May 20, 2020 in Economics Essays

Tesla Case

PESTEL Analysis

Political

Tesla Motors enjoys a friendly political environment.

  • The US government encourages car manufactures to produce the vehicles that save natural resources.
  • Tax deductions for the owners of electric cars are much lower comparing to the owners of gas-guzzling vehicles (Rothaermel & Zimmer, 2015).
  • Economic liberalization in the United States supports the development of the businesses. 

Economic 

Economic environment for Tesla Motors is challenging.

  • Global crisis of 2008 affected purchasing power of the US buyers.
  • To reduce the customers’ costs for using electric cars, Tesla Motors endeavors to create a net of charging stations in the United States (Rothaermel & Zimmer, 2015). Undoubtedly, in the long run, this approach may be efficient in making electric vehicles more attractive in terms of prices. Hence, the costs needed to put this project into life are immense and this aspiration is accompanied by a high risk of remaining stranded.
  • The company experiences price pressure. In particular, most Americans are willing to buy electric cars but are reluctant to pay for these vehicles more than for fuel-based ones (Rothaermel & Zimmer, 2015). This is an issue because traditional cars with gasoline engines are better sold, which implies stronger financial sustainability. Consequently, the considerable amount of sales enables to reduce prices. In contrast, the sales of electric vehicles are much lower; therefore, it is unprofitable to keep the prices at the same level with fuel-based cars. In other words, the limited amount of sales hinders the development of competitive prices.
  • The lack of product’s value. In particular, Tesla’s intangible assets, such as environmental sustainability, brand image, and others are underdeveloped. Thus, intangible assets do not contribute to the firm’s financial prosperity.
  • High manufacturing costs that need to be reduced; however, Tesla does not have enough remedies/strategies to accomplish this goal.
  • Low production volumes. It inhibits company’s expansion, which is directly linked to small revenues.
  • Continuous financial losses/the absence of profitability are greatly exhausting for the company. This situation negatively affects stakeholders and implies the further deterioration of sustainability. 

Social

Tesla Motors’ social environment possesses significant challenges. 

  • Insufficient client base.
  • Compromised reputation. Considering the statistics, the articles published in New York Times described the company’s performance in the negative light, which potentially cost Tesla about “$100 million in lost revenue and stock value” (Rothaermel & Zimmer, 2015, p. 14).
  • Abundance of alternative choices.
  • Mistrust to novelties. 

Technological 

Technological environment possesses moderate challenges for Tesla Motors. 

  • The batteries of electric cars are currently a considerable drawback factor. Specifically, they are expensive to produce.
  • Besides, the batteries are heavy and need long time for charging with “a very limited energy-to-weight ratio” (Rothaermel & Zimmer, 2015, p. 7).
  • As a result, engine capacity is restricted, which cannot satisfy the demand of customers who want to purchase powerful cars.
  • In addition, electric battery quickly outwears; therefore, it needs to be replaced quite often, which affects the cost of using an electric vehicle.
  • Charging stations are situated far from one another, which presently makes it impossible to drive around the US from one station to the other with enough charge in the battery.
  • However, electric vehicles are safer than gasoline ones. For instance, fuel-based engines may explode or become the source of lethal emissions, whereas, this dangers are eliminated by the use of electric vehicles. 

Environmental

Environmental factors are beneficial for Tesla Motors. 

  • The use of eco-friendly approaches increases the ethical value of products.
  • Environmental sustainability anticipates the plausibility of market failure caused by covering expensive implications of climate change.
  • The company and its stakeholders can benefit from the reduced taxes for harmful emissions.
  • The US does not experience the lack of resources needed for manufacturing.
  • However, electricity is also a kind of resource that should not be overconsumed. The development of electric cars industry will significantly increase the consumption of electricity since the batteries need to be charged quite often. This peculiarity will pose a challenge for highly-urbanized society that already expends much electricity. In the medium run, it may become a problem that must be addressed on the governmental and business levels. 

Legal 

Legal environment is mostly friendly for Tesla Motors. 

  • “Improving Automotive Efficiency” is a regulation that supports production of fuel-efficient and eco-friendly cars (Rothaermel & Zimmer, 2015, p. 6).
  • The California Air Resource Board successfully introduced a bill of “zero emission vehicles (ZEV)” (Rothaermel & Zimmer, 2015, p. 6). It is necessary to clarify that electric cars belong to ZEV. Thus, this initiative, in particular, is aimed to promote Tesla’s products.
  • However, the US government assigns considerable financial responsibility upon businesses. These duties are connected with fulfilling social needs, such as “legacy costs for employee health care and pensions” (Rothaermel & Zimmer, 2015, p. 4). Undoubtedly, these regulations impose additional financial burden on Tesla Motors. Considering the company’s financial issues, maintaining this responsibility can be quite challenging. 

Competitive Advantage

Tesla Motors may succeed in gaining financial sustainability in the case if this company manages to attract more investors. Otherwise, the chances for prosperity are low. The arguments below are collected to display the current condition of Tesla and its chances for positive changes. 

The substitutes pose a significant danger to Tesla Motors. In particular, the domestic producers of fuel vehicles such as GM, Ford, and Chrysler, are expected to benefit from the decrease in oil prices. Besides, the foreign companies, especially the big three, -Japanese, Korean, European (German) carmakers), conquered the hearts of many US customers (Rothaermel & Zimmer, 2015. Given these conditions, it is natural to deduce that electric vehicles will struggle hard to remain sustainable.  

Besides, these substitutes become competitors for Tesla Motors since each of the companies strives to produce its own electric vehicle. Furthermore, these corporations produce hybrid electric cars, which excel electric ones in terms of engine power but are worse in terms of environmental sustainability. 

Carmakers as well as the US government invest in researches that are aimed to elaborate alternative and eco-friendly means of fuels. As a result, the industry of energy-saving vehicles will experience intensified rivalry. Consequently, Tesla Motors will endure medium or even strong rivals’ pressure. For example, “electricity, hydrogen, biodiesel, compressed natural gas, and ethanol are the most common alternatives being considered as replacements for fossil fuels” (Rothaermel & Zimmer, 2015, p. 7). 

It is necessary to mention that hydrogen (not electricity) is the most probable alternative. Understanding this fact, the US government invests (1, 3 $ billion) in research that will make it possible to substitute fuel-based cars with hydrogen-engine vehicles (Rothaermel & Zimmer, 2015). Given this support, hydrogen-based cars are expected to pose the major threat for financial sustainability of Tesla Motors. 

Tesla Motors’ reputation was compromised by the false reports to investors about the prime costs of vehicles (Rothaermel & Zimmer, 2015). Moreover, another considerable ethical issue was safety problems with design of Tesla’s cars (Rothaermel & Zimmer, 2015). Without a doubt, the violation of corporate ethics significantly affects sustainability since current and potential shareholders and stakeholders become averse of the company’s unethical performance. Despite the fact that all issues are claimed to be solved, a negative word of mouth leads to the formation of corresponding negative biases that will continue raising concerns for many years ahead. 

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