TESLA PESTLE ANALYSIS

Posted: November 7th, 2023

TESLA PESTLE ANALYSIS

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April 12, 2023

Tesla PESTEL Analysis

Political Factors

Political stability is one of Tesla’s critical success factors since the company relies heavily on external markets in sourcing raw materials. Tesla uses cobalt, which more than half of the world’s cobalt comes from the Democratic Republic of Congo (Niarchos, 2021, p.1). Amnesty International reports that the cobalt rush has increased regional conflict. The humanitarian institution also laments the exploitation of child labour in the Congo (Dummett, 2017, p.1). There is room to argue that any political instability in the Congo will increase Tesla’s supply chain risks. Tesla must also adhere to the various environmental laws in its manufacturing facilities. Climate change is one of the major political issues that the company needs to address in its operations. However, on the positive side, Tesla’s electric vehicles will likely receive tax incentives as governments push to reduce national carbon emissions. Such a political factor favouring Tesla’s growth and guarantees its expansion to other countries. Global trade agreements geared towards addressing climate change also represent an opportunity for Tesla to increase its sales. Naucier and Pacthod (2022, p.1) estimate that Asia will be a $5 trillion green market by 2030. The statistic outlines the opportunity for Tesla as the world becomes more environmentally cautious.

Economic Factors

            Fluctuations in currency exchange rates are one of the noticeable economic factors impacting Tesla. Even though the U.S. domestic market remains relatively stable, the volume of sales overseas has grown. For instance, in 2020, the company made $6.6 billion in sales in China, the same as 21% of sales in the United States (Cheng, 2020, p.1). Because of changes in the exchange rate, Tesla is bound to realize transaction gains in its foreign sales. Tax policies and tax rates also directly impact Tesla’s business. Tesla has benefited in many countries from government tax incentives in national efforts to promote the uptake of electric vehicles. According to Lambert (2021, p.1), Tesla received up to $7000 in tax credits for 400000 electric vehicles sold in the U.S. market. Another opportunity in the global markets for Tesla is the declining cost of battery prices. Bloomberg reports that the average lithium-ion cell has dropped from $137 to $100 within four years (Kharaya, 2021, p.1). Decreasing battery prices will encourage more people to purchase electric vehicles.

Social Factors

            Growing consumer awareness of climate change, carbon cycles, and the role of the automotive industry represents an opportunity for Tesla. Decarbonizing the roads makes more people purchase electric vehicles (Naucier & Pacthod, 2022, p.1). The consumer lifestyle changes resulting in a shift towards electric and low-emission vehicles will disrupt the automotive industry, creating new opportunities for car components (Moller & Schaufuss, 2022, p.1). There is another opportunity for the growth of emerging economies. The improving income and wealth distribution in developing countries implies a nascent market of electric car consumers. Tesla will be able to enter new markets as the economies continue growing and national infrastructures improve. However, the firm should be cautious about investing in emerging economies. A growing consumer base is not the only factor determining a potential market’s suitability.

Technological Factors

            The development of Tesla’s automotive line and its features is reliant on technological advancements. For instance, research in material composites can result in stronger, more durable, and cheaper alloys for building car frames. Technological change is one of the factors behind the declining prices of electric batteries (Kharaya, 2021, p.1). Automation has been a consistent competitive advantage for Tesla. Research shows that firms that have invested in automation and robotics will perform better in the near future, resulting in many companies pushing to replace human labour with automated systems (Rosenbaum, 2020, p.1). Automation is bound to continue improving the car manufacturer’s operational efficiency and cost savings. Nevertheless, the company should be cautious about extreme levels of automation because it reduces system redundancy. There should be a determined balance between automation and human capital.

Environmental Factors

            Tesla’s manufacturing and sales are highly vulnerable to the implications of ecological conditions on the global economy. National policies associated with climate change mandate the company minimize its carbon emissions, which implies investments in technology to improve operational efficiency and reduce waste. Rising standards for waste management, especially old and deteriorating batteries, represents an operational issue for Tesla. Reusing and recycling batteries is a hazardous business (Morse, 2021, p.1). Tesla must invest huge sums of money in dealing with its battery waste while collaborating with public officials to jump-start recycling operations. The expanding environmental programs introduced by governments, such as the U.S. Department of Energy’s ReCell Center, represent an opportunity for Tesla to engage in research and improve its waste management. Tesla should anticipate further growth from the current ecological conditions.

Legal Factors

            Tesla has to respect and comply with the laws and regulations of each market it operates in. Foremost, the company must meet energy consumption and carbon emission regulations. The company must assess the difference in regulations and adjust its internal policies to ensure compliance. However, such regulations tend to be an opportunity for Tesla due to associated tax incentives. The company’s expansion into global markets represents another business opportunity in the form of patent protection. Tesla is likelier to dominate market shares over local electric manufacturers because of their better production technologies and better–performing vehicles (Wang & Peng, 2020, p.2). Contractual agreements with car dealerships represent another opportunity for Tesla, especially in new markets. The locally based businesses will help enhance the sale of Tesla products, improving their market penetration.

References

Cheng, E. (2020). Tesla’s China sales more than doubled in 2020. Available at https://www.cnbc.com/2021/02/09/teslas-china-sales-more-than-doubled-in-2020.html, (Accessed 12 April 2023).

Dummet, M. (2017). The dark side of electric cars: Exploitative labour practices. Available at: https://www.amnesty.org/en/latest/news/2017/09/the-dark-side-of-electric-cars-exploitative-labor-practices/, (Accessed 12 April 2023).

Kharaya, A. (2021). Beyond declining battery prices: 6 ways to evaluate energy storage in 2021. Available at: https://www.greentechmedia.com/articles/read/beyond-declining-battery-prices-six-ways-to-evaluate-energy-storage-in-2021, (Accessed 12 April 2023).

Lambert, Fred. (2021). Tesla to get access to $7000 tax credit on 400000 more electric cars in the U.S. with new incentive reform. Available at: https://electrek.co/2021/02/11/tesla-7000-tax-credit-electric-cars-us-incentive-reform/, (Accessed 12 April 2023).

Moller, T. & Schaufuss, P. (2022). Road mobility: Transition to net zero. Available at: https://www.mckinsey.com/capabilities/sustainability/our-insights/spotting-green-business-opportunities-in-a-surging-net-zero-world/transition-to-net-zero/road-mobility, (Accessed 12 April 2023).

Morse, I. (2023). A dead battery dilemma. Available at: https://www.science.org/content/article/millions-electric-cars-are-coming-what-happens-all-dead-batteries, (Accessed 12 April 2023).

Naucier, T. & Pacthod, D. (2022). Green growth: capturing Asia’s $5 trillion green business opportunity. Available at: https://www.mckinsey.com/featured-insights/future-of-asia/green-growth-capturing-asias-5-trillion-green-business-opportunity, (Accessed 12 April 2023).

Niarchos, N. (2021). The dark side of Congo’s cobalt rush. Available at: https://www.newyorker.com/magazine/2021/05/31/the-dark-side-of-congos-cobalt-rush, (Accessed 12 April 2023).

Rosenbaum, E. (2020). Why Amazon warehouses and Tesla auto plants will not go 100% robot any time soon. Available at: https://www.cnbc.com/2020/09/16/why-amazon-warehouses-tesla-auto-plants-will-not-go-100percent-robot.html, (Accessed 12 April 2023).

Wang, J. & Peng, X. (2020). “A study of patent open source strategies based on open innovation: The case of Tesla.” Open Journal of Social Sciences, 8(7). https://doi.org/10.4236/jss.2020.87031 

Niarchos, N. (2021). The dark side of Congo’s cobalt rush. Available at: https://www.newyorker.com/magazine/2021/05/31/the-dark-side-of-congos-cobalt-rush, (Accessed 12 April 2023).

Dummet, M. (2017). The dark side of electric cars: Exploitative labour practices. Available at: https://www.amnesty.org/en/latest/news/2017/09/the-dark-side-of-electric-cars-exploitative-labor-practices/, (Accessed 12 April 2023).

Naucier, T. & Pacthod, D. (2022). Green growth: capturing Asia’s $5 trillion green business opportunity. Available at: https://www.mckinsey.com/featured-insights/future-of-asia/green-growth-capturing-asias-5-trillion-green-business-opportunity, (Accessed 12 April 2023).

Cheng, E. (2020). Tesla’s China sales more than doubled in 2020. Available at https://www.cnbc.com/2021/02/09/teslas-china-sales-more-than-doubled-in-2020.html, (Accessed 12 April 2023).

Lambert, Fred. (2021). Tesla to get access to $7000 tax credit on 400000 more electric cars in the US with new incentive reform. Available at: https://electrek.co/2021/02/11/tesla-7000-tax-credit-electric-cars-us-incentive-reform/, (Accessed 12 April 2023).

Kharaya, A. (2021). Beyond declining battery prices: 6 ways to evaluate energy storage in 2021. Available at: https://www.greentechmedia.com/articles/read/beyond-declining-battery-prices-six-ways-to-evaluate-energy-storage-in-2021, (Accessed 12 April 2023).

Moller, T. & Schaufuss, P. (2022). Road mobility: Transition to net zero. Available at: https://www.mckinsey.com/capabilities/sustainability/our-insights/spotting-green-business-opportunities-in-a-surging-net-zero-world/transition-to-net-zero/road-mobility, (Accessed 12 April 2023).

Rosenbaum, E. (2020). Why Amazon warehouses and Tesla auto plants will not go 100% robot any time soon. Available at: https://www.cnbc.com/2020/09/16/why-amazon-warehouses-tesla-auto-plants-will-not-go-100percent-robot.html, (Accessed 12 April 2023).

Morse, I. (2023). A dead battery dilemma. Available at: https://www.science.org/content/article/millions-electric-cars-are-coming-what-happens-all-dead-batteries, (Accessed 12 April 2023).