The 5 Billion Dollar Strategic Decision

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Tesla motors is headed to Carson City, Nevada to plant their massive gigafactory. The California based electric car company made a 5 billion dollar decision and chose Nevada over California, Texas, New Mexico, and Arizona to build a advance battery factory.

This was one of the toughest decisions that the rapid growing company has faced. The company put so much emphasis on the location of the factory that made me wonder, why? Why should they care so much about a simple location? I then recalled the ten strategic decisions in operations management and how important and strategically planned a location should be. The five states were battling it out with one another as to who would get the opportunity to have a factory that would implicate “a move that Gov. Brian Sandovol estimates would have a $100 billion economic impact over the next 20 years” (WSJ).

The innovative company chose a state that offered them  $750 million and $1 billion in tax abatements and $195 million in tax credits. Not only focusing on costs; the company truly thought out the infrastructure and logistics. “Nevada is close to Tesla’s Fremont, California assembly plant and has ready access to lithium, a raw key material for batteries that power electric cars” (WSJ).

Tesla played their cards really well in selecting Nevada. By picking a spot in the sunny, desert state they will be able to fully support a massive plant that would be energy self sufficient, using geothermal, wind and sun to provide electricity.

Personally, I think this was one of the smartest decisions that the company could have made in operations. By picking a place like Nevada they will bloom the job market in the state while boosting their finances. Currently, the unemployment rate of Nevada has been drastically high due of the economic downfall. That being said the civilians of the state will work for relatively low wages compared to the workers in California or Texas. This will not only help employ the jobless people of Nevada, but will save Tesla millions of dollars.

This transaction will not only benefit Tesla, but will also have a positive impact on Nevada as a whole. Currently, the state is known for Las Vegas and its nightlife, but what about the rest of the state? According to Forbes, the state will benefit in more jobs, a population boost, and overall a stabilized infrastructure that will drive in more companies; which will result in  a positive effect on the state’s economy.

My question to everyone else is. What role do you think the location strategy plays in the success of the company? By being near customers, suppliers, and putting that much emphasis on the infrastructure; will it truly help the position of the company?

 

Sources:

http://online.wsj.com/articles/tesla-confirms-nevada-to-get-battery-factory-1409871734

http://www.forbes.com/sites/michelinemaynard/2014/09/12/two-losers-in-teslas-big-gigafactory-deal-with-nevada/

12 thoughts on “The 5 Billion Dollar Strategic Decision

  1. I think location is very important to consider when it comes to strategy. I agree that Tesla made the right decision to build in Nevada. The new factory will be close enough to the assembly plant that the company will not pay a fortune for shipping/transportation costs. In addition, if the plan is looking to be environmentally friendly and run on solar power energy, there is plenty of sun light in Nevada as well!

    Also, besides Las Vegas, there is not much else in Nevada. Tesla will have first pick on employees because unlike in California, there are not a lot of corporations set up there. It will be neat to see the economic impact Tesla’s new factory will have on the state too!

  2. The decision made was well thought out and a great one. Location is one very important key when deciding to place a business, in this case Telsa made a great selection with Nevada. Also they thought about the future and how Nevada was offering better deals in both tax credits and tax abatements, which in the long run will help to be more profitable. Being placed will help the position of the company because cost to transport goods from company to company will save them money, also the travel of executives wouldn’t be a drag traveling to both locations.

  3. Great post! I am a huge fan of Tesla cars and the company as a whole. It is my personal opinion that location is the most important building block for any company, especially a young one like Tesla. Some companies can get away with a not so stellar location out of sheer brand recognition. Tesla’s case was a little different when choosing their location, because they were choosing a location for a factory rather than a retail location. However, I think Tesla made a great decision in choosing the perfect location that they did. Any company posed with a similar decision should do their best to follow in Tesla’s footsteps.

  4. I do not know much about Tesla, but it seems they made a really smart decision. I think the importance of location depends on the industry. Any business that has a store front where customers come and purchase a product or receive a service live or die by their location. Thus, a manufacturer like Tesla had less to lose as it relates to location, but they obviously wanted to make the best decision to help their business.

  5. I have heard a little about Tesla before reading this post and I think it is a very smart idea, however I am not one that would choose to buy one myself. Location is very important with anything in life and especially when the climate will effect the business grately. In the long run, their decision of going with Nevada will help them be more profitable because of the better deals with taxes.

  6. This decision that Tesla had to make was most likely riddled with financial, operational, and accounting formulas. As of current we are a profit seeking society, so everything from location to customers, to energy bills, to location of other plants, where the lowest taxes are, the lowest land costs, what the minimum wage for workers is, getting equipment shipped there, and being close to whatever raw materials and probably tons of other questions like these had to be asked and answered before Tesla’s decision was final. I think Tesla’s final goal is to produce high end electric cars with minimum expenses not related to the materials that go into building the car. Everything else like location and overhead they would like to keep to a minimum so as a company it can generate the highest profits as possible. If Tesla’s decision was successful, that we will see that in the form of their financial statements over the coming years.

  7. This article brings up an excellent point about location in terms of maximum production/operational efficiency. I am a big supporter of the Tesla all-electric line of cars and am very interested to see just how profitable their gigafactory plant will be to the state of Nevada. I believe that the decision was a very intelligent and difficult one, and can understand why Nevada was chosen (tax breaks and state grants), but I believe that there could have been a better choice. If the car factory is in California, I believe the battery plant should have also been in California. Because they are in two different states and quite some miles apart, Tesla will have to factor transportation in, and this will only add overhead costs, and time which could have been better utilized.

  8. It is definitely a great question. Location can impact any business. For instance, even if you got the best products, but your location do not fit in there, it will cause a massive loss. However, Tesla thought about all the other options. It must have been hard to pick a location. This is not dealing with just a small store. Researching about the pros and cons about each location was a really smart and difficult decision

  9. I definitely think that location strategy plays an important role for a company, especially in the case of a company like Tesla. Everything they do is so capital intensive that they need to look for ways to cut cost whenever possible. Differences in percentages between locations on things like tax breaks, distribution/ transportation cost, etc. turn out to be huge numbers in context to something like this.

  10. In my opinion I think location has everything to do with the success of a company. I’ve also been following Tesla since they started out because it has always interested me. By moving to Nevada it will be a positive for them in more ways than people realize. This will create jobs not only for Tesla but also all of the other businesses that follow them to this area. I’m interested to see how this plays out.

  11. This was a great post, I’ve heard a little about Tesla but this post definitely made things more clear. I am a big proponent on electric cars. I think Tesla made a clever decision in choosing Nevada as their location. Having a good location is crucial in business, but Tesla also thought about other aspects of their business and didn’t Nevada be the final choice because of the tax benefits.

  12. I think Tesla is such a great innovative idea. I would love to have a car where I didn’t have to spend a dollar on gas. How awesome is it that there new location is Nevada it will create so many jobs and hopefully drive down the price of the car as well. Im sure not that they have a location in the us we will start to see many more charging stations around Chicago as well.

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