Tesla Pestel Analysis

In this article, we will conduct a pestel analysis of Tesla. We will evaluate the impact of the Pestel factors on Tesla’s business and profitability. However, let’s first take a brief look at Tesla’s business.

Tesla, Inc.

Tesla Motors

1. Company Overview:

• Founder: Tesla was founded in 2003 by Martin Eberhard and Marc Tarpenning. Elon Musk, JB Straubel, and Ian Wright also played significant roles in the company’s early development. Elon Musk joined Tesla as its largest shareholder in 2004 and was named its CEO in 2008.
• CEO: Elon Musk
• Industry: Automotive, Energy, Technology.

2. Core Business Segments:

• Electric Vehicles (EVs): Tesla is best known for its electric vehicles, including popular models like the Tesla Model S, Model 3, Model X, and Model Y. The company produces high-performance electric cars with cutting-edge technology and features.
• Energy Products: Tesla is involved in the production and sale of energy-related products, including solar panels, solar roof tiles, and energy storage solutions like the Powerwall, Powerpack, and Megapack.
• Autonomous Driving: Tesla is actively working on autonomous driving technology and features, including its Full Self-Driving (FSD) capabilities.

A PESTEL ANALYSIS OF TESLA

Political:

Political factors have a significant influence on the entire industry including technology, automobile and other sectors. The role of political factors in terms of international business is complex and varies from market to market. Governments and government agencies influence businesses in various areas including international trade, regulatory compliance, subsidies and incentives, taxation policies, anti trust regulation and so on. The list of ways in which government and government agencies influence businesses is quite long. In the context of Tesla’s business, the world’s highest valued automobile brand specializing in the production of electrical vehicles, the role of political forces is significant.

Tesla is an international electrical car brand operating across several markets in the Americas, Asia Pacific and Europe. The corporate tax structure in the market regions where Tesla operates as well as government’s attitude towards the electric car sector have an important influence on Tesla’s business. Worldwide, governments are providing subsidies and incentives to sustainable businesses or businesses making sustainable products to advance the development of environment friendly technologies. The political environment is generally favorable for Tesla which has been able to expand its overseas operations at an impressive rate. Outside the US, Tesla has constructed its Gigafactories in China and Germany and one is under construction in Mexico.

However, in terms of regulatory compliance, Tesla is also required to adhere to the taxation policies and international trade laws. The tension between the US and China has also affected the automakers in both countries. Tesla’s China operations have not been as challenging mainly because of its focus on electric car production. Overall, Tesla might have faced less political challenges compared to the other automakers. However, its autonomous driving technology is still an area full of challenges where the company might continue to face political pressure.

Economic:

Economic factors have a special significance in the world of business and economic downturns can influence the automobile market deeply. The economic factors affect both demand and supply of automobiles. The general condition of the economy, the level of employment and other significant economic factors like interest rates have a significant impact on automobile companies and their sales. Tesla is the world’s highest valued automobile brand with a premium product portfolio. The company makes and sells premium cars that are priced higher than the average electrical cars in the market. In the recent years, the demand for electric cars around the globe has increased. However, sustainability and increasing environmental awareness among people are the leading reasons driving the growing demand for electrical cars.

The automobile industry in general performs better when the global economy is doing well. In particular, the leading automobile markets like the US and China are the two most critical markets for the automakers. The economic performance of these two markets can significantly affect the sales and profitability of international automakers including Tesla. Automakers including electric car makers depend on consumer spending for sales which is generally higher during robust economic conditions. During an economic downturn, consumer spending remains lower because of lower employment rates and similar adverse conditions, which directly affects vehicle sales. Other economic factors like interest rates, fluctuations in currency exchange rates as well as the government’s monetary and fiscal policies also affect Tesla.

Maintaining high demand and sales requires Tesla to consider the impact of the economic conditions on its business operations and sales. It must create its business and sales strategies considering how changes in the economic environment might affect production and sales.

Sociocultural:

Society and culture are related to consumer behavior. They influence consumer behavior, customer preferences as well as buyer decision making patterns to a significant extent. Therefore, social changes and cultural issues also have a special importance in the world of business. In some cases, social and cultural factors can be highly favorable for businesses like Tesla. However, in the other cases, they can also pose challenges. Demographic changes in the global population have affected businesses across several industries including the auto industry. Businesses are targeting the millennial generation since it is their most important consumer segment.

Worldwide several more changes have affected societies and cultures and how people buy things. For example, the acceptance of digital technology across various societies and cultures has grown. People are relying on digital technology for connecting with others, shopping and entertainment. The focus on sustainability and environmental awareness among people has also grown which has led to people supporting businesses operating sustainably or making environment friendly products like Tesla.

Tesla is a manufacturer of electric cars and globally the popularity of electrical cars has increased due to their lower carbon footprint. As a result, the social trends have benefitted Tesla across various geographic regions.

Technological:

Tesla is mainly a technology brand known worldwide for its focus on technological innovation. Apart from making electrical cars, the company also makes other power generation products and is well known for its autonomous driving technology. Technology is at the core of Tesla’s business model and its main driver of growth. The significance of technology in the context of the automobile sector has increased a lot with the race for making more efficient electric cars intensifying. Tesla’s competitors are investing a lot in research and development to grow their competence in the area of manufacturing electric cars. However, it is not just the intensifying competition, but the rapid technological advancement is also driving a stronger focus on innovation industrywide.

Tesla is headed by Elon Musk, who is also the founder of SpaceX and a well known name in the world of science, technology and entrepreneurship. Technology has brought both opportunities and challenges. However, if Tesla has benefitted from the rapid technological advancement, it is mainly because of its strong focus on innovation and its competitive edge. Governments around the world are providing various incentives and subsidies to fuel innovations in the field of electrical mobility. Technology has played a central role in the growth and expansion of Tesla, which has established Gigafactories in the US as well as China and Germany to increase its production of electric cars. According to sources, Tesla owns more than 3000 patents which also shows its focus on innovation.

Environmental:

Environment and sustainability are now integral to business and operating sustainably is no more an option but a requirement. Around the world while environmental awareness has increased among the public, globally governments have also increased their focus on making businesses operate more sustainably. They have formed laws and regulations to prevent businesses from having too high a negative impact on the environment. Governments also award regulatory credits to automakers producing zero carbon emission vehicles.

Since Tesla makes only electric cars that fall in the category of zero emission vehicles, the company always has excess regulatory credits that it can sell to other companies. In fiscal 2023, the company generated around $1.8 billion from the sale of regulatory credits according to its annual report. Another benefit of increasing environmental awareness for Tesla is that the company is experiencing higher popularity and growth in demand across the world in several of its leading markets including the US and China.

When it comes to environment friendliness, Tesla is among the leaders in this area. Its focus on innovation and making environment friendly cars and power generation technologies has also helped the company improve its brand image.

Legal:

Law and legal factors also have a crucial significance for businesses. Technology businesses are particularly facing a very high level of legal oversight in the current environment. In the automobile sector too, companies have to deal with complex laws across the globe. Some of the leading areas where compliance is critical for automobile businesses include product and passenger safety, labor laws, sustainability laws, and so on. However, since Tesla also deals in autonomous driving technology, the company is also subject to several technology related laws like data security and privacy.

Tesla heavily depends on data collected from the Tesla vehicles on road to continuously train its driver assistance system. It processes a vast amount of data daily to train its neural network and machine learning systems that are a part of its autonomous driving technology. However, its autonomous driving technology is also highly controversial. It is because the autopilot technology in the Tesla cars has also been involved in several crashes, some of which were fatal. The technology is also under investigation by NHTSA. Tesla has also faced lawsuits in other areas including labor. Since Tesla depends heavily on consumer data to train its neural network and machine learning models, the company will have to remain compliant with privacy and data security related laws. Recently, Tesla had to recall nearly every vehicle it has sold in the US. While the company was able to resolve it through a software update, the autopilot technology continues to remain under investigation.

Legal issues are among the leading challenges faced by automakers. Remaining compliant is critical to maintain a solid market image and avoid hefty fines as well as regulatory action. Tesla will need to strengthen its focus on legal issues so that its image remain unaffected.