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Tesla Pestle Analysis

Author: Abhijeet Pratap

Date: July 09, 2024

Pestle Analysis of Tesla

Tesla Pestle Analysis

Tesla is the leading player in the EV sector with the largest market share. However, its leadership position is being challenged by the rise of China’s BYD, which is following closely in its heels. Based on its market capitalization, Tesla is the largest player in the entire global automobile sector. It has experienced rapid growth in demand and sales over the past few years.

Tesla, apart from its all-electric product portfolio, is also known for being a highly innovative company, which apart from selling electric vehicles and energy generation and storage products, is also investing in AI and Robotics. It spends a huge sum in research and development each year.

The company has also established a strong manufacturing and supplier network. Currently, the business is focusing on expanding its global presence.

In this pestle analysis of Tesla, we will analyse the impact of macroeconomic forces on Tesla’s business and how well Tesla can tackle the challenges arising from these factors.

Political

Political factors play a critical role in the context of international business and have a deep impact on operations of foreign businesses. Apart from the tax structure, political stability in an environment, import and export rules and other political factors affect business operations, profitability and supply chain management.

Some markets are more open to Foreign Direct Investment compared to the others. These markets are more suitable for doing business than the ones which are less open to foreign investment.

In recent years, Tesla has focused on expanding its international presence by opening new manufacturing locations and expanding its supercharger network. As a large international business Tesla is also subject to the government regulations and is affected by policies in various markets. Its largest market is the United States, followed by China and Europe. However, there is still a critical factor that works in favor of Tesla. Worldwide governments are providing subsidies to companies making sustainable products and operating sustainably.

Tesla makes electric vehicles as well as energy generation and storage products. The company has been welcomed in several European markets and the overall political environment in the leading markets globally is generally favorable for Tesla. The EV brand is still affected by the tax regulations and international trade laws in various markets.

Economic

Economic factors also have a critical impact on international businesses and affect their operations and profitability. The condition of the global economy plays a critical role in terms of international business.

As far as Tesla is concerned, its business is affected by the economic conditions in the leading markets like the US, China and some European markets.

Tesla sells mainly premium vehicles which are enjoying higher demand and popularity in several markets across the globe. The condition of the global economy has remained good over the past few years leading to higher spending on premium products. A decline in economic activity and employment in key market regions can negatively affect Tesla’s business.

When the level of economic activity is low and unemployment level is high, people spend less on premium products. This can lead to reduced demand for Tesla products. Moreover, since Tesla depends mainly on the US and China for a large part of its total net sales, the company will be negatively affected by an economic decline in these markets. It will need to release more affordable models to reduce the impact of economic factors and competition on its business and profitability.

Social

Social factors have also become important in terms of international business and it is why companies are focusing more on society and social issues. Society and culture are also highly relevant now in terms of consumer behavior. While these factors can be favorable sometimes for businesses, at other times, they can also have a negative impact in terms of business and marketing.

Globally demographic changes have affected businesses in various ways. Businesses are targeting new consumer demographics. The focus is higher on the millennial consumer segment that form the main target market of businesses like Tesla. However, technological changes have affected people’s lifestyles across geographies and culture. The acceptance of digital technology across various regions and cultures has grown leading to consumers using digital channels to learn about businesses and their products.

Tesla is an innovative company and markets itself in a socially responsible manner. Across various cultures and societies from the US to China and other Asian and European nations, it has become a popular name. Overall, it has been able to garner strong popularity and higher appeal among consumers across societies and cultures.

Technological

Technology is among the most critical drivers of growth across various industry sectors. In the automobile industry, technology has played a central role in terms of growth and development. Tesla is known as an innovative company that makes technologically advanced cars. This is an important reason that the company has experienced so fast growth in popularity, sales and profitability.

Technological innovation has remained the key driver of faster growth for Tesla. It focuses heavily on innovation and has kept increasing its research and development expenses every year. In fiscal 2023, the company spent $3.9 billion on research and development. It provides regular updates to its software inside the Tesla cars. These cars are safe and efficient as well as excellent in terms of design.

Tesla is not just any automobile company. It is more of a technology brand that has also made its foray into AI and robotics. It is also continuously improving its autopilot technology which is considered the most advanced of its type. Tesla has also established a large and technologically most advanced supercharger network that has played a key role in helping the company grow the demand of its products. Overall, technology has played a leading role in helping Tesla establish itself as the largest player in the EV sector.

Environmental

Environment and sustainability are now also considered important in terms of business across all industry sectors. In the automobiles sector too, sustainability plays an important role in terms of business operations and growth. Companies are investing in sustainable operations as well as supply chain management. Tesla is itself a sustainable brand dealing in electric vehicles as well as energy generation and storage products. Since the company operates highly sustainably, it earns carbon credits that are tradable and which it can sell to other companies.

Due to its strong focus on environment and sustainability, Tesla has achieved a strong brand image worldwide. It is a leading factor that has increased the popularity of Tesla products globally. A large number of Tesla rivals are also investing in manufacturing electric vehicles and doing business sustainably. However, Tesla is still ahead of all others in this area and has achieved a strong competitive advantage through its focus on sustainability.

Legal

Law and legal forces are of great importance in the automobile sector. Legal compliance is critical since noncompliance does not just result in hefty fines but also loss of brand image. Around the world, regulatory agencies have increased their focus on regulation of large businesses so that they operate ethically and sustainably. Doing business in compliance with local and international laws is critical to operating profitably. From labor to product safety, passenger safety and data integrity, there are several areas where compliance is important for Tesla.

Tesla is also dealing with several legal challenges related to its autopilot technology which according to the government agencies is not perfect yet. In December 2023, it had to recall almost 2 million vehicles. Safety is among the most critical issues and the most challenging area for automobile businesses. Until now, Tesla has been able to successfully deal with legal challenges including the ones that were claimed to be caused by its autopilot technology.

However, it would need to continue to operate in compliance with all the essential local laws in each market where it operates to do business profitably and maintain a strong brand image.

A few last words:

Tesla’s sustainable image has proved crucial in terms of growth and brand image. It has helped it clear several hurdles that may pose difficulties for legacy automobile businesses. These hurdles can be political, economic as well as social in nature. Technologically speaking, it is already a leader in terms of developing highly advanced cars. Its popularity continues to grow and so does the demand for its products worldwide in all the leading markets. Its largest market currently is the United States followed by China. The company is also expanding its footprint in the European region. Technological innovation will continue to fuel faster growth for the business. However, it will also need to make sure that legal challenges do not become a serious hurdle in its path to faster growth.