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 - – supply chains are disrupted by pandemic , there is increasing trade war between United States & China, central banks are concerned over increasing inflation, increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies, geopolitical disruptions,
banking and financial system is disrupted by Bitcoin and other crypto currencies, competitive advantages are harder to sustain because of technology dispersion, 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 -
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.
High switching costs
– The high switching costs that Tesla's Gaap has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Finance & Accounting industry
– Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation firm has clearly differentiated products in the market place. This has enabled Tesla's Gaap to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Tesla's Gaap to invest into research and development (R&D) and innovation.
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.
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.
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.
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.
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.
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.
Training and development
– Tesla's Gaap has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Cross disciplinary teams
– Horizontal connected teams at the Tesla's Gaap are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
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.
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 -
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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Tesla's Gaap has relatively successful track record of launching new products.
Slow decision making process
– As mentioned earlier in the report, Tesla's Gaap has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Tesla's Gaap even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Tesla's Gaap is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
High operating costs
– Compare to the competitors, firm in the HBR case study Tesla's Non-GAAP Accounting Measurements: Revenue Recognition and Stock-Based Compensation has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Tesla's Gaap 's lucrative customers.
Increasing silos among functional specialists
– The organizational structure of Tesla's Gaap is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Tesla's Gaap needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Tesla's Gaap to focus more on services rather than just following the product oriented approach.
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.
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.
High cash cycle compare to competitors
Tesla's Gaap has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
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.
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 -
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Tesla's Gaap can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Tesla's Gaap can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
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.
Leveraging digital technologies
– Tesla's Gaap can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Tesla's Gaap in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
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.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Tesla's Gaap in the consumer business. Now Tesla's Gaap can target international markets with far fewer capital restrictions requirements than the existing system.
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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Tesla's Gaap can use these opportunities to build new business models that can help the communities that Tesla's Gaap operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Tesla's Gaap can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Tesla's Gaap can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
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.
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.
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.
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 -
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.
Stagnating economy with rate increase
– Tesla's Gaap can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
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 .
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.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Tesla's Gaap will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
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 .
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.
High dependence on third party suppliers
– Tesla's Gaap high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Environmental challenges
– Tesla's Gaap needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Tesla's Gaap can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
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.
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.
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.
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