for. At the same time, his perfectionism, drive for innovation, and ambition has propelled the company in this social image and an automotive giant that it is today, elements that he expects to see in the management team and their styles (Fairyington, 2019).

Therefore, employees see Musk as an inspiration but fear him. He seeks to micromanage every aspect of company operations and quality management that affects operations, particularly in the automation of the production process. Musk also fails to consider the opinions of experienced advisors or tested methods pioneered by other automakers. The enigmatic leader has impaired decision-making at times and approves expensive and underrated projects which cause significant issues for a company struggling to find its stability (Kolodny, 2018).

The divisional approach in Tesla offers more flexibility and less bureaucracy in comparison to other companies of the size. The company can increase the speed of communication through layers of organization with positive outcomes on decision-making and flexibility (Dudovskiy, 2018). The organizational structure allows for strong managerial control of the business and maximizes the information exchange with top-level managers for informed decision-making as Tesla continues growth and complexity in the global market.

This type of management and communication in a flat organization structure has the advantage of the easier implementation of new strategies within the organization and rapidly readily to challenges. However, this is only within its primary United States divisions, as without autonomy in a centralized system, foreign branches of Tesla are unable to do as well as the competitors which build a new organizational structure from the ground-up on each continent.

Recent Controversies and News

Unfortunately, Tesla Inc. has faced a number of controversies regarding its CEO Elon Musk as well as its business practices and products. It is worth to examine all these aspects as they affect the company and its future. One of the first issues is the company’s production capabilities and financial status. Due to the complexity of the technology and lacking the enormous productive power of other automakers, Tesla has been struggling with production and delivery backlogs for many years.

Its most popular Model 3 sedan was not produced quickly and despite attempts to expand the facilities and production lines, the challenges were not sufficiently addressed. Only recently did the company reach a sustainable level of production for its sedans. In 2018, Musk admitted that the company was bleeding money heavily and was not leading business practices beneficial in the long-term (Lambert, 2018).

Over the course of the company’s existence in the automotive industry, only in the past two quarters of 2019 did the company make a profit for the first time in its history. It is important for Tesla to modify things going forward to ensure it is able to reach the scale of production and demand for its vehicles to ensure profitability as the company largely operates on investor funding and requires more financial stability (O’Kane, 2019).

This leads to another controversy and presence of Tesla in the news. Elon Musk tweeted in late 2018 that he has secured funding that the company would be bought out, reportedly by a Saudi investor. This led to a rapid rise in investments and stock of the company, but the information was not confirmed to be true. This led to the U.S. Securities and Exchange Commission (SEC) to investigate Musk for potential defrauding of investors.

A deal was reached lessening the role of Musk in the company and limiting his social media presence. However, in February of 2019 he once again responded on social media that Tesla would produce 500,000 cars in the upcoming year, a figure which was considered to be grossly exaggerated. Once again, this prompted investigations from the SEC in the context of issues described earlier and resulted in multimillion-dollar fines for the company and a loss of stock value of upward of 5% (Siddiqui, 2019). It suggests that the company itself is facing internal issues of disorganization with its leadership and also needs to reconsider its communication strategies with investors.

Conclusion

Tesla Inc. is an innovative company which has revolutionized the automotive and energy industry. Its organizational structure is based on divisional function and centralized decision-making by its symbol and enigmatic CEO Elon Musk. The management style is reflective of his personality, being combative and micromanaging, which can be both inspiring and hindering. Despite the innovation and popularity of Tesla, the company has struggled with its production and finances, as well as having controversies due to unthoughtful actions by Musk. Through employing better business practices and using long-term strategy, Tesla can find its ground as a leader in the future generation of sustainable energy and electric vehicles.

References

Dudovskiy, J. (2018). . Web.

Fairyington, S. (2018). . Web.

Kolodny, L. (2018). . CNBC. Web.

Lambert, F. (2018). . Web.

Meyer, P. (2018). . Web.

O’Kane, S. (2019). Tesla posts back-to-back profits for the first time. The Verge. Retrieved from Tesla posts back-to-back profits for the first time.

Siddiqui, F. (2019). . The Washington Post. Web.

Tesla. (n.d.). About Tesla. Web.

Zetlin, M. (2018). . Web.

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IvyPanda. (2021) 'Tesla Inc.'s Business Controversies'. 21 July.

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