Impact of Trade War on Tesla: Organizational Change and Strategies

This article discusses the impact of the trade war between the United States and China on Tesla. It explores the organizational change and strategies implemented by Tesla to navigate the trade war and its effects on the company's sales and production. The article also highlights the steps taken by Tesla to mitigate the impact of the trade war and maintain its competitiveness in the Chinese electric vehicle market.

Running head: ECONOMICS
Economics
Name of the student
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Table of Contents
Introduction................................................................................................................................3
Products......................................................................................................................................4
Current status of Tesla...............................................................................................................5
Trade war between the United states of America and China.....................................................5
Tesla affected due to trade war..................................................................................................7
Organizational change in Tesla..................................................................................................7
Steps followed by Tesla............................................................................................................8
Conclusion................................................................................................................................10
Reference list............................................................................................................................11

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Managerial economics
Introduction
Tesla is also known to sell the Model S, Model X and Model 3 vehicles. Tesla was
formed in the year 2003 under the name Tesla motors. Tesla was ranked as one of the world’s
bestselling passenger car manufacturer in the year 2018. Tesla also aims for changing the
automotive industry by creation of many innovative pieces that is known to fit together which
is called the complex coordination. The production strategy of Tesla comprises of high
degree of vertical integration that includes component production and property charging
infrastructure. Tesla is also known to operate a large number of factories for capturing
economies of scale. The technology strategy of Tesla is known to focus on pure electric
propulsion technology (Berthou et al., 2018). One of the main mission of Tesla is to
accelerate the transition of world to the sustainable energy. This particular company is known
to sell high performance electric vehicles as well as electric powertrain components.
Tesla Gigafactory 3 is a factory of Tesla which is based in shanghai. After the US
China trade war have taken place. Tesla have known to sign an agreement with the
authorities of China in July, 2018 for building a factory in Shanghai, China. This is also the
first Gigafactory build by Tesla outside USA. There are other showrooms of Tesla in
Australia as well as in Middle East. Along with the corporate headquarters which is present in
the US, the company also operates in showrooms and galleries around the world. It have
showrooms in Canada, Europe, Asia, and Australia and in the Middle East. There are various
factors which leads to organization change of a company which are the political forces,
economic forces, technological forces and competitive pressures (Dal Porto, 2018). Tesla,
Inc. is known as the famous American automotive company which is based in California. As
a vertically integrated manufacturer, Tesla deals in the production of batteries electric motors,
sensors and artificial intelligence.

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Products
Tesla is a vertically integrated manufacturer, it comprises of multiple technology
domains that consist of batteries, sensors, electric motors and artificial intelligence. Tesla is
known to offer three models of cars which are the Model S, Model 3 and Model X. Tesla
Roadster had been the first vehicle of the firm.
Model S
The deliveries of Model S started to begin in 2012 which is an all electric liftback car
which have five doors. In the year 2013, the Model S also became the first electric car to top
the monthly new car sales ranking of any country (Chaziza, 2019). The United States is the
leading market of the Tesla Model S. This particular model was also the top selling plug in
electric car in 2015. The Model S is known to exist in various versions which is known to
differ in the energy capacity, power as well as equipment.
Model X
The Tesla Model X is known to be a mid size crossover SUV which has lightweight
aluminum body. The deliveries of Model X started in the year 2015. The vehicle is unique in
the concept that it consist of gull wing doors instead of the traditional doors used in the
automobiles.
Model 3
The Tesla Model 3 is known as the luxury all electric four door sedan which is
manufactured and sold by Tesla Inc. which was produced in July 2017. The Model 3
standard Range versions delivers an EPA rated all electric range of 220 miles and the Long
Range version delivers 325 miles. Tesla also stated that Model 3 carries full self driving
hardware to be optimally enabled at a future date.

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Current status of Tesla
According to the reports produced in the year 2019, the present year will be a critical
year for Tesla. The latest challenge which Tesla is facing now is finding new customers for
the Model 3. It have been found out that worth of $35,000 Model 3 have not been sold and
therefore he company is turning to China and Europe (Zhao, 2016). For this reason, Tesla
have known to drop the price of this particular model. The best chance for Tesla for keeping
demand high is to move to new markets like those of China and Europe.
China is a huge country, it will pass the U.S in sales for the electric vehicle company.
Although the revenue of Tesla known to have doubled compared to the previous years, its
revenue in China which one of the biggest market dropped 13 percent to around $1.8 billion
in the same period. The trade war is leading to layoffs and pain for the business of America.
Trump is waging a trade war on steel, aluminum and the other Chinese goods (Bloomberg,
2019). Trump also argues that the tariffs will make the economy of US stronger and the
duties are leading to layoffs. The Tesla sales in China have also sank to 70 percent as a result
of China US trade war.
The organizational change takes place when a company or any organization is known
to change its method of operation, organizational structure, technologies as well as strategies.
Organizational change in a company takes place due to external as well as due to internal
pressures. The main drivers of the organizational change are the changes in the economic
climate, consumer demand and behavior, changes in technologies, competitive markets, and
changes in rules in rules and regulations
Trade war between the United states of America and China
Both the United States of America and China are known to engage in the trade war
where each country is imposing tariffs placed on the goods which is traded between them.

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The trade war happens when a nation is known to impose tariff as well as quotas on the
imports and the other country also known to retaliate with a similar kind of trade
protectionism. Trade war also known to reduce the international trade. The trade war starts
taking place when the nation is known to protect the domestic industry and create jobs. The
president of US have known to complain about the trading practices which took place few
years ago (Thomas, & Maurice. 2016). The US have known to impose tariffs on billions of
dollars’ worth of Chinese products last year where China is also known to retaliate. After
few months, both the countries agreed to halt the new trade tariffs for more than 80 days. US
have known to impose three round of tariffs on the Chinese goods which is worth $250
billion. The rate of tariffs ranged between 10 to 25 percent and they cover a wide range of
industrial and consumer items.
A tariff of around $267 worth of goods have also been imposed by Trump which
means that all Chinese imports are subject to tariffs. China have also targeted products which
includes coal, medical equipment’s as well as coal. China have also known to impose a huge
amount of tariff on soybeans. As a result of the trade war, both WE and the international
trade have been harmed. In the year 2018, Trump have known to impose a 25 percent tariff
on the steel imports along with 10 percent tariff on the aluminum. As a result of trade war,
the global stock markets have also faced a huge loss. Since US is the largest importer of steel,
the tariffs are known to hurt the steel industry which is known to employ more than 6 million
workers. There are lot of disadvantages which takes place during war which state that cost of
everyday products will be increasing, the rise in price can even lead to high amount of
interest rate, the credit card interest rate will also experience a spike, economic activity can
also drop, stock markets can also take a hit and is also not good for the investors as well as
for the consumers (Thomas & Maurice, 2016). The trade protectionism is as a kind of policy
which limits the unfair competition from the foreign industries. It is known to be very

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destructive in nature in the long term and also makes the country less competitive in nature in
international tarde.
Tesla affected due to trade war
The sales of Tesla in China have sank to more than sixty percent in the last October as
a result of us China trade war. The decline states how the US China trade war are hurting the
US electric car maker. The data from the China Passenger Car Association states that Tesla
have sold just 211 cars in the world’s largest auto market. The sale of vehicles in China have
declined a lot as a result of trade war. The electric car which exports a large amount of cars to
China in October states that tariff hikes on auto imports were hammering its sales there.
Revenue have dropped a lot as a result of trade war. Tesla also reported that the combination
of the tariffs and the cost of transport had been hurting the market of Tesla in the world’s
biggest market of electric car. In July, 2018, China have known to raise a huge amount of
tariff on the imports of US autos to 40 percent (Gibbon & Vestergaard, 2017). It also
reported that the cost of transport as well as tariffs had been hurting Tesla in the world’s
biggest electric car market. Tesla had also been trying hard to get the model 3 into the hands
of customers. Tesla have known to reduce the number of Model 3s to 15 percent. The driving
forces of organizational change are due to external force as well as internal forces.
Organizations change due to crisis, performance gaps, new technology and identification of
opportunities.
Organizational change in Tesla
Recently the electric car company Tesla, known to break ground on a Shanghai
factory which will allow it sell directly to the consumers of China in order to avoid tariffs
from the US China trade war. By making this change the annual production of the vehicles
will be increasing highly and will allow more direct access to the world. In order to make

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another factory in China, it would cost Tesla around $5 billion. The plant which will be come
up in Shanghai would be supplying in the greater China region where it would produce Tesla
model 3 which will be rather cheap in nature. On the other hand, the expensive models like
Model S, Model X would be made in the United States for the global market. the shanghai
ventures of Tesla comes as the companies of the United States faces pressure from the
American President for keeping manufacturing jobs at the home country. However, Tesla
has to face both sides tariffs of billions of dollars of products. Therefore, if Tesla produces its
cars there, it can help in avoiding tariffs. The Shanghai factory will be the first production of
Tesla outside the United States. It has opened a tender process for building its Shanghai
Gigafactory (Gibbon & Vestergaard, 2017). The factory which will cost more than $2 billion
in China will be major bet for the electronic vehicle maker in US. The Gigafactory of Tesla
would also be China’s wholly foreign owned car plant whose progress would also be seen as
a reflection of Sino-US. Although Tesla is facing a rising competition in China from a swathe
of domestic electric vehicle makers.
Therefore, it can be said that Tesla will be one of the biggest losers in the trade war.
Before the trade war started taking place, Tesla could sell more amount of cars in China
compared to American market in the long term since, the market of China is huge. China is
known to be the second largest market of Tesla in terms of revenues. However, the
escalating trade war which is present between China and the United states could complicate
the mission of Tesla for successfully competing on the rapidly growing Chinese electric
vehicle market where the local electronic vehicles are also advancing at an impressive rate.
There are various factors which leads to organizational change of a company. There are both
external as well as internal factors which results to organizational change.

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Steps followed by Tesla
In order to deal with the trade war, Tesla have known to cut the car prices of China
for absorbing hit from the trade war tariffs. The CEO of Tesla Elon Musk is known to cut
prices of the two models by 12 percent and 26 percent in order to make the cars more
affordable in the world’s top auto market. Tesla have known to cut prices of its Model X and
Model S cars in China in order to increase sales(Berthou et al., 2018). The prices have been
cut by 12 percent to 26 percent in order to make cars more affordable in nature where sales of
the new energy vehicles have been rising fast. The move takes place as a result of severe
trade tensions which took place between the United States and China. Tesla also warned that
the previous month was facing huge problems for selling cars in China as a result of new
tariffs which forced Tesla to invest in its first overseas Gigafactory in Shanghai.
Tesla stated that it would be cutting down 9 percent of the global workforce which
would be impacting more than 3000 salaried staffs. It have also created an interactive
dashboard analysis which states how the revenues of Tesla, operating profits and the free
cash flows would be affecting in the future years. Tesla have decided to cut the workforce by
9 percent while increasing the rate of Model 3 production and improving the manufacturers in
the coming years. The company have also stop producing the Model S sedans and Model X
SUVs (Gibbon & Vestergaard, 2017). Tesla is known to face a challenge for making the
products competitive in nature. As Tesla have been facing loss as a result of trade war and
therefore will continue to lay off workers in order to cut cost. Cost cutting is the method
implemented by most of the companies in order to reduce the expense and improve
profitability. Tesla can cut its cost by streamlining the supply chain, closing facilities, moving
to a less expensive buildings and by reducing employee pay.
Another step taken by Tesla in order to cut cost after the trade war is that it will be
closing most of its stores and will be selling cars online. The electric carmaker will be closing

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most of the stores in the next few months and will also be laying off some of the retail
employees. The decision of shifting away from the brick and mortar retail is important for
the company in order to remain financially sustainable in nature (Li, He & Lin, 2018).
Though the finances of the company have stabilized in recent months, Tesla still operated on
very tight margins. Tesla is known to close most of the stores as a cost cutting measure so it
lower the starting price of the Model 3 to $35,000. It is known to shut some of its stores, cut
the cost of car prices and known to shift to online only sales.
Conclusion
The trade war have affected the growth of Tesla in the recent years. In order to cut
prices as a result of trade war, Tesla have reduced its cost and laid off many workers in order
to survive he market. As a result of trade war, the government of US known to impose high
amount of tariff on Tesla. The opportunity of Tesla in China is known to be profitable
because of the large population.The production strategy of Tesla comprises of high degree of
vertical integration that includes component production and property charging infrastructure.
Tesla is also known to operate a large number of factories for capturing economies of scale.
The technology strategy of Tesla is known to focus on pure electric propulsion technology As
a result of trade war, the global stock markets have also faced a huge loss. Since US is the
largest importer of steel, the tariffs are known to hurt the steel industry which is known to
employ more than 6 million workers. There are lot of disadvantages which takes place during
war which state that cost of everyday products will be increasing, the rise in price can even
lead to high amount of interest rate, the credit card interest rate will also experience a spike,
economic activity can also drop, stock markets can also take a hit and is also not good for the
investors as well as for the consumers. One of the main mission of Tesla is to accelerate the
transition of world to the sustainable energy. As a result of this, Tesla have to open a

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Gigafactory in Shanghai where it will be producing less expensive cars. It have also known
to reduce its prices in order to fight the trade war.
Tesla also reported that the combination of the tariffs and the cost of transport had
been hurting the market of Tesla in the world’s biggest market of electric car. In the year
2018, China have known to raise a huge amount of tariff on the imports of US autos. It also
reported that the cost of transport as well as tariffs had been hurting Tesla in the world’s
biggest electric car market. Tesla had also been trying hard to get the model 3 into the hands
of customers. Tesla have known to reduce the sale of huge number of cars recently. The sales
of Tesla have crashed in China due to trade war. The electronic vehicle company is known to
slash prices of China as a result of trade war. By building gigafactory in shanghai, it will help
Tesla to sale cars directly to China.

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