Strategic Analysis of Tesla's Decision to Manufacture in China

This report provides a comprehensive strategic analysis of Tesla's decision to manufacture motor vehicles in China. It begins with a background on Tesla's rise, its innovative contributions, and its challenges, including profitability issues, layoffs, customer service concerns, health-related impacts, and sales fluctuations. The core of the report delves into an external environmental analysis using the PESTLE framework, examining political, economic, social, technological, legal, and environmental factors influencing Tesla's operations in China. The political factors include governmental incentives and trade assignments, while economic factors highlight China's shift towards electric vehicles. Social factors emphasize customer preferences and technological advancements. The analysis also covers legal and environmental considerations, ensuring Tesla's compliance with regulations and its commitment to minimizing environmental impact. The report utilizes academic literature to support its findings, offering insights into the complexities of Tesla's strategic decisions in the Chinese market.

Strategic Management
Student Name
3/25/2020
Contents
Background..................................................................................................................................................3
Challenges faced by Tesla............................................................................................................................3
PESTLE Analysis...........................................................................................................................................5
References...................................................................................................................................................7

Background
Tesla Motors an American electric-automobile company. It was founded in 2003 by Martin
Eberhard and Marc Tarpenning, American contractors and was named after Nikola Tesla, a
Serbian American inventor. The incorporation of Tesla motors was done to develop an electric
sports car. Tesla is widely recognized for his important contributions to electrical engineering
and science and has become a symbol of pop culture for engineers in recent decades. The
company established to show that electric vehicles do not need any concessions–they can run
faster, quicker and more enjoyable than conventional cars. Today Tesla produces clean,
efficient solar energy manufacturing and storage technologies not just for all electric cars, but
also. The sooner the planet starts depending on fossil energy, the more Tesla claims it heads to
a path with zero pollution, the stronger. In the year 2008, Tesla launched its state-of-the-art
battery and electronic power trains, Roadster (Amayo, Horsfall Jr, and Feldmann, 2016).
Moreover, from the following 11 years on the market, Tesla has rated both as company and as
an automobile organization as the world's top-selling plug-in and best-selling electric car
battery maker by vehicles in 2019, with a market shares of 17% for the contact category and
23% of the electric battery sector (Chen, and Perez, 2018).
In the following part there will be more detail about challenges faced by Tesla or upcoming
challenges and environmental factors which impacts Tesla market.
Challenges faced by Tesla
As the competition is rising and there has been a good growth in the profit of the company
there are still some challenges left to be solved. The challenges are as follows:
Profitability: the ratio of profitability is getting lower by the time due to the increase in debts.
Tesla has faced huge debt issue and to reduce it they had to cut spending at a large amount.
Their earning was getting low as compared with expected earnings (Endsley, 2017).

Layoffs: it means to discharge someone temporary or permanent from his work. There was a
situation occurred in Tesla when the Elon Musk has to lay off 7% of its employees and before
that 9% of its force. This action was very much required that time to cover the crisis and this
would never be repeated said by Musk in 2018. Also, in 2018 the workforce of Tesla has
expanded by 30% (Gheibi et al., 2018).
Comparatively low customer service: the main and a huge weak spot of Tesla Company is
customer experience. There are limited customers who visit and take advantage of service and
even very few of customers share their views of services. Therefore, this need to be increased
as sharing views is the best option of feedback (Hardman, Shiu, and Steinberger-Wilckens,
2015).
Health Issues: from the starting in China till now they are number of issues raised related to
health. The people are not focusing on new and innovative technologies due to their health
issues and this is impacting a lot in sales of Tesla Motors. China has vast population due to
which there are more issues. Some of the diseases which are highly affecting and that lead to
death of many humans. The names of the diseases are: Alzheimer’s disease, Esophageal cancer,
lschemic heart disease and strokes. Furthermore, at present the main disease which has spread
worldwide is Corona Virus (COVID-19). This virus has caused many deaths and affected the
economy at large. There are still countries which are dealing with it as there is still no vaccine
for this virus and therefore, people are suffering more. The impact of this on Tesla is that
market has been shutdown and businesses are getting a heavy loss. To deal with this condition
is the biggest challenge till now as whole the economy is affected (Maijama’a et al., 2020).
Sales reduced: in the recent scenario there was a reduction in the growth of sales in China. This
was due to the conditions were not in the favor of Tesla company. The new market and number
of new structures in other country sometimes slower the growth in starting period (Mangram,
2012).

PESTLE Analysis
There are some challenges connected with external factors which need to be solved with the
help of PESTLE Analysis. The challenges can be named as high cost, limited driving range, poor
awareness about the benefits of e-car etc. that’s why it is highly required to look down at these
factors and address them. Therefore, PESTLE Analysis is the best option to understand the
factors that can influence the Tesla Company, the factors are as follows:
Political Factor Affecting Tesla Business: it reflects on government actions and determines
there impact on the business as government bodies is a main force that affects the business.
However, for its growth, and to produce 500,000 vehicles annually, Tesla has entered China. In
the market there are many factors that affect the business and some of them are following:
 Governmental incentives for electric automobiles are an opportunity for the Tesla
Motors;
 Fresh global trade assignments also an opportunity;
 High taxes or high rates is an issue to the business operations; (Hess, and Andiola, 2018)

Economic Factors: it mainly focuses on market growth, currencies, and trade levels. the factors
can be both positive or negative and as an impact on business. Such as, China is now diverting
towards electric vehicles to raise the gas consumption and Co2 emissions. Moreover, it will lead
to growth in employment opportunities in China. Also, this is an amazing opportunity for Tesla
to certain revenue (Johnson, and Reed, 2019).
Social Factors: these are wealth, religion, society, structure and many others. The Tesla
Company has always kept in mind all social factors while making e-cars. The e-car charges in
terms of fuel are very less and also low maintenance required. Moreover, getting updated with
the trends and technology Tesla has captured a lot of market share and made a strongest mark
in the field of electric vehicles (Mangram, 2012).
Technological Factors: the strongest and important factor of every e-car industry is technology.
The advancement of technology is both a threat and opportunity to the Tesla. High rates
technology will increase the production and can be said as an opportunity whereas, same can
be threatens in the way of potential rapid obsolescence of technologies (Shatskaya, Samarina,
and Nekhorosheva, 2016).
Legal Factors: to obtain and give better services to customers across the globe Tesla need to
comply with all the rules and regulations of all the countries and study about the rights such as,
patents, trademarks and copyrights. Also, Tesla will require to obey the labors laws as per
prescribed. For example, there are different laws in China and to expand their Tesla has to
comply with all the formalities rising out there (Van den Steen, 2015).
Environmental Factors: it includes every factor that relates with environment due to the reason
that environment plays a major role. A simple change in climate or weather conditions can
create a big hurdle in the operations of business. Moreover, the Tesla got affects in a way that
e-cars should be environment friendly as then only it will be beneficial. Therefore, Tesla ensures
to minimize the greenhouse gas emissions by cutting production of electricity and
transportation. Furthermore, Tesla has also developed the biggest lithium-ion battery
(Shatskaya, Samarina, and Nekhorosheva, 2016).

References
Amayo, K.O., Horsfall Jr, M. and Feldmann, J.,(2016) Analysis of arsenic in oysters using
reversed phase HPLC-ICPMS/ESI-Orbitrap-MS. Ife Journal of Science, 18(3), pp.703-709.
Chen, Y. and Perez, Y., (2018) Business model design: lessons learned from Tesla Motors.
In Towards a Sustainable Economy (pp. 53-69). Springer, Cham.
Endsley, M.R. (2017) Autonomous driving systems: A preliminary naturalistic study of the Tesla
Model S. Journal of Cognitive Engineering and Decision Making, 11(3), pp.225-238.
Gheibi, M., Karrabi, M., Mohammadi, A. and Dadvar, A. (2018) Controlling air pollution in a city:
A perspective from SOAR PESTLE analysis.‐ Integrated environmental assessment and
management, 14(4), pp.480-488.
Hardman, S., Shiu, E. and Steinberger-Wilckens, R. (2015) Changing the fate of Fuel Cell
Vehicles: Can lessons be learnt from Tesla Motors?. international journal of hydrogen
energy, 40(4), pp.1625-1638.
Hess, M.F. and Andiola, L.M., (2018) Fraud Risk Brainstorming at Tesla Motors. Issues in
Accounting Education, 33(2), pp.19-34.
Johnson, A. and Reed, A., (2019) Tesla in Texas: A Showdown Over Showrooms. SAM Advanced
Management Journal, 84(2), pp.47-56.
Maijama’a, R., Musa, K.S., Garba, A. and Baba, U.M., (2020) Corona Virus Outbreak and the
Global Energy Demand: A Case of People’s Republic of China. American Journal of
Environmental and Resource Economics, 5(1), pp.10-13.
Mangram, M.E., (2012) The globalization of Tesla Motors: a strategic marketing plan
analysis. Journal of Strategic Marketing, 20(4), pp.289-312.
Shatskaya, E., Samarina, M. and Nekhorosheva, K., (2016) PESTEL analysis as a tool of strategic
analysis in international markets. SCOPE ACADEMIC HOUSE B&M PUBLISHING, p.47.

Van den Steen, E., (2015) Tesla Motors. United States: Harvard Business School Publishing.