Please, I need a response to the below;

After researching several capital projects and products, I decided to discuss the Gigafactory, a Tesla factory located in Nevada manufacturing batteries and other car parts utilized in their production (Tesla, n.d.). The car corporation had good reason for undergoing this capital project. The factory enables Tesla to produce more batteries at a lowered cost through centralized manufacturing, economies of scale, waste reduction, and advanced production practices (Tesla, n.d.). All of which will contribute to positive cash flows, which likely drew Tesla to make this investment. These immense benefits would not be achieved without large costs to the corporation. The capital investment of the factory has exceeded $6,000,000,000 despite the initial estimate of $5,000,000,000 (Rindels, 2018). Despite the initial outlay, there are strong reasons to support the success of this capital project. The gigafactory contributed to Tesla's ability to thrive in 2021 with record income levels and an 87% increase in units sold from 2020, despite major supply shortages that wracked other car companies (Ewing, 2022). Through the construction of the gigafactory, Tesla has been able to innovate solutions to problems their competitors have been unable to effectively combat, produce their materials quicker at a lowered cost, and support increased output of their offerings. These results have and will lead Tesla to generate worthwhile returns for this immense capital project they have undergone.

There are several factors that highly contribute to the success of capital project analysis. In terms of techniques, there are some that are vital to making good choices regarding capital projects. While internal rate of return and payback period are important assessment tools, nearly every company utilizes net present value in capital project evaluation, as NPV informs them of the best decision with consideration into relevant cash flows and the time value of money concept (Bracker et al., n.d.). Careful thought and deliberation must also be utilized to achieve success in capital projects, and this can be done in several ways. Comparing one potential capital project to another enables a company to determine which endeavor would provide the greatest financial gain and therefore be chosen over lower ranked ones (Boundless, n.d.). A company must assess and obtain as much information as possible for them to prioritize the project that will provide the greatest benefits. The insight gained in exploring all potential outcomes of a capital project can aid in formulating predictions. Prior to deciding to or not to pursue a capital project, a company must estimate marginal costs and revenues, lifespan of the investment, acquisition and implementation costs, and more to ensure that the budgeting analysis is useful (Bracker et al., n.d.). For Tesla in particular, I think the immense amount of effort, time, and planning that has gone into the Gigafactory explains why it has the potential to be such a success. The factory will be fully reliant on renewable energy and projected to be the largest building globally, although construction is only 30% complete (Tesla, n.d.). The fact that Tesla has garnered so many benefits from the factory even before it is completely finished show that the company put a lot of thought into making this investment worthwhile in the short and long-term.

I learned quite a bit from this week's readings and discussion. While the course content about capital budgeting and capital investment project analysis proved to be very informative for me, using this knowledge to conduct research into actual capital projects taught me a lot about how companies engage in financial decision-making. The accumulation of cash flows can occur years following the enactment of a capital budgeting project as these investments are long-term (Bracker et al., n.d.). This forward-thinking approach is something that will undoubtedly serve one well in business and personal endeavors, especially since it promotes careful assessment of all aspects of an investment. Being able to look beyond what is true in the short-term and consider or forecast future outcomes, costs, and benefits, will enable me to make smarter decisions both at a personal and professional level.

References

Boundless (n.d.). Finance, Chapter 11: Capital Budgeting Adapted by University of Maryland Global Campus and available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Bracker, K., Lin, F., & Pursley, J. (n.d). Business Finance Essentials, Chapter 8: Introduction to Capital Budgeting. Adapted by University of Maryland Global Campus and available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Ewing, J. (2022, January 8). Why Tesla Soared as Other Automakers Struggled to Make Cars. New York Times. https://www.nytimes.com/2022/01/08/business/teslas-computer-chips-supply-chain.html

Rindels, M. (2018, December 5). Tesla Gigafactory surpasses job creation, capital investment projections. The Nevada Independent. https://thenevadaindependent.com/article/tesla-gigafactory-surpasses-job-creation-capital-investment-projections-from-2014-when-lawmakers-passed-incentive-package

Tesla. (n.d.). Tesla Gigafactory. Retrieved September 26^th, 2022, from https://www.tesla.com/gigafactory