Tesla Inc. is an American multinational corporation specializing in electric vehicles, energy storage, and solar panel manufacturing. The demand for electric vehicle models is growing. Several variables are at play here, such as tougher safety and environmental rules, increased technology, and different customer expectations. The broad interest and adoption of electric cars may be largely attributed to Tesla Motors Inc.’s (TSLA) creative business approach. Tesla is hence a globally recognized green energy-driven producer of electric vehicles (Chen Li & Zhi, 2022, April). Tesla was founded by its current CEO and founder Elon Musk to bring about a more sustainable form of transportation as soon as possible. The company driving the production of electric vehicles decided to set up its super production site in china. This decision has seen much transformability since its implementation in 2018(Vig, Suta & Tóth, 2022). Tesla’s entire business model is built on accomplishing this aim. This article discusses Tesla’s decision to set up its shop in China, its internal and external considerations, and its implication. This study will also reflect on the ethical implications of this decision to establish its effectiveness in the success of the Tesla motor.
Tesla Strategic Decision: Setting up a Super Factory in China
In 2018, through CEO Elon Musk and its key stakeholders’ leadership, Tesla motors decided to set up a super factory in Shanghai, China. This was a deliberate decision the company took with the drive to establish green energy consumption to a wider consumer base considering the larger Chinese market. The strategy to establish and set up the super factory in China was after a consultative, internal, and external consideration unlimited to access to a global market, sustainable green energy consumption drive, and transition of transport technologies amid the growing development technologies. The key driver for this decision, however, stands as the determination of Tesla’s motor to access the rich and world’s largest auto market in china, therefore, allowing the company to bring clean energy solutions to a wider consumer market and enhance sustainable transportation goals(Liu & Zhou,2022, April). Consequently, another significant factor was the Chinese market’s lower and more affordable labor costs which enabled Tesla to reduce production costs and increase its revenues and profitability market caps(Kelly,2019)).
The decision also received acceptance from the social actors in the external that influenced its implementation. The Chinese government offered incentives and support, enabling foreign companies to proceed with operations in the country. Tesla jumped at that opportunity, enhancing the enactment of this decision to drive the mass production of electric vehicles (EVs). The Chinese market is also composed of skilled labor, and the region’s low cost of land and cheap raw materials enhanced Tesla’s decision.
Further, different ideological themes constructed and shaped the power structure and relations within which this decision was founded and enacted. Tesla motors, under its leadership, believes in the importance of technological applications for transforming transport technologies. The company also aims to drive sustainable transportation amid the global climatic crisis, enhanced by fossil fuel consumption and release from the internal consumption engines(Alam, 2019). In the pursuit of economic success, the company established sustainable production and transformation of the transportation environment through the mass production and sale of electric vehicles and rechargeable vehicle cobalt batteries. Tesla remains a driving force behind technology and product development through prime Innovation for electric vehicles and battery production. With a focus on sustainable production and protection of the ecosystem through green energy consumption, the company decided exclusively produce electric vehicles, a growing domain in the automotive market. Tesla’s decision to set up a super factory in China was a deliberate move influenced by a range of internal and external factors and shaped by the power structures and relations within the company and the broader social and economic context(Naor, Coman, & Wiznizer, 2021).
Reason for Tesla setting up Super factory in China
The 2018’s Tesla motors decision to build a super factory in China was made by Elon Musk, the CEO of Tesla, who believed that having a manufacturing presence in the world’s largest auto market would help the company reach a wider audience and achieve economies of scale in production. The decision was also driven by the growing demand for electric vehicles in China and the company’s desire to mitigate the impact of import tariffs. In order to make this decision a reality, Tesla partnered with the Shanghai Municipal Government to secure a location for the factory and establish a joint venture(Huang, 2020). The factory was built in Shanghai’s Lingang Development Zone and became operational in 2019. The factory was designed to produce Model 3 and Model Y vehicles and was seen as a key component of Tesla’s global production and supply chain strategy. The construction of the super factory in China had several foreseeable results and actual effects. One of the key benefits was the reduction in production costs for Tesla. By producing vehicles in China, the company could reduce its exposure to import tariffs and take advantage of the lower labor costs in the country. This resulted in a significant increase in profitability for the company. Another benefit of the super factory was that it helped Tesla establish a strong presence in the Chinese market. By manufacturing vehicles in the country, the company could better serve its regional customers and build stronger relationships with local suppliers and partners. This, in turn, helped Tesla grow its market share and expand its brand in China. The decision to build a super factory in China was a strategic move made by Elon Musk and Tesla that significantly impacted the company’s global production and supply chain strategy(Lim & Tan, 2022).
The super factory in China helped Tesla reduce production costs, establish a strong presence in the Chinese market, and expand its brand in the region. Tesla is built on innovative and inventive measures through technological iterations and transformation of existing frameworks amid the fourth industrialization. Built on the drive to harness a green economy and establish sustainability in the transport sector, CEO Elon Musk established that Tesla decided on EV production to transform and technologically revolutionize the automotive industry through the production of EVs. Further, Tesla’s decisions on entire EVs production were funded by the growing EVs and adoption of green energy markets around the globe(Dai, Jiao & Wu,2022, December). This decision separated Tesla from other automotive companies that produce Internal Combustion Engine vehicles. Therefore, adopting a vertical integration model, Tesla has propelled its EV strategic decision to vertically integrate its operations by manufacturing its batteries, electric motors, and charging systems. This allows the company to control the supply chain, reduce costs, and maintain a high level of quality control (Drexhagen, 2021).
Ethical Analysis of the above Decision
Tesla Motors’ decision to set up a super factory in Shanghai, China, ethical implications can be understood from environmental, economic, and social understanding. It is also significant that the company engages in direct sales of its EVs production. This is also important as it establishes the ethical completion of the company’s decision framework.
From the environmental perspective, the shift to EVs helps reduce greenhouse gas emissions and air pollution, which aligns to promote sustainability and reduce the negative impact on the planet. Tesla motor is also determined to increase energy efficiency as the company is known for its commitment to sustainable energy, and its factories are designed to be highly energy-efficient. By setting up a factory in China, Tesla focuses on improving the country’s overall energy efficiency and reducing its reliance on fossil fuels. This is hence essential to mitigate the impacts of climate change. The company’s decision, however, has faced environmental degradation and biodiversity loss concerns with the construction and operation of a factory posited to have significant impacts on the local environment, including deforestation, pollution, and the destruction of habitats(Drexhagen,2021)).
The strategic setting up of Tesla motors’ Super factory in Shanghai, China, has allowed Tesla to reduce production costs and take advantage of China’s lower labor and manufacturing costs. It also enables the company to tap into China’s growing market for electric vehicles and gain a larger share of the Asian market. The company has also driven economic growth in Shanghai by attracting suppliers and other businesses to the area. This has led to new businesses, boosting the local economy. The company has also employed the local settlements in the region of Shanghai. According to Harwit (2022), the company has offered job opportunities to over 8000 individuals working at their production plant. However, Tesla’s decision raises concerns about labor exploitation and foreign investment’s impact on local businesses(Jing,2020). There are also concerns about protecting intellectual property and transferring technology to Chinese companies(Wang et al., 2021).
Tesla’s Potter’s Five Analysis
The threat of new entrants: Tesla has established a strong brand reputation and has significant economies of scale in the electric vehicle industry, which could make it difficult for new entrants to compete. However, several established automotive companies are entering the market, which could increase the threat of new entrants.
Bargaining power of suppliers: Tesla sources many of its components from a few key suppliers, which gives those suppliers significant bargaining power. On the other hand, Tesla has also made efforts to vertically integrate its supply chain by manufacturing some components in-house, which could reduce the bargaining power of suppliers(Hoze, 2021).
Bargaining power of buyers: Tesla has a strong brand and a loyal customer base, which gives it some bargaining power over its buyers. However, there are a growing number of competitors offering similar electric vehicles, which could increase the bargaining power of buyers.
The threat of substitute products: Electric vehicles face competition from traditional gasoline-powered vehicles and alternative fuels such as hydrogen fuel cells. Additionally, advancements in autonomous driving technology could serve as a substitute for personal vehicle ownership.
Rivalry among existing competitors: The electric vehicle industry is becoming increasingly competitive, with several established automotive companies entering the market and new startups emerging. This intense competition could lead to price wars and reduced profitability for industry players.
Discussion of alternative Decisions
Materials Sourcing from Responsible Manufacturers
Tesla has a human rights and conflict minerals policy and a supplier code of conduct to spell out what is expected of all suppliers and partners in light of the company’s commitment to honesty and transparency. Tesla’s position on human rights, labor, health and safety, the environment, ethics, and ethical mineral sourcing is in the company’s code of conduct. Using audits to verify compliance, Tesla maintains a zero-tolerance policy for human rights breaches in its supply chain (Kelly, 2019). More than that, it has a conflict minerals policy that mandates due diligence procedures for its vendors to make the supply chain more open and honest. This should be used to ensure that suppliers see that any materials or goods they offer do not contribute to the funding of violent organizations in the Democratic Republic of the Congo.
Musk predicts a day when automobiles can navigate and park themselves. While Tesla is aware of the legal hoops it has jumped through to make its cars fully autonomous, the firm should remain committed to achieving this goal. When AI replaces human drivers, automotive manufacturers will be held accountable for many new ethical and legal issues. Intelligent vehicles must be designed to make moral judgments (Kelly, 2019). Tesla’s contentious decision to introduce partial autonomy in 2015—allowing its cars to steer, accelerate, and stop autonomously under continual driver supervision—was based on the company’s belief that its self-driving capability is already safer than human Driving (Sovacool et al., 2017). Users of the autopilot mode are safer than other drivers, despite links between the feature and many accidents and at least one fatality. However, the company should warn users when they have gone too long without using their hands, so drivers do not develop a dependency.
Increased Priority on Consumer Protection
The safety of its customers has always been Tesla’s top priority. The company’s vehicles offer cutting-edge safety technology like active safety braking, lane deviation and collision alarms, obstacle-aware accelerating, blind spot alerts, and more. Tesla cars are only partially accident-proof despite the company’s best efforts. In 2013, as Tesla was finally finding its footing, two car fires damaged the company’s image for vehicle safety (Alghalith, 2018). Musk defended the cars, saying that the danger of fire in a Model S is several times less than the risk in a typical gasoline car in a corporate blog post. Tesla capitalized on the media attention by highlighting the car’s safety features that had helped keep the two drivers safe. Despite the numbers, Tesla morally chose to equip each vehicle with triple underbody protection to reassure its consumers. Tesla provided free retrofitting of the shields to current Tesla customers and provided them with a titanium underbody shield and aluminum deflector plates on all new cars.
The key strategic choices that have propelled Tesla to its present heights have been focused on the company’s three primary business pillars: selling, servicing, and charging electric automobiles. The above analysis has discussed the factors that led the organization to settle on the three choices. The study also examined the moral implications of these choices and then identified three strategic areas where the company might progress, i.e., materials Sourcing from Responsible manufacturers, growing Innovation, and increased Priority on Consumer protection.
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