Tesla Inc. (formerly Tesla Motors, Inc.) needs to overcome challenges linked to the external factors identified in this PESTEL/PESTLE analysis. The PESTEL/PESTLE Analysis is a strategic management tool that determines the effects of the industry’s remote or macro-environment on the company. Tesla’s case involves the remote or macro-environment of the automotive industry, the energy generation industry, and the energy storage industry. These industries’ external factors influence other determinants of the business, such as customers and community-based organizations. For example, Tesla Inc.’s customer base and market share depend on factors like the cost-effectiveness of technologies in the transportation sector. With a strong brand image and improving profitability, the company can enhance its long-term success by including the results of its PESTEL/PESTLE analysis in strategic formulation. Tesla’s business effectiveness is a reflection of how well the company addresses the external factors in its industry environment. The conditions of the remote or macro-environment change, requiring the company to change its strategies accordingly.
Tesla, Inc.’s electric automobile, battery, and solar panel sales revenues are increasing, despite competition with large firms, such as automobile manufacturers like General Motors Company, Honda Motor Company, Toyota Motor Corporation, Volkswagen, Nissan Motor Company, and BMW (Bavarian Motor Works). This condition indicates effectiveness in addressing the external factors in the remote or macro-environment of the business. As shown in this PESTEL/PESTLE analysis of Tesla, the external environment is diverse because of the variety of the company’s product types and target markets. Strategic management solutions must correspond to such variety. Thus, it is imperative to identify and address the most significant of the external factors from these business environments.
Political Factors Affecting Tesla’s Business
This part of the PESTEL/PESTLE Analysis of Tesla Inc. identifies governmental impacts on businesses and their remote or macro-environment. Governmental entities are among the main societal forces that affect businesses and industries. For example, policies on trade can limit industry performance and the company’s revenues. In this external analysis case, the following political external factors are significant to Tesla and the automotive and energy solutions industries:
- Governmental incentives for electric automobiles (opportunity)
- New global trade agreements (opportunity)
- Political stability in the majority of major markets (opportunity)
Tesla, Inc. has the opportunity to strengthen its financial performance through incentives from governments. This external factor directly relates with the minimized carbon emissions of the company’s operations and products. In addition, this PESTEL/PESTLE analysis determines that expanding free trade agreements open opportunities for the company to expand its operations internationally. On the other hand, the political stability of major markets makes the remote or macro-environment favorable to Tesla’s generic competitive strategy and intensive growth strategies, which include market penetration. In this part of the PESTEL/PESTLE analysis of Tesla, political external factors present opportunities for growing the automotive business.
Economic Factors
The effects of economic conditions on the remote or macro-environment are considered in this part of the PESTEL/PESTLE Analysis of Tesla Inc. These conditions include market growth, trade levels, currencies, and other variables that influence the automotive business. For example, the solar energy market’s growth rate determines the growth opportunities of the company’s solar panel business. Tesla needs to address the following economic external factors that influence the automotive market:
- Decreasing battery costs (opportunity)
- Decreasing renewable energy costs (opportunity)
- Economic stability issues (threat)
Tesla’s business performance benefits from lower battery costs. For example, this external factor translates to affordability of the company’s electric automobile products. This PESTEL/PESTLE analysis also considers decreasing renewable energy costs as an external factor that makes Tesla’s products more attractive. The business improves as renewable energy solutions become more popular. However, economic stability issues threaten the company’s financial performance, especially in Europe and Asia. This part of the PESTEL/PESTLE analysis of Tesla, Inc. highlights major opportunities for growth, despite the threat of economic instability in the remote or macro-environment of the automotive industry.
Social/Sociocultural Factors Influencing Tesla Inc.’s Business Environment
Social conditions and trends affect a firm’s remote or macro-environment through employees, customers, and investors. This part of the PESTEL/PESTLE Analysis of Tesla Inc. considers how the business aligns with the social trends in its target markets. The company’s managers must ensure that strategies are applied to maximize the business benefits of such external factors. The sociocultural external factors important in Tesla’s business are as follows:
- Increasingly popularity of low-carbon lifestyles (opportunity)
- Increasing preference for renewable energy (opportunity)
- Improving wealth distribution in developing markets (opportunity)
This company analysis shows opportunities to grow the multinational automotive business. For example, Tesla Inc. has growth opportunities based on the rising popularity of low-carbon lifestyles and increasing preference for renewable energy. In the PESTEL/PESTLE analysis framework, these external factors improve market demand for the company’s electric vehicles and related products. In addition, Tesla has an opportunity to boost its financial performance based on the increasing wealth distribution in developing markets. This wealth distribution trend increases the population of potential buyers of the company’s relatively expensive cars. In this part of the PESTEL/PESTLE analysis, Tesla Inc. can grow its business internationally, based on sociocultural opportunities in its remote or macro-environment.
Technological Factors
This part of the PESTEL/PESTLE Analysis determines how technologies influence the company’s remote or macro-environment. The advancement of Tesla’s automotive and energy solutions business depends on available technologies. For example, materials engineering technology determines the efficiency and cost-effectiveness of the company’s batteries. The following technological external factors are significant in Tesla, Inc.’s automotive business:
- High rate of technological change (opportunity & threat)
- Increasing automation in business (opportunity)
- Increasing popularity of online mobile systems (opportunity)
The high rate of technological change is an opportunity and threat in this business analysis. The high rate presents opportunity for Tesla to enhance its products’ technologies. However, the same external factor threatens the company in terms of the potential rapid obsolescence of technologies used in its products. Nonetheless, increasing business automation is a trend that creates opportunities in this PESTEL/PESTLE analysis case. For example, Tesla has growth opportunities through further automation of its business processes. In addition, the increasing popularity of online mobile systems should prompt the company to increasingly integrate these systems in its automobiles. The technological condition of the remote or macro-environment, as shown in this part of the PESTEL/PESTLE analysis of Tesla, Inc. emphasizes opportunities for growth based on technological enhancement.
Ecological/Environmental Factors
The remote or macro-environment of the global business is subject to the effects of ecological conditions covered in this part of the PESTEL/PESTLE Analysis of Tesla, Inc. For example, ecological trends determine the availability of materials used in the company’s production processes. In this case, the following ecological external factors affect Tesla’s market:
- Climate change (opportunity)
- Expanding environmental programs (opportunity)
- Rising standards on waste disposal (opportunity)
This PESTEL/PESTLE analysis considers ecological factors as significant forces on Tesla, Inc.’s industry environment. For example, the company has opportunities to promote its electric vehicles based on concerns on climate change, expanding environmental programs, and rising standards on waste disposal. The company’s electric vehicles, batteries and solar panels are considered suitable in directly addressing these external factors linked to business sustainability and environmentally friendly products. This part of the PESTEL/PESTLE analysis shows that Tesla has significant growth opportunities based on the nature of its products.
Legal Factors
In this part of the PESTEL/PESTLE Analysis, the effects of regulatory factors on the remote or macro-environment are determined. Laws and legal systems shape managerial decisions and business development. For example, Tesla’s marketing mix or 4P are implemented within legal constraints. The company’s human resource management and business partnerships are also within legal constraints. In this case of Tesla, Inc., corporate strategies must include the following legal external factors:
- Expanding international patent protection (opportunity)
- Energy consumption regulations (opportunity)
- Dealership sales regulation in the United States (opportunity & threat)
Tesla has opportunities to safely expand its business overseas, considering expanding international patent protection. In addition, this PESTEL/PESTLE analysis identifies the opportunity to promote the company’s electric vehicles and energy solutions products, based on energy consumption regulations that client organizations must follow. Also, the business has an opportunity to grow through direct sales, which is allowed in many states in the U.S. However, based on the SWOT Analysis of Tesla, Inc., this external factor is also a threat, considering that other states do not allow direct sales and, instead, require dealerships to transact with customers in the automotive market. The legal conditions of the remote or macro-environment shown in this part of the PESTEL/PESTLE analysis point out that Tesla can expect growth opportunities.
PESTEL/PESTLE Analysis of Tesla Inc. – Recommendations
Tesla, Inc.’s profitability improves over time. Elon Musk’s leadership and popularity are among the factors behind this performance. The company is also in a position to improve its operations in the global automotive market, addressing the competitive landscape determined in the Porter’s Five Forces analysis of Tesla Inc. The company, however, needs to continuously evolve to account for the trends shown in this PESTEL/PESTLE analysis. These trends affect all businesses in the automotive, battery/energy storage and energy generation industries. Thus, the corporation must also consider its business condition relative to other automakers and energy solutions providers.
As shown in this PESTEL/PESTLE analysis of Tesla Inc., there are a variety of opportunities that facilitate further growth of the business. For example, free trade agreements make it easier to expand internationally. Thus, a recommendation is for the company to globally expand its operations. It is also recommended that the business increase its marketing aggressiveness to increase its market share, especially in countries other than the United States. This move could reduce market-based risk, considering that Tesla has limited sales operations in overseas markets.
References
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- Tesla, Inc. – Form 10-K.
- United States Department of Commerce – International Trade Administration – The Automotive Industry in the United States.