Risk and Risk Management

Executive Summary

Risk management knowledge has several Benefits, reducing uncertainty, losses, and expenses. Tesla has practiced risk management in its Roll stop Feature, Steering wheel pressure detector, Sentry Mode, and Intrusion sensors. Furthermore, the internal risks the automobile industry faces are software and equipment obsolescence and the safety of the workers. Tesla’s external risks include Strong competition, Chip Shortage, Shortage of Batteries, and Corporate social responsibility and sustainability. For Automotive Industry, External Risks are Electric vehicles-, Self-driving cars, Increases in fuel prices-and Environmental regulations. Corporate social responsibility and sustainability risk is the most urgent, with high impact and likelihood. Hence Tesla has to adopt a battery manufacturing technology that does not require heavy metals like nickel and Cobalt.

1.0 Introduction

This report will discuss the importance and role of risk and risk management Knowledge to a company. The report will be based on Tesla Inc, an automotive industry company. The report will be structured such that section second section will discuss core risk concepts; the third section will discuss risk identification, ranking, and prioritizations. The report will then provide recommendations in section four and conclusions in section five.

2. Core Risk Concepts

2.1 Definitions of Risk, Risk Event, and Risk Management

Risk: Risk can be described as the chance of having a negative result other than the anticipated one.

Risk event: A risk event is simply uncertainty in a business or company setting but is essential as it will result in losses if it happens.

Risk management: Risk management recognizes, evaluates, and regulates all possible risks that can hurt the company’s earnings and capital.

2.1.1 Features of risk and risk management

Risks are situational: If any changes in the situation, such as a company undergoing reorganization, new risks will arise.

Risks are valued based: Risk can be influenced by cultural, corporate, or personal values. For instance, if a company is doing a global project location with diverse culture, the project will have a higher risk.

Risk management prioritizes risk: To succeed, one should prioritize risk; prioritizing risk entails increasing risk management visibility at all levels in the company.

Risk management makes it easy to spot struggling projects. Risk management can be used to inform the company on where it should pay more attention.

2.1.2. Importance and role of risk management

Help in removing uncertainty:

Only after understanding external and internal aspects of business operations will one be able to know what and how to protect their business (Kaushik, 2020). Therefore, having relevant knowledge about the factors that can impact the business or an organization will lessen the uncertainty the business is exposed to.

It helps reduce losses and expenses.

For any company, intense competition will likely increase marketing expenditure. More so, some new legislation can lead to an increase in taxes (Kaushik, 2020). Hence risk management knowledge will help one to anticipate the risks and devise a strategy like keeping aside some percentage of the budget to help deal with such expenses.

2.2 Where and How

Tesla is usually faced with several risks that require one to apply the knowledge of risk and risk management to solve them. Some common examples where Tesla applied risk management are; a roll stop feature, pressure detector, sentry mode, and an intrusion sensor.

2.2.1. Real word examples

Roll stop feature:

Some Tesla vehicles passed through stop signs without halting. The company applied the knowledge of risk management, evaluated the risk, and decided to recall about 54000 of its electric vehicles (Theguardian.com, 2022). Tesla agreed to mitigate the problem by disabling the feature via software update (Theguardian.com, 2022). Having assessed the situation and the likely impact, Tesla decided to update the software and introduce a rolling stop feature.

Steering wheel pressure detector:

Tesla assessed the risks associated with autopilot and concluded that drivers might not be fully engaged in autopilot. Hence, they introduced a feature that detects any pressure on the steering wheel to ensure the drive is continuously engaged.

Sentry mode:

Tesla knew that suspicious activities usually happen when one has parked their vehicle. Therefore, the company did a risk assessment and introduced a feature that records any suspicious activity and activates the alarm system (Tesla.com, 2022). This mitigates the risk of carjacking.

Intrusion sensors

Intrusion sensors also work with sentry mode to alert the user of any potential intrusion, keeping the car safe at all times.

Source of internal risk

One of the significant sources of Tesla’s internal risk is its Controversial CEO Elon Musk. Musk is known for his controversial tweets, which have; landed him and Tesla in trouble. In 2018 he was charged with securities fraud and forced to step down as the company chairman (Sec.gov, 2018). However, to settle the issue, both musk and Tesla agreed to settle the allegations by SEC, but they did not deny or refute the claims.

2.2.2. Internal risks of the automobile industry

One of the internal risks in the automotive industry is software and equipment obsolescence, as it usually results in lost productivity and downtime. Another internal risk is the industrial safety of the workers. Most of the time, workers in the automotive usually get injured as they have to deal with attaching and detaching car parts.

2.3. Risk identification, Ranking, and Prioritization

Tesla is constantly facing various external risks. Among the common external risk are;

Intense competition from other electric vehicle manufacturers

Tesla is not the only company that produces electric vehicles anymore. Recently several car companies, such as Chevrolet and Ford, have ventured into the EV sector (Jin & He, 2019). This intense competition threatens Tesla, which could lessen the company’s dominance in the sector.

Chip shortage

Another risk the company faces is the shortage of microchips. Microchips are crucial for EV production, and their shortage is disrupting the production process.

Shortage of batteries

There is also a shortage of primary minerals, such as Cobalt, used in manufacturing EV batteries. Limited access to minerals such as copper and nickel would disrupt battery production (Zeng et al., 2022). Battery shortage is due to underinvestment in the mining industry,

Corporate social responsibility and sustainability risk

Tesla mainly uses Cobalt, a product of child labour, to produce batteries. It has been accused of benefiting indirectly from child labour as DRC uses children mining cobalt (Matsika, 2020). Furthermore, the company is receiving constant criticism concerning where and how they will dispose of the used batteries.

For the automotive Industry, External Risks are;

Risk of electric vehicles

The automotive sector faces a threat in the form of electric vehicles as the world is shifting from fossil fuels to clean energy, favoring the EV.

Self-driving vehicles

Another major threat the automotive industry face is the adoption of self-driving vehicles. Several companies, such as Tesla, have already launched self-driving vehicles.

Increase in fuel prices

Currently, a fuel shortage is experienced in almost every country, leading to price escalation. Much of the blame is due to the ongoing conflict between Russia and Ukraine, which impact oil and gas accessibility.

The environmental regulations

The world is undergoing significant climatic changes, and most blame is on the automotive industry. Hence nations are coming up with regulations that favour energy-efficient and environmentally friendly vehicles (Yang, 2022). Enforcing such regulations will have a massive impact on fuel-powered vehicles.

2.3.1 Risk ranking

To rank the risks Tesla is exposed to, the report will utilize the theoretical framework, which shows the impact and likelihood of risk as shown below.

Risk Management Framework 1: Identifying and prioritizing risks

1. High impact, high likelihood-Corporate social responsibility and sustainability risk
2. High impact/low likelihood-Battery shortage
3. Low impact/high likelihood -Strong Competition
4. Low impact/low likelihood-Chip shortage

2.3.2. Discussion of ranking

Corporate social responsibility and sustainability risk

Corporate social responsibility is the most urgent risk as it has a high impact and likelihood. Battery production requires minerals such as Cobalt (Matsika, 2020). However, there are cases of children being used in cobalt mining in DRC (Kelly, 2019). Hence it will have a high impact as most customers will want to disassociate with Tesla if it indirectly benefits from child labour.

Battery shortage

Battery shortage will have a high impact and low likelihood. This is because for Tesla EV to be fully functional, it requires a power source supplied by the battery. Hence if there is no battery, the EV will not function. On the other hand, it has a low likelihood as Tesla is already building a Gigafactory to deal with the problem.

Strong competition

Strong competition lies in the low impact and high likelihood since Tesla has already established itself as a brand and more people prefer to use it due to its constant innovation. Hence, it will not be impacted much by competitors as it has already exerted dominance in the sector.

Chip shortage

Chip shortage has a low impact and low likelihood. According to Zimmerman (2022), Tesla found an alternative way by rewriting software which reduced the number of Chips required to manufacture cars. This makes it make it have a low impact and low likelihood.

2.4. Recommended Strategy

For Tesla to handle the problem of Corporate social responsibility, it has to adopt a battery manufacturing technology that does not require heavy metals like nickel and Cobalt. If they do not have the technology, the companies should consider outsourcing the materials from developed nations (Matsika, 2020). Still, if Tesla intends to rely on Cobalt from Congo, it should invest more in Cobalt mining in DRC and develop suitable policies that ensure child labor is not an issue in the mines.

2.5. Summary and Conclusion

The report has outlined the benefits of risk management to a company. It has also outlined some risk management examples at Tesla: The Roll stop Feature, Steering wheel pressure detector, Sentry Mode, and Intrusion sensors. It further analyzes the internal risk of the automobile industry. Moreover, it has also analyzed Tesla’s and the automotive industry’s external risks. It then ranks the risks and identifies the most urgent ones: corporate social responsibility and sustainability. Finally, the report recommends a strategy that Tesla should adopt to deal with the most urgent risk.

References

Jin, L., & He, H. (2019). Comparison of the electric car market in China and the United States. Int Council Clean Transp, 10, 1–13.

Kelly, A. (2019). Apple and Google named in US lawsuit over Congolese child cobalt mining deaths. The Guardian, p. 16.

Sec.gov. (2018). Press release. Retrieved October 25, 2022, from https://www.sec.gov/news/press-release/2018-226

Tesla.com. (2022). Car safety and security features. Retrieved October 25, 2022, from https://www.tesla.com/support/car-safety-security-features#:~:text=You%20can%20enable%20the%20Security,in%20or%20near%20the%20vehicle.

Theguardian.com. (2022, February 01). Tesla recalls 54,000 vehicles with ‘full self-driving over ‘rolling stop’ feature. Retrieved October 25, 2022, from https://www.theguardian.com/technology/2022/feb/01/tesla-recall-full-self-driving-software-stop-signs#:~:text=The%20%E2%80%9Crolling%20stop%E2%80%9D%20feature%20let,bicyclists%20can%20be%20detected%20nearby.

Yang, Z., Chen, H., Peng, C., & Liu, X. (2022). Exploring the role of environmental regulations in the production and diffusion of electric vehicles. Computers & Industrial Engineering, 108675.

Zeng, A., Chen, W., Rasmussen, K. D., Zhu, X., Lundhaug, M., Müller, D. B., … & Liu, G. (2022). Battery technology and recycling alone will not save the electric mobility transition from future cobalt shortages. Nature communications, 13(1), 1-11. Matsika, A. (2020). (PDF) Risk Management of Corporate Social Responsibility and … Retrieved October 24, 2022, from https://www.researchgate.net/publication/348214842_Risk_Management_of_Corporate_Social_Responsibility_and_Sustainability_Issues_for_Tesla_Inc_in_2020_-A_Critical_Analysis

Zimmerman, S. (2022). Tesla rewrites software to get around chip shortages. Retrieved October 25, 2022, from https://www.supplychaindive.com/news/tesla-chip-semiconductor-shortage/628040/