Tesla, the Battery Company. Not the Car Company.


Efficiency through effective, but most importantly, environmentally friendly manners is a relentless goal for all organizations within our society. One of the companies that has best been able to achieve this goal throughout recent years has without a doubt been Tesla Motors. The American company has gained significant public attention for their designs, manufacturing, and selling of electric cars that has not only made them one of the most recognizable automobile companies, but also one of the most environmentally friendly companies throughout the globe. This is primarily because of their capabilities to reduce car emissions. However, despite their efforts to reduce the negative effects on the environment, throughout this essay I will argue that what makes Tesla Motors most unique is not their cars, but rather, their batteries.

Today, the goal of Tesla Motors continues to be to develop fuel efficient and environmentally friendly cars. This is all possible primarily because of the battery of Tesla cars, which is the least expensive, but the most important component of the vehicle. Essentially, any automobile company can produce any style of an exterior frame for a car, but not all companies can produce the proper battery that allows a car to function and reduce emissions. However, due to Tesla focusing on both the production of the exterior frame and the battery of the car, the consequences are failed advancements for a more sustainable society. This is because of failure to have an individual focus on what is most beneficial for the environment, which is the battery. This decision to focus on the exterior frame of the car and the battery, opposed to only the battery, raises the question of consequentialism.

Consequentialism is the theory that the morality of an action is judged solely by its consequences[1]. This means that although Tesla Motors produces an incredibly fuel-efficient car, their actions are in a manner unethical and immoral. This is because their decisions to focus on the exterior frame in addition to the battery of the car result in consequences such as taking away time and effort to exclusively improve the battery, which is the component that provides the most value to the environment. As stated in Paul Hurley’s text Beyond Consequentialism, “morality requires agents (Tesla) to perform the act that promotes the best overall state of affairs for society” (pg. 1 Beyond Consequentialism). Due to focusing on the production of two different aspects of a car, Tesla is not improving the overall state of affairs for all of society. However, before further discussing how Tesla Motors raises the issue of consequentialism, the history of the company through present day is vital to examine.

In July 2003, Martin Eberhard and Marc Tarpenning founded Tesla Motors. Both individuals were the primary financial providers for Tesla through the company’s first few rounds of venture funding. Shortly after major buzz in the media of producing an electrical car with essentially no emissions, Tesla Motors drew the attention of billionaire and PayPal founder, Elon Musk. Large investments were made by Musk in the car company that shortly led to his joining of the Board of Directors as Chairman. After the addition of Musk, the goal of the company was to now develop and market electric vehicles, specifically with a sports car exterior that would include an advanced battery as the primary fuel source to eliminate any form of emission from the car.

Four years later, in February 2007, Tesla Motors announced it would build a $35 million plant in Albuquerque, New Mexico. The construction of the plant was for the purpose to deliver the company’s first BEV (battery electric vehicle), which would be the Tesla Roadster. At this time, Musk was taking an extremely active role within the company and viewed the Roadster as a product with immense potential. The only issue was that Musk placed a greater focus on the exterior framework and the design of the car, which incurred more costs than the battery. Unfortunately, although Tesla Motors is a public company, providing exact numbers for the price of Tesla components is quite difficult. Even despite a personal phone call of mine to the sales department of Tesla, I was unable to acquire a price for the cost of production of a battery and of the exterior frame of the car. Ironically, as said by the sales associate who spoke to me over the phone, “Although we are a public company, there are some things we keep private.” However, after reading an article in regards to the production of Tesla cars, a “Tesla Tech Officer” says the battery costs are, “Way less than half (of the production costs of the car), actually, less than a quarter in most cases.” This would mean that if the Tesla Roadster, which was released to the market with a base price of $109,000, the battery of the car would cost only $27,250, while the rest of the exterior would cover 75% of the costs at $81,750[2]. This significant focus on the exterior frame of the car would continue to grow as Musk acquired more control, due to funding the majority of Tesla’s preceding capital ventures.

Later in December of the same year, Ze’ev Drori, an Israeli technology entrepreneur, became CEO of Tesla Motors. Despite the confident instatement of Drori, Tesla Motors was losing money, which resulted in the firing of numerous employees in order to decrease costs and regain ground from negative cash flow. Tesla had now reduced its workforce by approximately 10%. Continuing expenses and financial costs would be the promoters of change within the company that would lead to Musk becoming the successor of Drori as CEO. By January 2009, Tesla had raised $187 million and only delivered 147 BEVs. Despite financial struggles, Tesla Motors received $465 million in low-interest loans from the U.S. Department of Energy for the production of its upcoming Model S. Unfortunately, these loans were given for the purpose of the production of an automobile instead of further development of a battery.

So after inconsistent development for six years, what has Tesla done most recently and what is it doing today? Well, in January 2010, Tesla Motors registered with U.S. Securities Exchange Commission for an initial public offering of stock. Four months later, Tesla announced their partnership with Toyota, who agreed to purchase $50 million in Tesla common stock issued in private placement. The following steps for the company included purchasing a former Toyota and General Motors factory in California for $42 million for the purpose of developing electric vehicles. Finally, on June 29, Tesla Motors commenced its trading on the NASDAQ Stock Exchange. The IPO generated $226.1 million for the company. Things appeared to be going well for the first American motor company to go public since Ford in 1956. However, due to three incidents involving Tesla’s latest Model S burning into flames after highways accidents, Tesla’s consumer value dropped. This decrease in the public’s confidence resulted in a significant drop in Tesla’s stock. Later in January 2011, Tesla reported its first public financial results. The results were devastating. Tesla Motors lost $154.3 million in 2010 and would have to end production of its Roadster model.

Today, through the first nine months of 2014, Tesla Motors has sold only approximately 11,000 units worldwide of their latest Model S. Despite having a record setting month in sales for the month of September, Tesla is still being out produced and lacking in sales in comparison to other companies whose primary focus is not selling BEVs[3].

This has led to Tesla now changing their marketing strategy. Tesla originally looked to offer luxury products in the automobile market at expensive prices directed towards high-income consumers. The California based company now had to lower its prices for cars in order to achieve larger sales. Tesla has made steps in the right direction by inserting galleries within 22 shopping malls throughout the U.S. for the purpose of helping consumers learn more about the benefits of BEVs and their lower prices. However, despite looking for ways to improve, Tesla continues to lose money. In the third quarter, Tesla shares went down 32 cents, resulting in a $38 million loss. These significant financial losses are primarily because of their failure to focus only on the production of their batteries, which raises the discussion of consequentialism.

Consequentialism is previously defined as the theory that the morality of an action is judged solely by its consequences. The consequences to be judged from Tesla are the results of their binary focus on both the exterior framework and battery of their cars. “An action that is morally right is one that its performance leads to the best state of affairs” (pg.1 Beyond Consequentialism). This is not what Tesla is doing. Tesla’s actions have not only resulted in extreme financial losses, but most importantly, stolen time and efforts to further develop a battery. As stated in Beyond Consequentialism, “The moral course of action is often taken to be that of maximizing overall social welfare, utility, or preference satisfaction” (pg. 2 Beyond Consequentialism). Therefore, the moral course of action to maximize overall social welfare by Tesla would be to only produce and develop batteries. The reason why Tesla has a competitive advantage over other car manufacturers is because of the battery they produce. The battery Tesla produces incorporates thousands of lithium-ion battery cells, which are rechargeable and are also non-combustion. By replacing the traditional engine with a lithium-ion battery, primary benefits are fewer carbon dioxide emissions and greater wheel-to-wheel efficiency because of having a non-combustion power source[4].

The Tesla Roadster Model for example contains 6,800 lithium-ion battery cells that deliver 215 kilowatts of power, which is enough to enable the car to go 100km under 4 seconds and 300 miles when fully charged.

“The right strategy is taken to be that which maximizes overall benefit.” (pg. 2 Beyond Consequentialism) Therefore, Tesla’s strategy should be to only produce batteries in order to maximize overall benefit. Approximately 75% of costs in producing a BEV Tesla vehicle come from the exterior framework of the car, while only 25% are from the lithium-ion battery that fuels the car. These actions Tesla has taken to produce both the exterior framework and battery in regards to consequentialism are unethical for many reasons. First, any company can produce an exterior frame of a car to fit any style, but what gives Tesla such a powerful competitive advantage is the technology of their batteries. By having Tesla only produce batteries, the company would eliminate more than half of their costs and would only have to focus on further development of lithium-ion batteries for BEVs. After making this change, Tesla could begin to provide other automobile companies such as BMW, Mercedes, and Volkswagen with valuable technology that they do not have. By becoming a battery only producing company, Tesla would improve revenues because of lower, more singular costs, but most importantly the consequences to their actions would not be immoral. This would be because the collaboration of work between Tesla and other companies would result in only positive consequences for all. Furthermore, Tesla would generate more revenue, other car companies would purchase their batteries because they would only develop the exterior frame, and the collaboration of both would produce a more environmentally friendly car for all of society.

In conclusion, Tesla should become only a battery producing company for many reasons. In addition to decreasing costs, the individual production of lithium-ion batteries will allow for other car companies to better focus on the exterior frame of the car. This collaboration with Tesla would lead to only beneficial results towards the development of better cars with social and financial benefits for all. As previously stated, efficiency through effective, but most importantly, environmentally friendly manners is a relentless goal for all organizations within our society. Completing this task will now be more attainable because of distinct companies having fewer responsibilities in the production process towards an environmentally friendly car.

_______________________________________________________________________________

[1] Hurley, Paul. Beyond Consequentialism. Oxford: Oxford UP, 2009. Print.

[2] “Tesla Battery In The Model S Costs “Less Than A Quarter” Of The Car In Most Cases.” Inside EVs Tesla Battery In The Model S Costs Less Than A Quarter Of The Car In Most Cases Comments. N.p., n.d. Web. 21 Nov. 2014.

[3] “Forums.” Tesla Model S Sets All-Time Sales Record In U.S. In September. N.p., n.d. Web. 21 Nov. 2014.

[4] St. The 21 St Century Electric Car. Idc-online.com Web.

Other References:

  1. Ivory, Danielle. “Federal Safety Agency Ends Its Investigation of Tesla Fires.” The New York Times. The New York Times, 28 Mar. 2014. Web. 21 Nov. 2014.
  2. “Electric Automaker Tesla Motors Loses $50 Million in Q1.” NY Daily News. Web. 21 Nov. 2014.
  3. “How It’s Made Electric Roadsters Tesla Elecric Car.” YouTube. YouTube. Web. 20 Nov. 2014.
  4. 24 Nov. 2014. “Forums.” Tesla Timeline. Tesla Motors.com

 

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