Tesla Motors Company: Presentation of New Affordable Electic Vehicle Tesla Model 3

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Tesla Motors core competencies are vehicle engineering and power, which comes from Tesla themselves, they market a powerful battery for their vehicles. Tesla Motors offers full luxury electric vehicles the company is known for being environmentally friendly. We entered the market through expensive high-end cars targeted to the more financially privileged class of people. Once it is more established and widely known as a successful idea, it ventured into a more competitive market of lower-level priced models. So, the first model, Model S was launched to get the company’s mission out in the marketplace.

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The model we will focus on today is Tesla’s Model 3, an affordable alternative to the Model S. By releasing an affordable electric vehicle, Tesla has gained customers other than those who can afford luxury vehicles. Tesla’s Model 3 is the most efficient car on the highway, but the way it is being produced is inefficient and has led to many delays. Producing a car that many want is challenging when it was first announced the wait time to receive the Model 3 was two years, even though today the wait time has decreased there are still many problems in trying to produce many vehicles. We have recently eliminated some of their paint options for the Model 3 to hopefully make production more efficient. As of now, we are still unable to meet their production of five thousand units every quarter. To increase the production of the Model 3 a simple solution is to hire more workers for our Fremont Factory. With more workers being put into the equation, the output would increase.

While raising cost slightly to pay the workers, the output of Model 3’s will increase and more people will want to order a new Model 3 if they are going to receive it sooner.While there are 400,000 pre-orders for the vehicle, analysts question if our company can do it, noting that the Model S and Model X production still doesn’t exceed 100,000 units per year combined. The 2015 decision to build its own seats that has some industry veterans scratching their heads. Seat making is a low-margin, labor-intensive enterprise that big automakers generally farm out to specialists. To have more output, we could start outsourcing seats and other materials that can help us speed up production. To make everything in-house means great quality control but is it worth it? Outsourcing will help the time it takes to produce one Model 3.Our business model is based on a three-pronged approach to selling, servicing, and charging its electric vehicles. A vertically integrated model, meaning it owns and operates its dealerships, service centers and factories. Tesla does not adopt the approach of franchise dealerships, unlike most manufacturers. We have combined direct sales with service centers. We believe opening service centers, such as the supercharger stations to charge Tesla vehicles in 30 minutes which has a positive effect on the customer demand.

Forecasting is an essential element for us to properly monitor the demand for Model 3 and how promptly we need to work to fulfill that demand. Because Model 3 is our only low cost and mass marketed oriented electric vehicle, we expected a high number demand. Unfortunately, our ability to produce the product and our resources were incorrectly forecasted. Though our ability to produce these vehicles has improved, we are still not producing enough. In the third quarter of 2017, we forecasted production of 1500 vehicles but only produced 280, which makes me wonder where we went wrong in forecasting our ability to match demand with production. Some of the concepts that we need to integrate with our forecasting include trend and cycles. Model 3 is currently sold at approximately 40 thousand US dollars. Considering the increase in gas prices and other environmental factors, it is appropriate to claim that people would be keen on buying Model 3 at such a reasonable price. These factors will cause a positive trend in the production of Model 3.

The sales will continue to increase; hence, it is important that we increase resources along with production or market the product accordingly. The same concept applies to cycles. As we fulfill more orders, the demand for model 3 will increase which will require us to produce at a more rapid pace. Usually, the naïve forecast is effective when monitoring trend and cycles, but because Model 3 is a new concept with a price quite different than usual, it is best then we incorporate Average forecasting. This method will allow us to maintain an updated forecast as we get closer to achieving our intended production rate. Moreover, any shifts in demand will be reflected more accurately in the forecast.One issue to be faced with using average forecasting is the inability to use weighted or exponential smoothing due to the low amount of data that can be provided now. The weighted average would not benefit us since it holds an emphasis on the newer information coming in but with low data and newness of this product, all the data now should be weighed evenly. Exponential smoothing also would not benefit the forecast for the model 3 because it is based on the previous forecast plus a percentage of the forecast error which would require a mass amount of data that is not available to us now, again, because of the short time of this product is on the market.However, we can use the moving average to analyze the data we have currently. Although we do not have a larger data pool, to begin with, the moving average gives us the ability to analyze new data as it becomes available by adding the newest value and dropping the oldest.

The fewer data points used, in this case, would make the model more responsive – working in our favor. Another point as to why this forecast method would be best is due to the sales to production ratio that is currently hurting the product line for consumers as well as what consumers will and will not tolerate from previous mistakes or mishandlings. This method will provide us with quantitative data pointing to the problems that are holding the Model 3 back and what can be done to improve it in the future.Other options for forecasting for the Model 3 would be a considering qualitative data such as time of year, any irregular variations, and personal opinions. Time of year would provide an idea as to when we can expect more orders such as around the holidays. Any irregular variations would include the current stock market at an all-time high, putting consumers in a better position to buy. Personal opinions can be utilized through forms of surveys and monitoring of ad viewing to understand what the consumer thinks of this model regarding quality and timing while considering emotional or personal factors regarding purchasing decisions. Although qualitative data is considered soft data and difficult to quantify, it can still be very beneficial in the beginnings of a newer product in the market with a turbulent beginning, in this case, the Model 3.

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