Tesla’s Expansion in China

Tesla’s Expansion in China

The previously Tesla, Inc that is presently known as Tesla motors Inc engineers, produces and sells electric vehicles and solutions to energy storage. The organization was incorporated in the year 2003 after being established by Jeffrey and Elon Musk, among other individuals. The organization offers clean energy production, storage, and consumption technologies with a mission to accelerate the international transition to the production of sustainable energy (Tesla.com, 2019).  The organization also has an automotive segment which consists of generation, the design, and sale of electric mot vehicles, which targets the premium sedan and SUV marketplace, although the company’s Model S, Model X, and the mainstream vehicle marketplace, it incepted Model 3. The production of energy and storage segment consists of the design, generation, and sale of solar energy production systems and solutions to storage to industrial and commercial customers. The organization benefits from key competencies in powertrain engineering, innovative manufacturing, vehicle engineering, and energy storage. This paper aims to discuss Tesla’s expansion in China.

The production of the majority of Tesla’s outlays in the United States reached up to 60% in 2016, which is its domestic market. The organization has renewed exertions to expand internationally in tapping the increasing trans-national necessity for electric vehicles (Carlson, 2015). Tesla company mainly focuses on the European and Asian marketplace to help in diversifying its outlays streams. This segment aims to determine and evaluate Tesla’s global expansion plan and also to provide an in-depth consideration of the Tesla approach strategy to China’s marketplace.

The initial Tesla’s extension drifts to the international marketplace, which involved opening a showroom in London in the year 2009 and a store in Munich in the same year (Harvard Business Review, 2019). Later in the year 2016, the organization had already employed several workforces and sold over 186000 electric vehicles internationally. Presently, the company has approximately 272 stores globally, and about 164 of them are located in 26 different nations outside the United States. Notably, Germany takes the most significant number as it has about 27 of its overseas stores. Specifically, the core organizational competencies are vehicle and powertrain engineering.

The global standardization of strategic response by Tesla is that it has high pressures, especially in the reduction of cost. Tesla has an objective in regards to three core transnational customer segments that helps it to enter the market in a standardized product offering (Vynakov, Savolova & Skrynnyk, 2016). Initially, the high-end sports vehicles marketplace is relatively a niche marketplace earlier, which targeted through the Tesla Roadster, the organization’s initial model whose production was ended in the year 2012.  Additionally, the luxury vehicle SUV and sedan is a competitive sector that offers high sales potential that Tesla intends to tap with Model X and Model S. Lastly, the mainstream vehicle customer sector allows for mass vehicle production identified as Tesla next phase as Model 3 generation robots in the preceding quarter of the year 2017.

The homogeneity transnational of these marketplace segments depicts that Tesla faces low pressures in the local responsiveness and may offer a standardized item with minimum differentiation across the marketplace. The Tesla’s marketplace segments show some of its high-end disruption invention model as per how the organization entered the high end of the automobile marketplace whereby the customers willingly pay premiums before reducing prices in order to create a significant marketplace of high volume unit.

In its global expansion, the Tesla company may exert pressure on the reduction of costs (Globalmarketingprofessor.com, 2019). To start with, the Tesla marketplace is primarily an item type that focuses on the production of vehicles that satisfy the universal necessity for private transportation. Further, Tesla Company mainly operates in a highly competitive industry whereby the price is a crucial driver of demand and consolidated industry players such as Volkswagen, BMW, and Toyota, which have raised several hindrances to its entry behavior in the market (Panmore Institute, 2019). Also, customers encounter low switching costs concerning the mot vehicles that are powered by internal combustion engines. However, there are high switching costs when buying EVs due to the added exertions to cope with the limited range. Lastly, there are technological constraints to Tesla’s extension, precisely a large reduced effective scale that results from high R and D and also the fixed operational costs.

Tesla’s response to these pressures for the reduction of costs has been focusing on standardizing its item offering and the entire production processes. The organization is characterized by low product sorts with exertions that focus on the generation of Models S, X, and 3. Further, Tesla shows focused production abilities with the generation of motor vehicles located in Lathrop and Fremont in California, and Tilburg in the Netherlands and of the battery packs in its Gigafactory in Nevada (Scribd, 2019). Particularly, these production abilities are vertically incorporated with many operation s of manufacturing, which includes the paint operations and ultimate assembling of vehicles that are carried out at the Tesla Factory in Fremont. Also, the organization has invested in flexible manufacturing types of equipment with machines that support the generation of various models. This enables Tesla to minimize setup times and advance quality controls. Importantly, the focus of Tesla’s production abilities has allowed the organization to benefit from the economies of scale as its high fixed costs are spread over a significant fleet of vehicles.

More to this, Tesla’s modular approach to the battery system design has enabled the organization to standardize the very production processes that help it to maximize productivity and ride down the experience curve, which ultimately fuels its cost savings (Production Systems: Why Tesla’s Gigafactory is Musk’s Most Ambitious Project Yet | Process Street | Checklist, Workflow and SOP Software, 2019). Similarly, there are synergies between Tesla’s product divisions as its proprietary technology is utilized in the production of many items with a perception of supporting the prospective R and D advancements. For example, Tesla has utilized its vehicle constituents’ levels of technologies to advance its energy storage items. Lastly, the organization has built up vertical strategic partnerships to produce its essential constituents by partnering with Panasonic in the construction and operation of the Gigafactory 1.Notably, and the partnership allows Tesla to share the fixed costs and the related risks of developing new battery and to set up technological standards for the EV industry.

Tesla has also increased its item’s consumer perceived value. The competitive aspect of the car industry has placed high pressures on the minimization of costs that pushes Tesla to advance its item’s perceived consumer value. Through the creation of the value-added services, by incorporating a global network of stores, the service centers and the superchargers of the organization helps in supporting consumers in their buying decisions and minimizes the switching costs of purchasing EVs. Contrarily, developing exceptional core competencies in powertrain engineering and energy storage has allowed Tesla to price its items at a premium. Lastly, over the air software, updates enable Tesla to restrict its item obsolescence by strengthening its value for money.

The minimization of the switching cost, Tesla’s objective has been to enter the foreign marketplace. The low pressures for the local responsiveness that Tesla’s faces have enabled the organization to standardize its items and subsequently focus on minimizing consumer switching costs. An example in case is giving customers a universal mobile connector that will facilitate these to use various charging services globally. Likewise, developing a network of superchargers has enabled it to make long-distance traveling convenient and therefore undermined the conception that EVs low range diminish their effectiveness. Tesla also increased the number of charging alternatives that are available to customers by giving destination charging in collaboration with several hospitality locations. The collateral benefit of Tesla’s network of customer service centers is the high volume of feedback it gathers from consumers who inform R and D and enables prompt inception of item advancement hence prompting cost saving.

Also, Tesla minimizes the issues that it encounters through direct to customer distribution, which makes it possible through its vast internet presence (Tesla brand loyalty is being sustained due to customer perceived ethicality? 2019). This latter has developed a consumer-centric supply chain on the international scale, which allows mass customization of Tesla vehicles. The presence is attained with high consumer engagements because most purchases have been carried out on an online basis. The vast demand for EVs results from the increasing concern concerning environmental issues, which are favorable government incentives to buy EVs.An example in case is the import taxes on the non-recurring car fees and the 25% value-added taxes that are not imposed on the buying ability of EVs.The general tax breaks amount to about 50% of Tesla’s base item price. This dictates that Tesla’s items are approximately half the price of rival items from the likes of Audi and BMW.

Tesla capitalizes on this high demand through investing in the advancement of the charging infrastructures by opening superchargers for the very first time outside of the United States. The capabilities of Direct to Customer are also strengthened by the opening of showrooms in airports and shopping malls, along with the service centers. Tesla’s global activity and advancement are subjects to exogenous aspects that shape the settings in which the organization emerges. The exemptions across the marketplace create pressures for local responsiveness that restricts the organizations’ ability to standardize their items. The CAGE distance model developed helps in measuring the administrative, cultural, geographical, and economic distinctions across the marketplace and assists organizations in gaining visibility on their respective target marketplace (Shahan & Shahan, 2019). The core focus is on a set of nations selected for their high GDP per capita which is an insightful indicator concerning the affordability of Tesla’s items in particular nations.

There is restricted information on customer attitudes to the EVs, although they are posited as the key cultural hindrances to customer widespread customer adoption. This is because customers persistently doubt EVs’ range, the ease of use, and the disruptive technology as a whole. The positive attitudes to EVs are evidenced in nations where people share issues concerning the settings that they are in and have the will to take risks, which optimally contributes to its protection. Also, there are variations in the cultural preferences concerning vehicle options. One may opt to choose that Tesla needs to integrate into the marketing of its items.

Government regulations concerning health and safety, the constituent standards, and the administrative incentive programs vary across nations. Provided that price is a core driver in the automobile industry, the incentive schemes are usually crucial to consumers buying decisions. Similarly, variations in the import tariffs on vehicles can adversely affect Tesla by increasing the price of its items and inquiring its importation choice as an entry mode in the international marketplace. Further, government policies concerning the execution of charging stations are decisive in undermining the view that EVs are inconvenient, particularly to long-distance travel.

The economic conditions shape the need, and Tesla’s outlays stream and the cost structures. The variations in the fuel prices, for example, affects the cost of possession and can incentivize the switching to EVs. Tesla can then be advised to target nations where fuel prices are high to differentiate its item from the vehicle through the use of ICEs.

The GDP per capita is also showing the reason as to the affordability of Tesla’s items with nations with high GDP per capita that represents a significant market opportunity for Tesla, given that the market size is not limited to a greate extent. The critical metric for Tesla is currency stability compared to that of the United States dollar. Contrasting, provided that Tesla’s items prices are denominated in the United States dollars, the currency appreciation increases the price of imports to that of foreign nations (Tan, 2019). Also, some expenses related to the generation of products are denominated in foreign currencies. For example, the battery cell purchases in Japanese yen. However, the risk to this is that a depreciation in the United States dollar raises the costs of items sold. A robust variability in a nation’s exchange rates widens the distinction with the United States marketplace and also raises the risk of operating in a particular country for Tesla.

The geographical distinctions such as endowments, transportation infrastructures, natural resources complicate the organization’s global expansion. Concerning Tesla, the quality aspect of a nation’s road network is essential to the suitability of the organizations’ items that are designed for great road conditions. Nations with high infrastructure investment and maintenance spending would display good geographical predispositions for the usage of Tesla EVs. Also, access to electricity is an imperative limiting aspect of Tesla’s expansion in the foreign market. Tesla’s initial strives to penetrate the Chinese marketplace posited to be the largest marketplace for EVs that results from high compared to usual pressures for local responsiveness.

After rushing to get a Tesla Motors Model S, there is a perception that residents are suffering from purchasers’ remorse. Echoing complaints from Tesla’s owners says that they have been waiting so long for the vehicles to arrive and that after-sales services have since been spotty. Also, there are fears that there might be running out of electricity. However, Tesla’s Inc’s is one of China’s factories that proposes to start production in due course of the time after meeting the annual end production aims because of the uncertainties all-around labor, orders, and suppliers with sources of knowledge of the subject discourses. The United States electric vehicle maker purposes of producing more Model 3s every week from the new factory by the end of the year. The centerpiece of these ambitions is boosting sales in the global’s greatest auto market and avoid high import tariffs that are imposed on the United States vehicles.

The factory’s mass production is very imperative for Tesla’s hopes of reaching its total production rate vehicle of approximately 500,000 by the end of the year. The multibillion company has gained essential government approvals recently and is on schedule to start production soon, according to sources. It aims to start these production soonest. However, the real production volume will depend on several aspects such as orders received, the performance of newly hired workforces, and the supply chain.

The factory is kicking into gear amid the U.S.-China trade war and weakness in China’s auto market (Ruwitch, 2019). Sales of new energy vehicles contracted for the second month in a row in August, and are likely to grow at a slower pace this year to 1.5 million vehicles, down from a previous forecast of 1.6 million, according to an industry association. Tesla has fared better, with China sales rising 98% in the first seven months of this year thanks to strong demand for Model 3, according to research firm LMC Automotive (Bloomberg.com, 2019).

Tesla has embarked on a new phase of construction work at the factory in a sign of confidence in its China strategy. The new facilities will include battery pack production units, according to a company source and documents. The so-called 1.5-phase works, which have not previously been reported, include a production workshop and an energy center, construction documents showed. Construction is scheduled for completion by around the end of this year. Tesla also is looking to hire battery-related production engineers in Shanghai, according to its job advertisements.

The plant, which Tesla says will be simplified and more cost-effective than its existing Model 3 line, will have 500,000 units of annual capacity when the second phase is completed, doubling from initial phase capacity of 250,000 vehicles. The factory, China’s first fully foreign-owned car plant, is a reflection of Beijing’s broader shift to open up its car market. Shanghai authorities have offered assistance to speed up construction, and China excluded Tesla models from a 10% car purchase tax on Aug. 30. State partners of the Tesla project include Shanghai Construction Group China Construction Industrial and Energy Engineering Group, State Grid Power Construction Corporation of China, and Minmetals’ Shanghai unit Baoye, according to multiple sources involved in the construction project.

In conclusion, it can be asserted that the high pressures for cost minimization and low pressures for the local responsiveness have allowed Tesla to adopt an international standardization plan. The organization has successfully focused its production abilities and created operational and technological synergies that allow for economies of scale and experiences that curve the cost savings. Particularly, three homogenous transnational customer segments, have been targeted by a restricted range of items that rely on unique core competencies and value-added services to distinguish themselves for that of rivals. The strategy used by Tesla in global expansion depends on the deployment of networks of charging stations to augment consumer perceived value. Although the organization encounters low pressure for local responsiveness, the company is subject to national regulations, especially concerning its autopilot facets and government incentive programs to buy EVs.Tesla’s global expansion plan further places adverse pressures on its cash resources that questions the sustainability of the organization’s business framework. Lastly, repeating delays in the calling of productions leads to frustrations amid customers and can undermine the organization’s brand reputation on which it depends to overcome customer reluctance.