TESLA'S ACQUISITION OF SOLARCITY: EVALUATING MAJOR OPERATIONAL (Essay Sample)

TESLA'S ACQUISITION OF SOLARCITY: EVALUATING MAJOR OPERATIONAL CHANGES By (Name) Name of the class Professor Name of school Date Table of Contents TOC \o "1-3" \h \z \u Introduction (Slide 1) PAGEREF _Toc150043063 \h 3Background of companies in the acquisition (Slide 2) PAGEREF _Toc150043064 \h 3Description of the acquisition event (Slide 3) PAGEREF _Toc150043065 \h 3How the company managed the event (Slide 4). PAGEREF _Toc150043066 \h 4Outcomes and how the acquisition impacted Tesla (Slide 5) PAGEREF _Toc150043067 \h 4Recommendations (how could or should the company have dealt with the Event to ensure better outcomes). (Slide 8) PAGEREF _Toc150043068 \h 6Conclusion PAGEREF _Toc150043069 \h 6 Introduction (Slide 1) Change is an inevitable experience for businesses especially in this ever-evolving landscape where technology and innovation can be leveraged to identify and maximize on existing opportunities. One such reflection of change is the acquisition of SolorCity by Tesla which generated great interest in the realms of electric vehicles and renewable energy solutions. This report focuses on this event delving into the intricacies of this major operational change. The report intends to evaluate Tesla’s response to this transformative event in the long term and short term. The acquisition marked a pivotal moment in Tesla’s history going beyond being a mere corporate transaction but a strategic decision as well. Ideally, the occurrence was intended to facilitate a strategic vision that would revolutionize the energy sector by integrating electric vehicles with solar energy solutions (Waters, 2016). The report analyzes the event in relation to its strategic effectiveness in the company allowing for extraction of valuable lessons for organizations considering similar transformative actions. As we journey through the pages of this report, we will dissect the impact of the SolarCity acquisition on Tesla's operations, its financial performance, market positioning, and the lessons learned from this ambitious endeavor Background of companies in the acquisition (Slide 2) Over the recent past, Tesla Inc. has emerged as a global leader in the electric vehicles (EV) and clean energy industry. The company was founded in 2003 by Martin Eberhard and Marc Tarpenning being known for its mission to accelerate the world’s transition to sustainable energy. Presently, Tesla has been synonymous with Elon Musk, who joined shortly after its inception. Musk became an instrumental figure in the company's history playing a central role in shaping its vision. This mission is executed by the company through the manufacture of electric cars to encompass various aspects of clean energy technology. Some of the groundbreaking electric cars by Tesla include the Tesla Roadster, Model S, Model 3, Model X, and Model Y (Diamond, M., 2019). The company’s innovation extends to energy storage solutions providing the Powerwall and Powerpacck which offer energy storage and management for residential and commercial use. The second company of interest in this report, SolarCity Corporation was founded in 2006 by Lyndon and Peter Rive. SolarCity was renowned as a leading provider of solar energy in the US specializing in solar panel installation and offering solar leases and power purchases. The company's business model involved financing, designing, and installing solar energy systems for customers, who then paid for the electricity generated by these systems. Description of the acquisition event (Slide 3) Companies often engage in strategic business transactions that potentially alter their organization structure. Acquisition is an example of such strategic decision where a company buys most or all of another company's shares. This move is often chosen by companies seeking to improve their economies of scale, achieve greater marker share, facilitate increased synergy or promote cost reductions. In 2016, Tesla Inc announced the strategic acquisition of SolarCity Corporation (Tesla, 2016). The acquisition which was valued as $2.6 billion was framed as a part of Tesla's grand vision to create a seamless and integrated sustainable energy ecosystem. A close analysis of the acquisition highlights several key elements that inspired the event. First the acquisition would promote strategic synergy between the two companies. Primarily, the acquisition would integrate clean energy solutions across the transportation and energy sectors. By leveraging on SolarCity’s expertise in solar energy generation and storage, Tesla aimed to complement its electric vehicle production. Secondly, the acquisition could be assessed to be mission driven being in line with Tesla's overarching mission "to accelerate the world's transition to sustainable energy." In this regard, the acquisition would provide an all-encompassing solution for customers in reducing their carbon footprint through electric transportation and clean energy for homes. How the company managed the event (Slide 4). Decision making at the strategic level of business often involves the consideration of a multitude of factors for optimal success. In the case of acquisitions, businesses have to be extra careful to manage the process from beginning up until efficient integration with the second company. Similarly, the acquisition of SolarCity by Tesla required efficient management of different aspects as discussed. First, Tesla managed through the acquisition by underpinning the decision with a clear strategic vision. From the onset, Tesla’s interest in SolarCity was aimed at supporting Tesla’s integrated sustainable energy ecosystem. The company through its acquisition provided a way to encompass this vision in electric vehicles thus becoming a guiding principle in the process. Secondly, Tesla managed through the acquisition by leveraging on integrated planning across the two companies. Ideally, the acquisition process relied on a meticulous integration planning which identified areas of synergy between the companies. For example the planning identified opportunities of cross-selling for solar products to Tesla vehicle owners and vice versa. Additionally, the planning evaluated aspects to reduce redundancies to enhance overall efficiency. Lastly, operational alignment was adopted in managing the acquisition between the companies. Given the different product offerings, Tesla was involved in aligning the operations to consolidate solar energy solutions. Additionally, this would also involve promoting the use of Tesla's energy storage products, such as the Powerwall, to complement solar installations by SolarCity’s existing customers. Figure 1: SolarCity Revenue and net loss Outcomes and how the acquisition impacted Tesla (Slide 5) As far as strategic decisions go, acquisitions are demanding with potentially significant impacts on the businesses involved. Similarly, the acquisition of SolarCity had significant impacts on Tesla both in the short term and the long term. These are discussed in greater detail in the following instances. Short-Term Outcomes: In the run up towards the acquisition, various concerns were raised over the financial standing of SolarCity. More specifically, Ellon Musk cited three things that needed to be sorted before the acquisition was finalized. One pending issue that came across was the liquidity crisis that SolarCity was experiencing amounting to the accumulated debt from its business approach. In this regard, the first short term impact after the acquisition was financial implication. SolarCity’s liquidity crisis factored into the acquisition impacting Tesla's cash flow and profitability, leading to skepticism among investors. The incurred debt in the previous business operations of the company affected Tesla’s current balance sheet. To address the debt crisis of the company, Tesla facilitated stabilization by incorporating the cost of the debt in the overall cost of the acquisition (Olesia and Zhou, 2023). Additionally, a critical analysis of the financial statements of the company reveal that the sale of Tesla had gone up 60% by the acquisitions. While this was reasonable as the product range had been expanded, the gross margin decreased from 23% to 19% due to increased cost of production (Nasdaq, 2017). Period ending 12/31/2017 Change in % 12/31/2016 Revenue $11,758,751 +68 $7,000,132 Cost $9,536,264 76.6 $5,400,875 Gross profit $2,222,487 +39 $1,599,257 Gross Margin 19% 23% Research and Development $1,378,073 +65.2 $834,408 Sale, General and Adimin $2,476,500 +72.9 $1,432,189 Operating income ($1,632,084) -144.6 ($667,340) Operating margin 14% 10% Table 1 Income statement value in 000 Period ending 12/31/2017 12/31/2016 Net income ($1,961,400) ($674,914) Depreciation $1,727,040 $ $1,041,789 Net income adjustment $949,487 $301,289 Account receivable （$40,0880) ($265,918) Change in inventory ($178,850) ($672,867) Other operating activity ($1,594,657) ($1,432,189 Operating margin ($60,654) ($123,829) Table 2. Cash Flow Value in 000 (Slide 6) The second short term impact of the acquisition on Tesla was the predisposition complexities in integration. Being different companies with diverging organizational and operational objectives, Tesla’s operations were impacted with logistical and operational complexities. The company faced challenges in aligning the two companies’ offerings and overcoming the difficulties of streamlining the processes into a seamless unit. (Bursztynsky, 2022). For example, the operational efficiency intended from the acquisition was far from being achieved as the vehicle and energy sections had been operating almost separately. Additionally, given the amalgamation of the two companies, ...