Description of Tesla’s ERM Program and its Appropriate for the Company’s Business

7. Description of Tesla’s ERM Program and its Appropriate for the Company’s Business

The process of planning, organizing, directing, and regulating an organization’s operations in such a way that risks do not have a substantial influence on the company’s capital and profitability is referred to as enterprise risk management (Gordon, Loeb, & Tseng, 2009). Regional divisions at Tesla have minimal autonomy because of the company’s highly centralized organizational structure, and most company-wide decisions are made at the corporate level.

As part of the organization’s structure, the international risk management department answers to the finance division (Tesla Inc., 2020). The international risk management team is in charge of handling issues like asset insurance and the financial risks the firm faces. The organizational structure of Tesla is an illustration of how resources for risk management are allocated and used across geographically and functionally separate business segments (Shahan, 2021). There is no role designated “Chief Risk Officer” whose duty would be to coordinate the different areas of risk. The COSO framework is likely used by Tesla to perform annual enterprise risk assessments, despite the fact that no enterprise risk management (ERM) method is mentioned. The Board of Directors and the committees it appoints, such as the Audit Committee and the Corporate Governance Committee, are in charge of risk management and corporate governance (Shahan, 2021). Its duty is to support the Board in keeping track of how the company manages risks. This entails ensuring the confidentiality and security of consumer information. Tesla does not have the ideal basis for managing various forms of risks due to the perceived rigidity and centralization of its organizational structure and the company’s lack of attention on its risk management strategy.

The current operations of Tesla have a negative impact on the company’s bottom line, putting its ability to continue in business in peril. It would seem that this is the result of a larger emphasis placed on high-end sports cars (Jing, 2020). The creators of the firm were aware from the very beginning that the original version of their product would be expensive in every conceivable way. It is possible that this pricing plan will be seen as reasonable and in line with the business procedures used by the organization (Tesla Inc., 2020). The production of high-quality electric vehicles takes a significant amount of technology. On the other hand, Tesla has performed poorly in terms of timely delivery of units to paying customers (Shahan, 2021). Severally, there have been delays in delivery.

Given that Tesla’s primary mission is to expedite the world’s transition to renewable energy, the company may be able to reduce the cost of solar energy over the long term by building large battery facilities and increasing production of batteries, yet it increased risks through acquiring SolarCity (Guo, 2019). This is because Tesla’s primary mission is to hasten the transition. As a consequence of implementing this plan, it is possible that the costs associated with the production of Tesla electric vehicles as well as the final prices of these vehicles would fall, which will lead to an increase in product demand. On the other side, SolarCity has been experiencing a loss in revenue, which makes it harder to accomplish this long-term goal (Guo, 2019). It reveals that Tesla’s strategic decisions are faulty because they are predicated on a bad plan, demonstrating that Tesla has a flawed ERM strategy.

Some of the areas in which risk control needs to be established for extremely large businesses like Tesla, and the corresponding work that needs to be done, include strategic planning, corporate culture publicity, negative public opinion management, technical ethical risk, legal and regulatory risk, human resource management risk, financing risk, and geopolitical risk. Additionally, there are other areas of risk control that need to be established. For example, there has separate incidents of Teslas catching fire. Consequently, the organization reported having put up plans to reduce the risk. Even then, the strategic management of risk is wanting since the organizational structure does not leave much room for flexibility. Tesla must establish an enterprise risk management structure in order to achieve success in the management of risk.

It’s possible that Tesla’s corporate culture may benefit from making the firm less risky overall. Implementing a risk management strategy for Tesla that takes into account the bigger picture might potentially boost the company’s performance. Integration of an Enterprise Risk Management (ERM) system might be helpful in this regard because ERM seeks to analyze both operational and non-operational risks, as well as direct and indirect risks, internal and external risks, and risks that may impact the performance of multiple organizational units.

References

Gordon, L. A., Loeb, M. P., & Tseng, C. Y. (2009). Enterprise risk management and firm performance: A contingency perspective. Journal of accounting and public policy, 28(4), 301-327.

Guo, Z. (2019, February). The Acquisition of SolarCity by Tesla: A Good Step or Not?. In 2019 4th International Conference on Financial Innovation and Economic Development (ICFIED 2019) (pp. 286-290). Atlantis Press.

Jing, X. U. (2020). Analysis of the Operation Strategy of Tesla Inc. in China. Frontiers in Economics and Management Research, 1(1), 21-25.

Shahan, Zachary (2021). “Tesla Model 3 Has Passed 1 Million Sales”. CleanTechnica. Available at: https://cleantechnica.com/2021/08/26/tesla-model-3-has-passed-1-million-sales/

Song, J. (2022, March). Quantitative Analysis of Tesla Inc. in the Context of the Covid-19. In 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) (pp. 662-666). Atlantis Press.

Tesla Inc. (2020). Tesla Announces Updates to 2020 Annual Meeting of Shareholders and Battery Meeting Day Events. Available at: https://www.tesla.com/ns_videos/2019-tesla-impact-report.pdf