Running head: IMPLEMENTATION PLAN, STRATEGIC CONTROLS, AND 1

CONTINGENCY PLAN ANALYSIS

Implementation Plan, Strategic Controls, and Contingency Plan Analysis

Greg Curry Sr, Damion Peart, Antonio Perez, Darrell Sweet, and K. Tom Waldorf

STR/581

November 28, 2016

David Wynne
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Implementation Plan, Strategic Controls, and Contingency Plan Analysis

Tesla Motors has a recommended robust strategy that will focus on creating customer

loyalty, returns, and cutting costs. An implementation plan is necessary in order to get this

robust strategy moving. An implementation plan will offer detailed procedures that are in direct

association with the long-term objectives and are in line with Tesla's internal culture, mission,

and values. These objectives will convey to the various levels of management as well as the

workers where their work capacities are aligned directly to the base company strategy and how

their contributions will help Tesla to meets its goals.

Tesla is not just an automaker, but also a technology and design company with a focus on

energy innovation. (Tesla Motors, 2016). To maintain this position Tesla must employ a mixture

of stratagems. The purpose of this paper is to introduce I.) the implementation plan, II.) required

organizational change management strategies, III.) key success factors, budget, and forecasted

financials (including a break-even chart) and IV) a risk management plan, which will include a

contingency plan for risks that will be acknowledged.

Implementation Plan

Objectives. Tesla Motors strategic implementation plan involves several long-term

objectives to enhance their ability to establish themselves as the industry leader in electric

vehicles. CEO Elon Musk has communicated the following objectives to other executives within

the organization: 1) Developing free supercharger networks worldwide. 2) Completion of a new

battery plant in Nevada. 3) Creation of different electric car models totaling 500,000 produced

and sold. 4) Improving sales and distribution strategy for vehicles among prospective customers.

Functional Tactics. The most important element to successful implementation of all the

strategic planned objectives is communications. From CEO Elon Musk and his strategic
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planning committee to each department manager, section manager, and employees at the lowest

levels. The strategic planning committee consists of the following departments: 1) Chief

Executive Officer, 2) Chief Financial Officer, 3) Chief Technology Officer, 4) Vice President

Vehicle Engineering, 5) Vice President Powertrain Operations, 6) Vice President North

America Sales, 7) Chief Designer, 8) Vice President Manufacturing, 9) Vice President

Autopilot Hardware Engineering, 10) Vice President Worldwide Services & Delivery, and 11)

General Counsel (Meyer, 2016). The committee headed by CEO Elon Musk have met for

several weeks and distribution of strategic plan implementation will be disseminated by each of

the department heads in meetings within the next week. Budgets for each of the four objectives

over a ten-year period have been incorporated and amount to a total of $50 billion.

Action Items. Based on the four long-term objectives established by CEO Elon Musk

and the planning committee the following actions items must be accomplished to reach our

goals. First, Tesla will increase supercharger stations from the current 744 locations to 3000 by

2026, and current superchargers from 4703 to 20,000 by the same year ("Supercharger", n.d.).

Additionally, Tesla plans to make improvements to increase the speed of battery charging and

subsequently reduce the time drivers must wait for a re-charged vehicle. Furthermore, the

company will provide the consumers with increased education on the benefits and costs of this

transition from gasoline to electrically operated vehicles. Amidst these other objectives, Tesla

Motors aims for the completion of the $5 billion battery plant in Nevada. Through this new

plant, production for all models of Tesla vehicles will increase to total 150,000 vehicles in 2017

and will increase annually until a consistent production rate of 500,000 is reached by 2020

through 2026. Finally, Tesla will negotiate with federal and state government officials to

improve sales and distribution of our vehicles in states not authorizing our services.
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Milestones and Deadlines. Tesla Motors has already initiated work towards completion

of their Gigafactory in Nevada and a completion date of December 2020 for full completion of

all facets. Meanwhile, Tesla has set a date of July 2020 for completion of 1500 supercharger

stations with 10,000 superchargers located worldwide. Tesla Motors has a deadline of December

31, 2017 to have produced and sold 150,000 new vehicle models which will be up from current

production rates of 80,000 to 90,000 annually (DeBord, 2016). The company also anticipates,

through negotiations and bargaining with state and government officials, authorization to operate

in all 50 states by December 2018.

Task and Task Ownership. Tesla Motors will breakdown the responsibility and

accountability of each of the long-term objectives to the following department executives.

Completion of the Gigafactory in Nevada is headed by the Chief Executive Officer, Chief

Financial Officer and Chief Technology Officer down through all departments under their

leadership. Development of the new supercharger networks and supercharger stations will be led

the Chief Technology Officer and Chief Financial Officer. Tesla Motors volume vehicle

production will be led by the Vice President Manufacturing, Vice President Vehicle

Engineering, Vice President Power Train Operations, Vice President Worldwide Services &

Delivery, and Vice President North America Sales. Finally, improving sales and distribution

will be led by the Vice President North America Sales, Vice President Worldwide Services &

Delivery, along with the General Counsel (Meyer, 2016).

Resource Allocation. Tesla Motors will allocate a majority of their resources to

Research and Development. This is a trend that used by most other manufacturers in the

automobile industry and will be especially important for Tesla because of the increase in

production, as well as, for creating additional supercharger networks (Niemeijer, 2014).
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Additional resources will be required for completion of the new Gigafactory located in Nevada

that will employ from 6500 to 10,000 employees by 2020 (7 things you probably didnt know

about the Tesla Gigafactory, 2016). Financial allocations for Tesla Motors for these projects

will total $50 billion over the ten year long-term plan. The Gigafactory budget has an already

established a $5 billion cost for production. Projected costs for automobile production for 2017

based on 150,000 total vehicles at $25,000 average cost per vehicle produced will be $3.75

billion, 2018 based on 250,000 will be $6.25 billion, 2019 based on 375,000 will be $8.75

billion, and 2020-2026 based on 500,000 will be $12.5 billion per year. The first five years of

auto production have cost allocations projected into the budget and the final five years will be

financed through sales from each prior year. Therefore the total cost allocation for auto

production is $31.25 billion dollars. The final $13.75 billion dollars will be allocated for

development of additional supercharger networks and negotiations for sales, distribution and

marketing strategies.

Organizational Change Management Strategies

Organizational change management strategies aim to assess which factors will affect the

internal environment so that a firm may become more effective. Worth noting about such

strategies is that stakeholders of large corporations regularly appear to disapprove such

strategies, as it tends to upset the human capital, due to ambiguity (Aguirre & Alpern, 2014).

Though, experts conclude that the reason behind such negative connotation is that at the bottom

line of a corporate hierarchy, change gives the impression of enhancing corporate greed

(Edinger, 2012). However, the previous cannot be further from the truth, as organizational shift

usually starts from the top down (Dichter & Gagnon, 1993). Thus, the successful implementation
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of such approaches may push a firm to amend its corporate governance, and structure (Kim &

Mauborgne, 2009).

The corporate culture at Tesla Motors is the embodiment of modern corporate operations,

in which innovation is fostered at all levels, and the firms vision represents the wheel that sets

business in motion (Meyer, 2016). The modus operandi of Tesla allowed them to sell a 100%

production of its introductory model Roadster, which filled the gap of consumers

conscientious about the environment, but also about design (Hartung, 2012). However, Teslas

success is the result of leadership leverage, risk, and market disruption, which experts fear may

be lead the firm to a downfall (Fehrenbacher, 2015). During the thirteen-year period that Tesla

has been in business, it still resembles a startup operation, even after going public six years ago.

Elon Musk, Teslas CEO considers that organizational change is needed once the sales

goals of Model 3 are met (Hines, 2016). Though, top management also considers that the

acceleration Tesla is moving allows them to act in response to the newly found industry niche,

and capitalize on their stock options (Fox, 2016). Tesla sells its vehicles through their own

stores, which allows the firm to save on marketing, and promote a true consumer experience.

Nevertheless, the automaker does not offer discounts, and does not recognize lease under GAAP.

(Nicholson, 2014).

Implementing the change to a mass produced affordable vehicle, will require extensive

advertising, and restructuring a supply chain, in which Tesla would be able license its vehicles to

dealers. Many believe that the previous contradicts Tesla core values, in which the philosophy of

allowing employees to think like owners, doing the impossible, and working towards a common

goal is integral to their success (Meyer, 2016). Moreover, considering the firms vision change to

accelerate the worlds transition to sustainable energy (Tesla, 2016), means that Tesla is
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PLAN ANALYSIS

already reshaping its organizational strategy. The idea is that in the near future Tesla will divide

itself into divisions such as, battery technology, sustainable energy, and vehicles (Tesla, 2016).

Nonetheless, the disadvantages that Tesla strategies faces are in tune with regulations that

hinder technology implementation, and industry pressure to constantly redefine models (Sonner,

2014). The competitive advantage the firm has gained, is disrupted by their functional structure,

and its global centralization. The said limits the firm to respond accordingly in certain markets,

because it has to pass several layers (Meyer, 2016). Research suggests that decentralized

corporations, and fostering autonomy in regional markets, allows for faster response to issues,

gaining market share, and endorses an effective local work force (Meyer, 2016).

Key Success Factors

Tesla, despite the seemingly complexity of its operations, has a fairly straight-forward

plan in the years ahead: design an affordable middle-income luxury electric vehicle, produce

them at economies of scale, and develop the infrastructure to make their integration increasingly

cost effective (all the while maintaining public support for this revolution in the automobile

status-quo). In order to be successful in this, the company has to consistently pay attention to

key success factors such as 1) developing innovative yet safe technologies, 2) meeting deadlines

to maintain positive public opinion and production estimates, and 3) encourage policy makers

and other car companies to see the mutual benefit in this rising automotive industry.

Budget, Forecasted Financials, and Break-Even Analysis

Taking into account the projected plans for production that were previously mentioned,

an analysis to assess when Tesla will break out of its deficit has been compiled. The consecutive

net losses that the company experiences have been one of Teslas regular critiques, as such it is

necessary to determine at what point the company will break even in order to put shareholders at
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ease. Table 1 depicts a rather straight forward break even analysis that takes in to account solely

the annual cost of the Gigfactory after its cost has been spread out over a ten year period. This

simple analysis indicates that with the annual sales of 50,000 units the company will pay off the

cost of its Gigfactory in 10 years. Which is not a bad statistic when one considers that Tesla

intends to be selling no less than 150,000 units a year starting in 2017.

Table 1. Break Even Analysis (in thousands)

Fixed Cost $ 500,000.00

Variable Cost (per unit) $ 25.00
Sales Price (per unit) $ 35.00
Break Even (units) 50000
Break Even (Sales) $ 1,750,000.00

But this data fails to take in to account some of the other costs that will need to be

overcome by the sales profits of Teslas vehicles in order for the company to have a net positive

income. Appendix A provides a forecast of the companies budget based off of 2013, 2014, and

2016 Research and Development as well as General and Administrative costs projected out for

the growth that is expected to be developed and then maintained out for the next ten years.

But this projection is a rough estimate of course and relies on a number of assumptions

including a) the company will increase its R&D, General, and Administrative costs by no more

than $500 million each year, b) the company will maintain the cost of per vehicle production to

$25,000 while selling those same vehicles for $35,000, and c) there are no significant fixed or

variable costs other than those previous mentioned. These assumptions are all incredibly

unlikely. More than likely the company will continue with its tendency to spend a greater

portion of its profits on R&D. The cost of the vehicles may be higher than initial estimates, but

it will also significantly drop over the years due to optimized production performance via

technological development and the economy of scale that the Gigafactory provides. And lastly,
 IMPLEMENTATION PLAN, STRATEGIC CONTROLS, AND CONTINGENCY 9
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there are any number of other costs than those that have been mentioned but there are also,

admittedly, other sources of profits than just the Model 3 sales. Figure 1 then shows a depiction

of a number of factors over the 5 years of increased unit production but fails to take in to account

many variables still.

Figure 1. Full Break Even Analysis

That being said, one can draw a perspective from this analysis that if Tesla manages to make the

sales numbers that it claims it will, there is a good chance the company will not remain in a

deficit for more than a couple years to come. Then again, its impossible to truly predict what

Tesla will do once it has its hands on more means to fund its vision for the future.

Risk Management Plan

When Tesla began building its electric vehicle (EV) it was operating in an area of

uncertainty due to the already inherently innovative nature of electrical vehicles. Thus, from the

very beginning, the company has been in need of a risk management plan to help identify risks

that might affect it product and services and subsequently plan for these. According to Piscopo

(2015), the purpose of a Risk management plan is to establish the framework in which the
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project team will identify risks and develop strategies to mitigate or avoid those risks. As such,

having a risk management plan in place will help an organization by enhancing its ability to

manage and identify risk effectively. Likewise, ones organizations contingency plans should

furthermore be implemented as anticipated measures to reduce an impact of these risks to the

organization.

Teslas Risk Management Plan. The risk management plan Tesla should implement

includes the following elements:

Incorporate risk management roles and responsibilities: establish a team with the set

purpose of anticipating and monitoring potential risks from the company. Some of these

risks may include competitor development, delays in product development, delays in

factory development, slandering of public image, or critical failure of implemented

systems.

Develop and maintain a detailed business operations schedule to include project cost

elements, work scope, and resources so that introduced risk factors can be accounted for.

Maintain simple and straightforward development plans, ensuring that the plan to finish

one project such as the Gigafactory is completed or near completion before taking on

a similarly risky project.

Identify required available resources and the subsequent cost for projects with as much

detail as is feasible so that cost runaway does not occur and negatively impact the

projected production deadlines.

Define reporting requirements and keep stakeholders informed of risk assessments so

they can make informed decisions on upcoming project decisions.

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In addition to accounting for the aforementioned factors, the company may manage risks by

assessing them in the context of a Risk Matrix such as the following:

3 Month Setback 6 Month Setback 1 Year Setback Closure of Tesla

Likely 2 3 4 4
Possible 1 2 3 4
Unlikely 1 2 2 3
Inconceivable 1 1 1 2

Where a score of three or four would encourage the company managers and shareholders to

avoid the decision entirely, but a score of one may be a risk easily accepted and a score of two

one worth some consideration.

Teslas Contingency Plan

Previously mentioned are some risks that can be anticipated such as competitor

development, delays in product development, delays in factory development, slandering of

public image, or critical failure of implemented systems. To address each of these possibilities,

the following contingency plan should be put in place:

Competitor Development. Maintain a friendly market of competition with other

developers by sharing key research items. The objective of the company is to drive the

development of an entire new market thus, as long as a competitor adds to the interest in the

market and does not push Tesla completely out, overall sales and success is expected to improve.

Product Development Delays. In a field of developing technology, product

development delays are inevitable. To reduce the likelihood of this however, it is necessary to

promote an engineering environment that balances between safety and an aversion to perfection.

A well-oriented internal environment will promote regular conversation and problems will be

resolved without significant issue. Furthermore, constant clear communication with shareholders
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and the public will establish a level of goodwill even if products deadlines do not initially meet

the projected goals.

Factory Development Delay. Should the development of key infrastructure be delayed,

the company will be forced to work with what resources are available to continuously optimize

the production line. Construction of the Gigafactory is intended to be done in stages that will

allow for initial production lines to begin before complete output rates are developed this will

mitigate the impact of delays mid-to-late way in the timeline.

Slandering of Public Image. In developing a new market and global awareness toward

the importance of sustainable energy technologies it is important to maintain an honest and

trustworthy public image. Yet the nature of challenging existing markets is that there will

inevitably be those who are against the change and will oppose Teslas rise in popularity. Where

legitimate grievances are raised, the company will be able to learn and improve where

slandering occurs however, the company will be available to continue communicating to an

established line of engaged consumers to provide accurate and thorough data well presented as a

defense. The importance in this process is to take the slandering with humility and present

counter-arguments in a clear, logical fashion that is easy for the average consumer to appreciate.

Critical Failure of Implemented Systems. Products are being developed and then

placed on the road at a rapid pace that requires engineers to quickly produce a first product

without significant chance of failure. This is a tall order for even the brightest of engineers, so

an alternative method to a perfect first product is to ensure that the possible system flaws are

concentrated in a fashion that allows for gradual improvement over time. The company has and

will continue to do this by focusing on the structural components of the car being thoroughly

vetted while the software is made pliable to further improvement.

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Appendix A: Full Break Even Analysis (in thousands)

R&D + General & Variable Cost

Year Units Fixed Cost Admin Vehicle Production
2015 0 $ - $ 500,000.00 $ -
2016 0 $ 500,000.00 $ 1,000,000.00 $ -
2017 150000 $ 500,000.00 $ 1,500,000.00 $ 3,750,000.00
2018 250000 $ 500,000.00 $ 2,000,000.00 $ 6,250,000.00
2019 375000 $ 500,000.00 $ 2,500,000.00 $ 9,375,000.00
2020 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
2021 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
2022 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
2023 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
2024 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
2025 500000 $ 500,000.00 $ 3,000,000.00 $ 12,500,000.00
Year Total Cost Sales Annual Profit Total Profit
2015 $ - $ - $ - $ (888,663.00)
2016 $ 1,500,000.00 $ - $ (1,500,000.00) $ (2,388,663.00)
2017 $ 5,750,000.00 $ 5,250,000.00 $ (500,000.00) $ (2,888,663.00)
2018 $ 8,750,000.00 $ 8,750,000.00 $ - $ (2,888,663.00)
2019 $ 12,375,000.00 $ 13,125,000.00 $ 750,000.00 $ (2,138,663.00)
2020 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ (638,663.00)
2021 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ 861,337.00
2022 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ 2,361,337.00
2023 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ 3,861,337.00
2024 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ 5,361,337.00
2025 $ 16,000,000.00 $ 17,500,000.00 $ 1,500,000.00 $ 6,861,337.00