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Introduction: Tesla
Tesla
Teslas fundamental mission is to hasten the worlds shift to renewable energy. In 2021, the global portfolio of Tesla automobiles, power storage, and solar panels will assist the companys consumers avoid 8.4 million metric tons of CO2e emissions (Tesla Impact Report, 2021). Dai and Zhang (2022) state that Tesla was established on July 1, 2003. The companys foundation was in response to the realization of a conflict between the manufacture and use of gasoline automobiles and the protection of the natural ecosystem. Teslas aim since its inception has been to offer Electric Vehicles (EVs) superior value propositions such as long-range, rechargeability, power efficiency, competitive prices, and outstanding reliability without renouncing aesthetics (Daxue Consulting, 2022). The concept of combining performance cars with new energy vehicles arose, intending to appeal to high-income clients who are environmentally conscious (Dai and Zhang, 2022). Teslas Model S and Model X aim at the premium sedan and SUV segments, while the Model 3 and Model Y target the mass automotive market (Daxue Consulting, 2022). With a $6.3 million investment, Elon Musk was appointed as the chairman of Tesla in February 2004 (Dai and Zhang, 2022). Moreover, Teslas expansion was progressively on pace owing to Musks financial support.
Tesla is a vital player in the worldwide EV business and the global vehicle industry. According to Daxue Consulting (2022), the company has a market valuation of USD 941.9 billion as of August 2022, making it the worlds sixth most valuable corporation. Tesla shipped 936,200 automobiles worldwide in 2021, up from 499,550 units in 2020, representing an 87.4% year-on-year increase. Regarding the model popularity, the company delivered 911,208 mid-market Model 3 and Model Y vehicles in 2021, representing 97.3% of total deliveries (Daxue Consulting, 2022). The company strives to be the best in every parameter related to its purpose of hastening the deployment of renewable energy (Tesla Impact Report, 2021). Tesla intends to continue boosting manufacturing quantities and product accessibility in order to optimize its effect. More practically, they hope to sell twenty million electric vehicles annually by 2030, up from approximately one million in 2021(Tesla Impact Report, 2021). Therefore, the most significant environmental effect is accomplished by replacing ICE cars with EVs as promptly as possible. Tesla also aspires to replace fossil-based energy generation with renewable sources of energy.
Current Context: China
China is a significant market for the automobile sector, notably for electric vehicles. According to Daxue Consulting (2022), China is an ideal location for production due to its large customer base, powerful central financial system, developed industrial manufacturing chain, and lithium-ion battery production output. Moreover, Chinas strengths in rare-earth metal processing and electronics manufacturing are critical for creating essential EV parts such as batteries, motors, and electric interfaces.
Essentially, Investing in China was a strategically crucial moment for Tesla. According to Daxue Consulting (2022), Tesla had three fundamental goals when it entered the Chinese market. The first objective was to increase its market share in the worlds largest EV market. The second ambition was to avoid Chinas demand that foreign automakers form joint ventures with Chinese producers. Finally, the company aimed to safeguard the intellectual property incorporated into its expanding EV portfolio. Daxue Consulting (2022) acknowledges that Tesla emerged as the first foreign automaker to be granted complete autonomy while maintaining one hundred percent ownership in China. The corporation abandoned nationalization in 2018 and reached an agreement with the Shanghai government to acquire the 854,885 square meters of the 05 land in Shanghai as Teslas Gigafactory 3 (Dai and Zhang, 2022). Tesla should not to be concerned about forced technology (IP) transfers of its trademarks because China revised its Foreign Investment Law in 2020 (Daxue Consulting, 2022). For instance, automobile manufacturers such as BMW, Mercedes-Benz, Toyota, Ford, and other foreign companies have pursued this arrangement for years.
Teslas market share in China increased dramatically with the completion of its Gigafactory in Shanghai. Dai and Zhang (2022) emphasize that the companys sales in the Chinese market now represent 29.6% of global sales, yet it has experienced a slew of challenges since entering the Chinese market to the present day. Dai and Zhang (2022) claim that most academics assume Tesla has significant prospects in the Chinese market, but an examination of the existing scenario reveals significant hazards. The corporations macroeconomic prospects are pessimistic, and industry growth is substantially lower than anticipated (Dai and Zhang, 2022). For instance, Tesla experiences hurdles and difficulties, such as overpricing, a lack of charging piles, and low flexibility. The current challenge also includes decreased growth due to the high competition in China.
Choice of Challenges
Tesla is one of Chinas largest electric-vehicle makers, representing just a tiny portion of the countrys immense EV sector. Strategic performance goals can be articulated in various ways, including market share, revenue growth, profits per share, dividend growth, and operational returns (McGahan,1999). Descalsota (2022) asserts that except for Tesla, four of Chinas top five automobile manufacturers are domestic. From January through May, Tesla held the third-largest market share in the Chinese EV market (Descalsota, 2022). Unlike Tesla, Chinas indigenous manufacturers make diesel-powered vehicles in addition to EVs; GAC, Chery, SGMV, and BYD are Teslas four most formidable domestic rivals in China (Descalsota, 2022; Daxue Consulting, 2022). Figure 1 illustrates the market size of top automobile brands in China in 2022.
Consequently, Tesla has 9.6% and is highly competitive in the market. Nonetheless, Dai and Zhang (2022) argue that Teslas sales have suffered due to the rising competition, the use of new technologies by rivals, and Teslas simplistic design as several of the primary causes behind the companys challenges in the Chinese market. Such designs failed to stand out among Chinas plethora of new energy vehicles. The paper will focus on three level analyses, such as national, industry, and organizational, to reveal the reason behind Tesla experiencing challenges in China in 2022. Additionally, the recommendations will be adapted to the identified challenges in order to make theoretical and practical relevance.
National-Level Analysis: PESTEL
Choice of the Framework
Notably, the PESTEL framework was selected to conduct a national-level analysis. Peterdy (2022) claims that a PESTEL study is a strategic framework that is often used to examine a companys business environment. Initially, the framework was known as a PEST analysis, which stood for political, economic, social, and technological elements; in more recent times, the framework was expanded to incorporate environmental and legal issues.
Political factors, in general, are those that are influenced by governmental actions and policies. Concerns such as corporation taxes, other fiscal policy efforts, free trade conflicts, and competition are among them (Peterdy, 2022). Interest, employment, inflation, and exchange rates are examples of economic elements that are related to the larger economy and are clearly financial in nature. Social elements are more challenging to quantify than economic aspects; they relate to changes in how stakeholders view life and leisure, which might have an influence on business activities (Peterdy, 2022). Demographic concerns, lifestyle patterns, and consumer perceptions are examples of social influences. Peterdy (2022) adds that managers and researchers should understand how technology issues might affect a business or an industry. Technological factors comprise, but are not limited to, automation, how R&D may affect expenditures and competitiveness, technological capabilities, and cyber security.
As the business community came to appreciate that alterations in the physical environment might bring material dangers and possibilities for firms, environmental factors arose as a natural addition to the initial PEST framework. Carbon footprint and climate change consequences, involving physical and transition hazards, are instances of environmental factors (Peterdy, 2022). Consequently, legal variables are those that originate from shifts in the regulatory environment and have an impact on the whole economy, specific industries, or even specific enterprises within a sector. Industry regulations, licenses and permissions necessary to operate, employment and consumer protection legislation, and intellectual property protection are examples of legal considerations to explore.
The Importance of Using the Framework
While change might be an unpleasant and unexpected event, it is unavoidable. On the other hand, planned modifications are very desired, particularly in the face of substantial dangers (Elnaj, 2022). Therefore, to analyze and improve American-based Teslas strategic decision-making in China, six external variables should be investigated: politics, economics, society, technology, environment, and law. Management teams and committees utilize the framework in strategy development and corporate risk management planning. PESTEL analysis also serves as a standard method among management consultants to assist their customers in developing innovative products and market efforts and among financial analysts to identify aspects that may impact model assumptions and the budgeting process.
PESTEL Framework to Assess the Environment in China
Political
From a political point of view, the stability of Chinas governmental structure is a plus for Teslas growth. The host countrys more stable administration will keep the energy turnaround on track (Liu et al., 2021). An et al. (2022) claim that American policy cohesion cannot be assured because policy support for the new energy automotive sector differs dramatically between the anti-establishment group supported by Trump and the establishment group advocated by Biden. The industrial architecture for the new energy electrification period has yet to be finished; coherence will have a crucial impact on whether the US can preserve its leading position (An et al., 2022). Consequently, because of the differences in political systems, China has more solid policy backing for the new energy sector based on the predefined strategy of Made in China 2025 and a more constructive approach toward the modernization of diverse industries. Liu et al. (2021) acknowledge that the country may take the initiative to reduce tensions and overcome obstacles in the energy transformation process due to Chinas stable political environment.
Financial and fiscal incentives are significant advantages for company growth. Promoting sustainable power has long been a trend in China (Liu et al., 2021). Due to the high initial investment costs of hydro, nuclear, wind, and solar power facilities, fiscal incentives, such as grants, tax credits, and reimbursements, are required. China, for instance, offers subsidies for on-site renewables in order to eliminate energy poverty and guarantee equitable access to energy supplies (Liu et al., 2021). As manufacturing and economic activity restart after the outbreak, China is more likely to make corporate initiatives (An et al., 2022). For instance, the government offers advantages to businesses such as lowering taxes and fees, giving particular loans with financial incentives and granting targeted subsidies.
Nonetheless, the ongoing trade war between China and the United States shows that their partnership has shifted from complimentary to competitive. Liu et al. (2021) acknowledge that when China unveiled the Made in China 2025 plan, the West became concerned that Chinas expanding power might undermine the USs international economic standing and dominance (Liu et al., 2021). Trade considerations and intellectual property rights are not the only issues at stake in the conflict between China and the West. Because the United States and China are fighting for hegemony, the trade war may extend longer than predicted (Liu et al., 2021). China would suffer more specifically because non-tariff obstacles in the trade conflict will amplify the underlying negative impact.
Additionally, the level of bureaucracy is a critical political vulnerability for international firms like Tesla. A bureaucratic system in China would make scaling up renewable energy problematic in some areas since the regulatory and legal framework for manufacturing, transferring, and delivering renewable energy is still unclear (Liu et al., 2021). Hence, there would be a monopoly in the supply of grid connection devices, with higher prices and hazards but no standards.
Economic
Tesla benefits from Chinas economic growth comeback following the COVID-19 outbreak. Liu et al. (2021) acknowledge that China, in particular, is the worlds most excellent industrial power user in the whole industrial sector. Following the COVID-19 pandemic, the global economic downturn is one of the most severe threats confronting the G20 countries. Liu et al. (2021) add that domestic electricity generation has remained strong due to Chinas economic recovery in the first quarter of 2021. Nonetheless, China has enormous unemployment illustrates a severe constraint for commercial operations. Because of the trade war and the COVID-19 epidemic, the entire globe will go into a deep slump and massive unemployment (Liu et al., 2021). To prepare for a future disaster, China could convert this difficulty into an opportunity by reforming its energy policy ahead of time.
The improvement of battery technology in China presents an opportunity for firms such as Tesla. Liu et al. (2021) state that because advanced batteries have moved from specialist to general industries, they constitute a turning point for technologies such as electric cars and solar energy accelerators. Battery and microprocessor improvements have significantly decreased the expenses of other electric car components (Liu et al., 2021). As battery costs fall, new business models for batteries arise, providing new functionalities ranging from supplementary services to on-demand solutions.
Chinas industrial overcapacity is primarily reliant on exports to the foreign market. Liu et al. (2021) argue that manufacturing industry outflows constitute a significant issue since China competes in low-end manufacturing with several emerging nations such as Mexico, India, Vietnam, Indonesia, Turkey, and Brazil. Essentially, China is becoming more reliant on external economic development. Tariffs and limiting customs clearance in the United States will significantly raise the possibility of production interruption and the ruin of international trade partnerships, or perhaps the disruption of the complete supply chain (Liu et al., 2021). It has compelled Chinas labor-intensive export firms to relocate to resource-rich neighboring nations such as India, Vietnam, and Burma, where tariff barriers do not exist. The scarcity of young labor casts doubts on Chinas industrial future.
Moreover, the supply chain problems are experienced by Tesla currently. Tesla reduced car production at its Shanghai manufacturing owing to components shortages induced, in part, by a neighboring suppliers Covid lockdown (Kolodny, 2022). Ashcroft (2022) claims that Tesla deliveries fell nearly twenty percent in a record quarter due to lockdowns at the e-car makers Shangai Gigafactory, supply interruption, and inflation. The companys new vehicle deliveries for the quarter ending in June were about one-fifth lower than its highest-ever quarterly total, with the firm explaining the drop in supply chain disruption and Chinas continuous series of Covid-19 lockdowns (Ashcroft, 2022). Hence, broad supply chain problems and rising input costs have also impacted production levels, leading Tesla to raise current model pricing while simultaneously looking for near-term cost-cutting opportunities as the year ends.
Despite experiencing difficulties, China is offering significant assistance for Alternative Energy Vehicles (AEVs), which benefits Teslas development. Notably, China has overtaken the United States as the worlds largest renewable vehicle market, accounting for forty-one percent of worldwide sales (Liu et al., 2021). The massive AVE market allows China to participate in the economic growth and prosperity of the electric car industry and innovative traffic systems. Electric vehicle sales remained strong in 2020, with a thirty-eight percent increase globally and approximately thirteen percent growth in China (Liu et al., 2021). In essence, electromobility signifies a distinct future energy trend from fossil fuel usage.
Social
As the worlds focus moves to climate change, the issue of decreasing carbon emissions becomes more pressing. An et al. (2022) state that from rom a social standpoint, electric vehicle production is advancing as carbon emissions are reduced, and more people prefer electric over gas-powered automobiles as their primary means of transportation. Customers can see how using electric vehicles would significantly lower vehicle expenses because the energy costs used by electric vehicles are far cheaper than the fuel price for petroleum vehicles to cover the exact distances (An et al., 2022). In China, Tesla may capitalize on societal attitudes around carbon emissions. Liu et al. (2021) argue that because fossil fuels lead to pollution by producing CO2 and other greenhouse gases, public support for renewables might hasten the shift. Consequently, while CO2 emissions from energy in the United States continue to plummet, the Chinese government has supported low-carbon lifestyles.
Chinese customers are becoming more concerned about the effects of automotive emissions on pollution levels in order to minimize their environmental impact. Ma et al. (2021) acknowledge that Chinas aggressive promotion of the environmental protection idea of green water and green mountains are golden mountains and silver mountains has consistently increased the Chinese peoples understanding of environmental preservation (p. 13). Citizens opinions regarding environmental pollution are constantly shifting concerning the relevant policies of the respective countries (Ma et al., 2021). With the confirmation of the notion of environmental preservation and energy conservation in new energy cars, as mentioned earlier, social and cultural aspects influence customers preference for new energy vehicles while diminishing their selection of gasoline-powered cars.
Nonetheless, two key growth challenges for electric cars are battery life and charging. An et al. (2022) suggest that with present technology, the battery life of electric vehicles, for instance, has a fixed maximum limit and varies considerably based on environmental factors such as temperature. Dai and Zhang (2022) state that at the moment, Teslas charging pile in China lacks extensive coverage and is incompatible with the national standard battery system, which is a substantial source of irritation for new energy cars in China. Charging piles are challenging to locate in many places, and owners of new energy vehicles must travel a significant distance to find them (Dai and Zhang, 2022). This issue causes hassle when refilling, which causes consumers in many cities to hesitate to purchase new energy cars. Furthermore, the charging period and the number of charging piles are critical sources of frustration.
Technological
Significantly, energy science and technological advancements are diverse and progressive. Liu et al. (2021) note that new energy technology, such as electric automobiles, is the product of technological improvements that will progress and accommodate the performance criteria approved by customers. These sustainable energy technologies are providing a chance for industrial upgrading in China. Because of the cost reductions in renewable energy, electricity is shifting to the center of modern energy security (Liu et al., 2021). Carbon emissions reduction involves utilizing the capabilities of the digital energy economy. Data on energy production, manufacturing, and devices are shared in a cloud foundation (Liu et al., 2021). The goal is to accomplish the consolidation and affiliation of energy transfer, data, and capital flows, resulting in improved energy security prediction and precision.
Chinas new energy vehicles have advanced to a high level of development. Ma et al. (2021) demonstrate that according to a China Automobile Industry Association data study, Chinas output of new energy cars reached 248000 units in June 2021, a 1.3-fold growth over the previous year. The output has constantly grown with more mature manufacturing processes and scientific and technical innovation in relevant manufacturing lines. Furthermore, the sales volume of new energy cars in China reached 256000 in June 2021, a 1.4-fold rise compared to 2020 (Ma et al., 2021). The volume of new energy sales has established a new historical record and achieved a record milestone. As a result, the share of new energy cars in automotive sales is increasing.
Nevertheless, one of the major impediments to developing new energy vehicles is the possibility of ethical difficulties. An et al. (2022) emphasize that data protection and ethics in emergency situations are the two most pressing challenges. People in China prioritize convenience and have zero tolerance for firms that reveal personal details about them and are willing to fight for their rights and values (An et al., 2022). The Trolley Problem is an ethical quandary that develops during an emergency. While there does not seem to be a suitable solution to this problem, the sequence to which the new energy vehicle may react must be pre-programmed.
Environmental
Environmental pollution is a hazard because emissions from industry and autos regularly generate harmful smog. Liu et al. (2021) mention that the toxic haze lasts for days or weeks in many Chinese cities. More than a fourth of Chinas land has been shrouded in smog, leaving significant cities with murky skies (Liu et al., 2021). Furthermore, additional pollutants such as oil and trash flowing into the oceans are detrimental to marine organisms. In this circumstance, China should take more steps to limit carbon emissions and safeguard the environment for the next generation. Because of the significant uncertainty in energy supply, climate change and sustainability are also critical threats (Liu et al., 2021). Sustainable development is the foundation of energy security challenges. Official media and press in China must encourage social education and raise public knowledge of environmental sustainability.
Legal
National and municipal commitments assist Teslas ability to operate in China. Liu et al. (2021) argue that the government and its policy commitments are critical to the growth of renewable energy. Green energy policies at the local level have surpassed the national level. China has created the 14th Five-Year Plan to attain net zero emissions, which will significantly affect the future energy revolution predicated on these national and municipal promises (Liu et al., 2021). Nonetheless, a fundamental issue in China is the shortage of renewable energy patents. Patent, intellectual property, and trademark protection are becoming increasingly essential in China, although this has resulted in an increase in legal concerns (Liu et al., 2021). Globally, the United States continues to possess the most patents on renewable energy technology. Therefore, Chinese energy businesses would face patent obstacles through numerous licensing arrangements with global rivals.
Industry-Level Analysis: Porters Five Forces
Choice of the Framework
The extent to which investment inflows push returns to the free market level in an industry influences businesses capacity to maintain above-average profits. Porter (1980) states that the level of competitiveness is not determined by chance. The industrys fundamental economic and technological qualities influence the strength of the five primary competitive forces: threat of new entrants, bargaining power of buyers, the rivalry between existing competitors, the threat of substitute products, and bargaining power of suppliers (Porter, 1980, p. 30).
All five factors influence decision-making and the development of competitive business strategy. Porter (1980) identifies that the objective of a companys competitive strategy is to identify a position in its industry where it can best deal with or affect these competitive forces to its advantage. Awareness of the underpinning sources of competitive tension can disclose an industrys basic attractiveness, illustrate a companys critical weaknesses and advantages, and clarify the areas where change initiatives may result in the highest payoff (Porter, 1980). Moreover, the five forces analysis may discern the market dynamics that guarantee tremendous importance as either threats or opportunities.
The Importance of Using the Framework
Understanding both the competing dynamics and the broader industry structure is critical for successful strategic decision-making and establishing a compelling competitive plan for the future. Martin (2022) argues that Porters Five Forces is a macro technique in business analytics; it examines the whole economy of the sector. The implementation of Porters Five Forces model is required to study the companys competitiveness and comprehend its position in the industry. Identifying competitive dynamics and the underlying causes, as a result, uncovers the foundations of an industrys current profitability while giving a framework for predicting and influencing competition (Martin, 2022). After the analysis, the firm can implement an effective plan to increase its competitive edge.
Tesla is one of the pioneering companies in the field of new energy cars, which are becoming increasingly popular. Nonetheless, because new energy vehicles are still in their early phases, Tesla has many formidable competitors, both known and undiscovered. Porters five forces approach is critical for analyzing Teslas strengths and dangers in terms of competitive ability to operate, rivals, future competitors ability to enter, substitutability of alternatives, and suppliers and buyers bargaining powers (Yang, 2022). According to Porter (1980), consumers, suppliers, substitutes, and future entrants are all rivals, and their prominence varies according to the circumstances. Hence, five competitive forces collaborate to establish the intensity of industry competitiveness and profitability; nonetheless, the most potent force or forces become critical in strategy design. Industry structure can evolve progressively over time, and businesses strengths and limitations in coping with structure will be distinctive (Porter, 1980). On the other hand, analyzing industry structure should be the preliminary stage for strategic planning.
Porters Five Forces Frameworks to Assess the EV Industry in China
Threat of New Entrants
Prospective industry entrants bring new potential, a drive to grab market share, and frequently insufficient resources. Porter (1980) argues they can reduce profitability by bidding down prices or inflating costs. The choice to enter or expand into an industry is often influenced by the entrance deterrent price, which after accounting for product quality and service, simply balances the prospective benefits of entering against the predicted costs (Porter, 1980). Nonetheless, if the market is distinguished by product differentiation, entrants will find it incredibly challenging to compete with established enterprises for sales channels and buyers (Porter, 1980). Product differentiation implies that established companies have brand recognition and consumer loyalty due to previous advertising, customer support, and product variances.
Although Tesla was one of the first firms to enter the new energy industry and demonstrate a high brand awareness, there are still many businesses that have the possibility of entering the market if electric vehicles are strongly promoted worldwide. The automotive business is a typical high-end manufacturing industry, requiring a high level of technology and finance (Shu, 2022). Yang (2022) emphasizes that if Tesla intends to achieve long-term growth in the target market, it should concentrate not just on present rivals but also on overlooking potential newcomers. Thus, the company should consider the markets new pressures because the transportation business affects many peoples livelihoods, and policies that support the creation of new energy vehicles are actively encouraged.
Tesla has long been at the forefront of the high-tech business, and it is currently expanding the autonomous driving and artificial intelligence industries. Nonetheless, Tesla faces a challenge from emerging new Chinese brands as prospective rivals (Yang, 2022). According to Cheng (2022), the first electric automobile powered by Huaweis HarmonyOS operating system was delivered in Shanghai in March 2022. The Aito M5, the mid-sized SUV, costs 249,800 yuan ($39,651) after subsidies (Cheng, 2022). In contrast, Tesla increased the post-subsidy pricing of its Model Y in China by 21,088 yuan to 301,840 yuan in December.
New electric vehicles are intended to reduce demand for foreign premium brands like Tesla. Regarding the domestic competition, Nios ET5 luxury sedan, Xpengs G9, Li Autos L9 full-size SUV, and BYDs Model 3 competitor Seal are among the new vehicles available for purchase in August 2022 (Ren, 2022, para. 2). All five battery-powered versions are so-called next-generation vehicles, with standard technologies like as object recognition technology, assisted parking, and semi-autonomous driving. Ren (2022) acknowledges that these models include high-performance batteries, which have received praise and significant pre-orders from buyers. Several new models outperform Teslas vehicles due to the improved technology and better components they employ (Ren, 2022). Additionally, these vehicles will be able to entice some purchasers away from Teslas Model 3 and Model Y in China. The new market entrants are priced far into the six-digit bracket, positioning themselves as critical rivals to Tesla (Ren, 2022). Their ascension up the pricing ladder reflects the rising maturity of Chinas EV manufacturers, emphasizing Teslas struggles in maintaining its sales lead. Moreover, all new models are tailored to Chinese drivers based on research into local customer demand.
Bargaining Power of Buyers
In recent years, the electric car sector has matured in different locations. Yang (2022) claims that customers have various automotive options, including electric and standard gasoline vehicles. Consumers ha
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