Analysis of Tesla's Business and Ethical Issues: A Case Study

This case study analyzes the business and ethical issues faced by Tesla, focusing on the challenges surrounding the production of the Model 3. The study examines issues such as production delays due to automation, supply chain problems, and the ethical implications of prioritizing production speed over customer satisfaction and employee well-being. It explores the application of ethical theories like egoism and utilitarianism to understand Tesla's decisions and their consequences. The analysis highlights the impact of these issues on the company's brand image and customer relations, including missed deadlines and product quality concerns. The study also proposes potential solutions, such as improving quality assurance, recruiting skilled staff, increasing transparency, and engaging with dealers, to regain customer trust and mitigate ethical concerns. The conclusion emphasizes the need for a balanced approach that integrates technology with human effort and maintains transparency to ensure sustainable business practices.

BUSINESS AND GLOBAL ISSUES

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Table of Contents
Introduction................................................................................................................................3
Description of the case...............................................................................................................3
List of issues...............................................................................................................................4
Ethical issues..............................................................................................................................5
Possible solutions.......................................................................................................................7
Conclusion..................................................................................................................................8
Reference list..............................................................................................................................9

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Introduction
Ethical issues can be identified as a problem, which requires an organization to
choose between alternatives. Unethical decisions cause an impact on both organization and
its associates like employees and customers. Unethical business practices impact on overall
reputation of a company. Different production issues have created ethical problems for Tesla,
which has impacted on their reputation and competitive advantage. Different theories like
utilitarian theory can be used to describe the problems in depth. In this assignment, different
ethical issues faced by Tesla are analyzed through the help of different ethical theories.
Besides, solution to the problems is also recommended at the end of this study.
Description of the case
This case is about the business issues of Tesla which have been created due to the
inappropriate decision making. Tesla has entered into the U.S automobile industry with their
electric cars. This company gains popularity through their innovative models of electric cars.
Huge number of people has shown interest in buying their new model 3. Reportedly, more
than 500000 customers have provided $1000 to this company to reserve the Model 3.
However, the makers of this car have failed to deliver this product within promised deadlines.
At the middle of 2018, Tesla refunded near about 25% of the deposit. This company has
appointed more than 1000 robots to make Model 3 cars faster to meet the promised date of
delivery. When it comes to automation, automatically, the concerned work requires more
engagement (Rüßmann et al. 54). Elon Musk, the CEO of this company have spent 120 hours
a week supervising the production of this car model. The CEO has admitted that this
company was in the production hell state. As a result, they have failed to meet the expectation
of their customers and it has affected their brand image.

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This company has trusted the robots over human employees and this approach has
affected their performance. As a result, the quality of the product was not up to the mark and
customers were not satisfied with the product. Incorrect decision making by management
leads to poor performance (Lin et al. 2). The failure of Tesla to deliver products within
promised deadlines and poor quality of products has caused the missing of sales production
by Tesla. They have shown reluctant to check the quality of their product before marketing. It
is not expected from a large manufacturing firm like Tesla. On the other hand, this company
has failed to manage supply chain effectively. This company later have admitted that they
have been in the distribution hell state as well. Based on these facts, investors and industry
experts start doubting the capability of Tesla to survive. Many of them have mentioned their
prediction regarding bankruptcy of this company. However, as this company has realized
their mistakes, they can implement potential solutions to mitigate business issues.
List of issues
The main issue of Tesla model 3 is in production process. The CEO of this company
has initiated a fully automated production process for building the product of model 3
(Matousek). Humans are only used for maintenance of the robots and machinery that produce
electric vehicles (Chen and Yannick 53). Glitches in the system have created problems in
production line. This has caused a delay in delivery. However, the decision of automation
was taken to avoid previous harsh experiences. The company has faced high labor and design
costs during manufacturing of model X. Moreover, the CEO was dissatisfied regarding the
quality of different parts of previous models like seats. For mitigating this problem, 95% of
model 3's production line was automated. Automation of system can reduce human error to a
greater extent (Gogoll and Julian 681).

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Moreover, skipping beta production is another issue that has created a problem of
quality and during production. This process was done to check the effectiveness of
production line. However, it was seen that skipping this process has created problems for
production department of Tesla. Automated line of production was not complete and
assembling of many parts was done by hand. This has caused delay in production. In the car
industry, the beta test is done to avoid any software crash and programming defects. This
helps to avoid any future problems and bugs in the system. Avoiding this essential step has
created critical problems in production line of model 3 and disrupted the process, which
caused delays and decreased productivity.
Dealership is an essential part of supply chain that has been hampered due to the
decision of increasing store footprint. At present, this firm owns 111 stores in 26 states and
Washington DC. This has broken decades-old franchise laws, which prevent car owner to
sell their products directly in the market. Direct sales model of Tesla was hampered in
different states due to resistance from dealers (Ingram 8).
The CEO has provided a time frame to customers for delivering the cars and taken
funds or advance booking. However, due to issues in production line, the promise made to
customers cannot be kept. This has created a bad impact on customers and hampered brand
image of the company. Proper service and transparency in operation increase brand image of
a company. It can be seen that in the mid 2018, 25% of advance deposits of customers has to
be refunded. This has created a bad impact on customers.
Ethical issues
Ensuring highly automated production has caused ethical issues in the business of
Tesla. They have not trusted human resources and hired robots for making cars. It is clear that
this company was not concerned about the security of customers. Rather they were trying to

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speed up the production process. According to the ethical egoism theory, people often
perform action for self-interest and it is ethical. However, consideration of this ethical
practice blocks the interests of others (Grant et al. 42). In the case of Tesla, relying on fully
automated production has helped them to increase production within minimum time and cost.
However, the concern about the safety and security needs of customers has been
compromised. On the other hand, the Utilitarianism theory of ethics states that an action can
be called ethical as it is performed for the benefit of the majority of the population (Ruiz-
Palomino et al. 102). This company would hire human resources for manufacturing to satisfy
the needs of both employees and customers. They could manufacture model 3 by skilled
labors by giving a chance of employment to many people. On the other side, they would be
able to ensure the safety and security of consumers (Machan 7). They could maintain a good
brand image by adhering to the principle of the utilitarian ethical theory.
This company has failed to maintain transparency between the company and its
customers. Potential customers of this company were eagerly waiting for receiving the Model
3 and they got disappointed when Tesla missed the delivery deadline. It was clear that this
company has failed to add value to the expectation of customers. They have skipped the beta
production process and this action has forced them to face another ethical issue. Not checking
the final product was the clear evidence of not considering the safety of consumers. They
have not considered the utilitarian ethical theory and hence, failed to think about the interests
of customers (Kahane et al. 193). According to the virtue of ethics concept, people learn
about virtue through their daily practice. It is important, to be honest, generous and brave to
obey the virtue of ethics (Kaptein 343). Tesla needed to enter into the marketplace of US
within a very short time. Due to this reason, they have announced about electric cars.
However, each time, their products came late in the market and failed to meet the expectation

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of customers. They were not honest about achieving their business goals. They have not
provided value to their customers.
They have failed to build a good business relationship with their suppliers by
maintaining ethical business practices. However, they have thought about their own benefit
and tried to sell their products directly to customers. Adhering to the egoism ethical theory by
this company is clear at this point.
Possible solutions
For gaining the trust and loyalty of customers proper quality of products need to be
delivered. Good quality products increase satisfaction rate of customers and brand image
increases (Vynakov et al. 9). This can be done by conducting a proper beta test of the system.
Tesla has previously skipped this primary and vital step of production that has hampered on
its quality of products and caused delay. Including this step and other quality assurance and
checking processes in the production system can help Tesla to provide quality products to
consumers.
Recruiting skilled staff for quality assurance and less production time is another
solution to this problem. The automated system reduces job opportunities, which creates an
ethical issue. However, adequate recruitment of staff is necessary for assuring quality
production. These staff can check the quality of supplies, handle automated systems and
mitigate any problems in automated systems. Hence, delay in production can be avoided
successfully. Automation of production line is ethical because it can help to ensure a large
volume of production in minimum time. However, adequate skill recruitment increases
capability of the company to produce quality products (Grant et al. 42).
Transparency of this firm needs to be increased by this firm. Proper advertising and
providing latest news on websites can be given to aware customers regarding progress of a

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project. An increase in transparency can help an organization build a healthy relationship
between customers and management (Chen and Yannick 53). Information about service
centers, charging station and other details about products can help Tesla to increase the
popularity of electric vehicles. Moreover, ethical issues can be eliminated by increasing the
engagement of customers.
In addition, dealers can be involved in planning process to avoid any resistance from them. It
can be seen that Tesla's direct sales model has been banned in different states including
Texas. Conducting a discussion with dealers regarding product distribution can help this firm
to eliminate any disruption in the supply chain.
Conclusion
From the above analysis, it was found that the CEO of Tesla has taken innovative decisions,
which can help them to gain more productivity and revenue. However, improper planning
and decision making has hampered the production line and deteriorated relationship with
customers. Using only automated technology during production has created an ethical issue.
Proper integration of artificial intelligence and human effort can help to avoid ethical issues
and maintain product quality. Moreover, transparency needs to be maintained while
communicating with stakeholders like customers and dealers. In this case, it was analyzed
that satisfaction level of customers has declined due to delay in production and direct sales
strategy has created legal issues from dealers.

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Reference list
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