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Tesla PESTEL Analysis – Harvard Strategic Management

Article · June 2018

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Naga Rakesh Chinta

University of Michigan
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 Introduction and Executive Summary

-Naga Rakesh Chinta

This paper is a strategic analysis of Tesla Motors, Inc.: “How Tesla Motors Inc. can improve
its strategy to sustain its competitive advantage on the electric vehicle market and confirm
its position as a transformational leader in sustainable lifestyle?”. Tesla Motors was created
in 2003 by a group of engineers in Silicon Valley with a vision to create the most compelling
car company of the 21st century by driving the world’s transition to electric vehicles. In
2008, Tesla shattered those standards by creating the Roadster, a car capable of traveling
245 miles on a single charge, along with a 0-60 time of 3.7 seconds. With a slow growth
and declining sales margin within the early release of its “Roadster”, tesla has made a
remarkable recovery and has proved that “electric vehicles can be safe, user-friendly usable
and reliable to the market. The Model S, an electric luxury sedan, being released in 2012,
won Motor trends 2013 car of the year award. It has been the best-selling plug-in electric
car for two consecutive years: 2015, 2016. Of the approximate 356,232 electric vehicles
around the world today, Tesla accounts for 50,000. It reached a peak of 150000 units sold
by November 2016. As of December 2016, it lies best, being second to the Nissan Leaf. The
Model S was then followed in September 2015 by the Model X. Tesla’s next vehicle is the
Model 3, releasing mid 2017 with a base price of US$35,000, assuming it to be the
most-affordable wide-range EV ever released in the industry. All large auto manufactures,
other than Toyota (the limited production Rav4e can travel 103 miles per charge), have yet
to create an electric vehicle that can travel more than 100 miles on a charge. A seventh of
the market share is remarkable for a company started just more than a decade ago. The EV
company specializes in lithium-ion batteries, electric vehicles and residential-consumer
based solar panels, in cooperation with Solar City.

External Analysis of Tesla

PESTEL Analysis

Political

The U.S. government has shown interest in renewable energy and electric vehicles, Tesla
was granted a $465 million low interest loan from the Department of Energy, Tesla has paid
off the loan, but without it, they may have never been able to get the company to attract so
many investors. Some states, like Colorado and Virginia offer state tax credits over 5,000
dollars to entice customers to buy electric vehicles. Tesla wants to distribute vehicles from
the manufacturer to the consumer, eliminating the third party middle man, the private
owned dealerships. Dealership transactional finance is given by Exhibit 2. Legal- Michigan
recently passed H.B. 5606, that forces all manufacturers to have third party dealerships.
Electric vehicles have lower maintenance costs making them ill-suited for this type of
business model. Also, if consumers and producers are being negatively impacted by laws;
isn’t that infringement on a free and open market? Regardless, the only group contributing
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political contributions and the only one benefiting from the laws being passed are the
automotive dealerships.

Economics

Growth rates are slow in the U.S, but that hasn’t stopped people from buying cars on credit
through “deals” such as 0% financing. The catch that most people don’t realize is that the
interest is already added into the MSRP when the car is sold increasing the base price but
making it seem as if the customer is getting a deal in the long run. New car sales have been
rising rapidly since the recession in 2008. The sales are back to the same level they were
prior to the market collapsing. Tesla has managed to come out of the recession with ever
increasing stock prices.

Social

Most citizens support the idea of investing our taxes into sustainable fuels and products
using sustainable resources. Even after most companies who were given large government
loans failed to materialize into successful companies; Americans are still supportive of the
endeavors to create a sustainable economy. Going green is a very popular term these days

Technology

Tesla assembled a team that was a mix of specialists from the car industry and people with
their roots in Silicon Valley. Musk believed that Tesla’s Silicon Valley roots gave it an
important edge when it came to this kind of innovation. Exhibit 8 explains the division of
stakeholders within the company. Their improvements in batteries, aerodynamics, and
rolling resistance are leading to an increase of 40-50% in range efficiency for the prototype
Roadster 3.0; making it the first car to have an expected range of 400 miles.

Environmental

Driving vehicles without consuming and burning gasoline is great, but using electricity
derived from coal plants defeats the purpose. Tesla is in the process of developing battery
packs to be used in conjunction with solar panels to help utilize the suns abundant energy
truely making Tesla eco friendly.