Case Study Description of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation
In November 2014, questions were raised about American electric car manufacturer Tesla Motors Inc.'s (Tesla's) accounting practices, which did not follow the generally accepted accounting practices (GAAP). Tesla's third quarter 2014 financial statements showed a loss of almost US$75 million when using U.S. GAAP standards, compared to a profit of over $5 million when using its own non-GAAP standards. The accounting discrepancy between the two systems was due mainly to the allotment of vehicle buybacks, stock-based compensation, and regulatory credit sales. Tesla's share price had risen to $242 from its initial public offering of $17. Had the company's non-GAAP adjustments influenced investors' perception of Tesla's performance and, therefore, the resulting stock price? Specifically, was it reasonable to state that Tesla had been profitable in the third quarter of 2014? Were Tesla's non-GAAP adjustments appropriate? How could the adjustments between Tesla's GAAP and non-GAAP numbers be explained? What would Tesla's performance look like if the financial statements were adjusted for the resale value guarantee, regulatory credits, and stock-based compensation?
Authors :: Martin Persson, Mitchell Stein, Spencer Higgs
Swot Analysis of "Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation" written by Martin Persson, Mitchell Stein, Spencer Higgs includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Tesla's Gaap facing as an external strategic factors. Some of the topics covered in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation casestudy better are - – challanges to central banks by blockchain based private currencies, cloud computing is disrupting traditional business models, increasing government debt because of Covid-19 spendings, increasing commodity prices, there is backlash against globalization, increasing household debt because of falling income levels, customer relationship management is fast transforming because of increasing concerns over data privacy,
there is increasing trade war between United States & China, increasing energy prices, etc
Introduction to SWOT Analysis of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Tesla's Gaap, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Tesla's Gaap operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation can be done for the following purposes –
1. Strategic planning using facts provided in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation case study
2. Improving business portfolio management of Tesla's Gaap
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Tesla's Gaap
Strengths Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Tesla's Gaap in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation Harvard Business Review case study are -
Successful track record of launching new products
– Tesla's Gaap has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Tesla's Gaap has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
High brand equity
– Tesla's Gaap has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Tesla's Gaap to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Tesla's Gaap
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Tesla's Gaap does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Strong track record of project management
– Tesla's Gaap is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Analytics focus
– Tesla's Gaap is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Martin Persson, Mitchell Stein, Spencer Higgs can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Tesla's Gaap has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Operational resilience
– The operational resilience strategy in the Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Low bargaining power of suppliers
– Suppliers of Tesla's Gaap in the sector have low bargaining power. Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Tesla's Gaap to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Tesla's Gaap in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Tesla's Gaap digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Tesla's Gaap has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to recruit top talent
– Tesla's Gaap is one of the leading recruiters in the industry. Managers in the Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Ability to lead change in Finance & Accounting field
– Tesla's Gaap is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Tesla's Gaap in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Tesla's Gaap supply chain. Even after few cautionary changes mentioned in the HBR case study - Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Tesla's Gaap vulnerable to further global disruptions in South East Asia.
Lack of clear differentiation of Tesla's Gaap products
– To increase the profitability and margins on the products, Tesla's Gaap needs to provide more differentiated products than what it is currently offering in the marketplace.
Products dominated business model
– Even though Tesla's Gaap has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation should strive to include more intangible value offerings along with its core products and services.
Slow to strategic competitive environment developments
– As Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation HBR case study mentions - Tesla's Gaap takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Low market penetration in new markets
– Outside its home market of Tesla's Gaap, firm in the HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation, is just above the industry average. Tesla's Gaap needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Interest costs
– Compare to the competition, Tesla's Gaap has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Skills based hiring
– The stress on hiring functional specialists at Tesla's Gaap has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Aligning sales with marketing
– It come across in the case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation can leverage the sales team experience to cultivate customer relationships as Tesla's Gaap is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Tesla's Gaap needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High bargaining power of channel partners
– Because of the regulatory requirements, Martin Persson, Mitchell Stein, Spencer Higgs suggests that, Tesla's Gaap is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Opportunities Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation are -
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Tesla's Gaap to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Tesla's Gaap to hire the very best people irrespective of their geographical location.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Tesla's Gaap can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Using analytics as competitive advantage
– Tesla's Gaap has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Tesla's Gaap to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Tesla's Gaap is facing challenges because of the dominance of functional experts in the organization. Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Tesla's Gaap can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Buying journey improvements
– Tesla's Gaap can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Manufacturing automation
– Tesla's Gaap can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Tesla's Gaap can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Loyalty marketing
– Tesla's Gaap has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Better consumer reach
– The expansion of the 5G network will help Tesla's Gaap to increase its market reach. Tesla's Gaap will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Tesla's Gaap can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Creating value in data economy
– The success of analytics program of Tesla's Gaap has opened avenues for new revenue streams for the organization in the industry. This can help Tesla's Gaap to build a more holistic ecosystem as suggested in the Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation case study. Tesla's Gaap can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Building a culture of innovation
– managers at Tesla's Gaap can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Threats Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation are -
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Tesla's Gaap in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Tesla's Gaap needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Tesla's Gaap can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation .
Regulatory challenges
– Tesla's Gaap needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Tesla's Gaap can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Tesla's Gaap business can come under increasing regulations regarding data privacy, data security, etc.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation, Tesla's Gaap may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Tesla's Gaap in the Finance & Accounting sector and impact the bottomline of the organization.
Consumer confidence and its impact on Tesla's Gaap demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Shortening product life cycle
– it is one of the major threat that Tesla's Gaap is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Tesla's Gaap.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Tesla's Gaap with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Tesla's Gaap needs to make to build a sustainable competitive advantage.
Feel free to connect with us if you need business research.
You can download Excel Template of Case Study Solution & Analysis of Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation