THE BUSINESS ENVIRONMENT

Word Count: 2004.

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Executive Summary
For every business organization, analyzing the business environment is essential. The business
environment includes both micro and macro aspects, both of which have an impact on how a
business operates. In that circumstance, companies should exercise greater caution while
managing environmental problems. To address the circumstances of its business environment,
Tesla utilizes a sustainable method. Additionally, the company's internal competency is quite
strong, and favourable macro-environmental conditions have enabled it to enter the world
market. However, the international trade position of Tesla is not that strong due to its less
presence in the global market.

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Table of Contents
Executive Summary.........................................................................................................................2

Introduction......................................................................................................................................4

Industry Analysis of Tesla...............................................................................................................5

Porter’s Five Forces Model.........................................................................................................5

SWOT Analysis of Tesla.............................................................................................................6

International Trade Market Position of Tesla..................................................................................7

Political and Economic Factors Assessment of Tesla in case of Growth and Expansion...............7

Social and Environmental Factors Assessment of Tesla in case of Development..........................8

Recommendations............................................................................................................................9

Conclusion.....................................................................................................................................11

References......................................................................................................................................12

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Introduction
The business environment consists of the factors that revolve around a business organisation.
Considering the elements of the business environment is very necessary for the decision-making
of a business. In this report, the business environment of Tesla will be discussed both from a
micro and macro perspective in the case of international business. Tesla is an American
automotive company which focuses on renewable energy to power its vehicles such as
electricity. The company was founded in 2003. Currently, Tesla is one of the most renowned
automobile brands in the world for manufacturing environmentally sustainable EVs. The
company has come a long way to reach its current position in the automobile market due to its
precision in case of analysing the business environment while making decisions.

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Industry Analysis of Tesla
Tesla is one of the most prominent automobile makers in the world with its promising EV
technology. However, the automobile industry is full of diverse automobile makers starting from
Chinese brands such as Geely, FAW etc. to Renowned US brands such as Ford, GM etc. And all
these companies are available worldwide. And compared to other automobile brands and
companies, Tesla is relatively new to the arena. Tesla mainly competes in the automotive
industry with its electric cars, SUVs and trucks (Aldahwan and Ramzan, 2021). The main
competitive advantage that Tesla holds is in its technology. Tesla provides more economically
efficient cars compared to other EV brands. However, Porter’s five forces analysis can help to
understand the market, competitors and customers of Tesla.

Porter’s Five Forces Model

Bargaining Power of Customers

Customers have relatively more bargaining power over Tesla in terms of choosing alternatives
(Aleshchenko et al, 2021). But if Tesla’s brand value is considered, there are fewer opportunities
to bargain about the quality of the vehicles that Tesla provides to the customers alongside the
insurance for a car and the repair warranties.

Bargaining Power of Suppliers

Tesla has significant bargaining power over its customers (El-Khalil and Darwish, 2019). One of
the main ingredients or form factors for Tesla’s batteries is lithium which they source from
various suppliers and provide Tesla with a bargaining power over its suppliers as Tesla has
diversified its supplier base.

The threat of New Entrants

There are no significant threats of new entrants in the case of Tesla (Esmail et al, 2018). But after
Tesla introduces its EV vehicles, many renowned brands entered into the production of EV
vehicles which has created various difficulties for Tesla in the past.

Threat of Substitute

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The threat of substitutes is high in the case of Tesla. Tesla is relatively new with its technology
in the market. The automotive market is dominated by companies like Toyota, Honda, Ford,
BMW etc. These companies are superior to Tesla in the case of brand value (Kim et al, 2018).
So, there is a huge threat of substitutes for Tesla.

Overall Competition in the Industry

The overall competition in the automotive market is very tight with a lot of alternatives and a lot
of options from a lot of renowned brands. In that case, Tesla is trying to dominate the market by
offering economically sustainable vehicles and the guarantee to repair the cars of the customers
(Kirca et al, 2020). However, Tesla is not available everywhere in the world and if a customer
from Asia wants to buy Tesla cars, it will have to go through a lot of hassles and the price that
needs to be paid will be higher due to trade barriers. Summing up the matter, Tesla is currently in
a very highly competitive market.

SWOT Analysis of Tesla

A SWOT analysis can show the competitive advantage and disadvantages of Tesla more clearly.

SWOT
Strengths Weakness
Tesla’s main strength lies in its vehicle Tesla has less access to the global market
design, especially in its batteries. Tesla makes compared to other competitors which are
efficient batteries which are quick to charge making it difficult for Tesla to reach potential
and consume less electricity to run the motor customers in the global market (Aleshchenko
(Aldahwan and Ramzan, 2021). et al, 2021). Again, the prices of Tesla EVs
are high compared to other substitute
products.
Opportunities Threats
There are opportunities for Tesla to dominate Car production is heavily dependent on
the automotive market with its solar charging technology. The recent silicon shortage has
system which it has provided in its Tesla reduced car production by a lot (Esmail et al,
truck (El-Khalil and Darwish, 2019). If Tesla 2018). It can hamper the activities of Tesla’s
can develop this feature in more small form mega factories.

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 factors such as cars, it will help Tesla to gain
a competitive advantage.

International Trade Market Position of Tesla

Tesla is an automotive company which serves the global automotive market. Tesla has a distinct
international trade situation. Tesla sources its raw materials from various countries but most of
the raw materials are sourced from China and Japan. China supplies the raw materials for
batteries which is lithium and Japan supplies the raw materials or parts for different purposes in
designing the cars. However, Tesla is maintaining a distinct and positive trade balance in case of
its international trade. It sources a few materials through international trade and makes most of
the materials in its factory (Srivastava et al, 2020). Tesla has mega factories in Germany and
California focused on making batteries, and parts as well as assembling the vehicles. Tesla
primarily serves in the US, Canada, Norway, China and Germany. In these locations, Tesla has
its factories and from these locations, Tesla serves the other foreign markets. From Tesla’s
website, a customer can order a car from anywhere in the world. But there are difficulties in
doing so (Riley, 2021).

There is recent news about Tesla taking a deposit of 84 USD while ordering a car in South Korea
but if the order is cancelled, the customers are not getting back their pre-order money which has
kept Tesla in a controversial position in the international market. The international market is
mostly dominated by Japanese brands alone due to their availability and their affordability. Even
in the US market, Toyota is more sold than the locally originated brands (Paik, 2020). In the case
of Tesla, it is not available to mass people and the prices are somewhat higher compared to other
brands, especially the Japanese brands. And, again, Tesla has less market presence in important
points of the global market which makes it difficult for the company to reach their potential
customers in the global market.

Political and Economic Factors Assessment of Tesla in case of

Growth and Expansion
Political Factors

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Tesla has a very supportive political environment in its origin country in the US. The US
government provides ample support for global expansion and growth. Tesla has gotten various
support from the US government the government had provided the opportunity to start-ups with
necessary loans and incentives and also provided tax rebates for investing in startups. Again, the
US has very stable political rules and regulations even if the government changes it does not
affect the internal business environment. And, all the US governments have been very supportive
of the development of businesses from the very start (Newburry et al, 2019). Again, the US
government has strong trade agreements with various important countries and trade areas around
the world which has helped Tesla to easily penetrate the global market with its products. Due to
this Tesla has been able to penetrate the global market with fewer difficulties.

Economic Factors

The economic environment for Tesla is very supportive in its origin country. Tesla is a US-based
company. Economic factors like inflation rate, the exchange rate of USD, the economic system
etc. have affected the growth and expansion of Tesla. USD is the standard currency for global
trade and it is the most stable currency in the world with a high value over the currency of most
the low-cost areas which has given Tesla a profound advantage in case of importing raw
materials and as well as in case of summing up the returns from other global subsidiaries
(Motors, 2015). However, the high inflation rate in the UK is making it difficult for Tesla to
maintain its price in the global market and it is becoming more difficult to achieve economies of
scale through increasing production.

Social and Environmental Factors Assessment of Tesla in case of

Development
Social Factors

In the case of social factors, Tesla has earned itself a good and positive social perspective from
the customers. The company relies on renewable sources of power to make its cars which has
attracted the customers in the case of sustainable and green vehicles (Kirca et al, 2020). Again,
Tesla has a good brand value which attracts customers to buy its cars due to social aesthetics and
to maintain class. Tesla always targets high-end societies by advertising their cars. Tesla tries to

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keep the prices high for the initial and new product lines and then reduce the prices gradually by
introducing successive products of the same product line. In that way, it targets both the high-end
and affordable sections of society (Kim et al, 2018). Again, Tesla provides insurance for their
cars and this insurance covers the hospital cost and the repair cost of the Tesla cars which has
helped Tesla to have a positive impact on the social outlook of the people.

Environmental Factors

Tesla’s vehicles are heavily environmentally sustainable. They use renewable sources of power
and also uses sustainable charging system for their cars which help to keep the environment
pollution-free. So, there are fewer opportunities for governments to charge Tesla for
environmental pollution (Esmail et al, 2018). And, it is a good advantage for Tesla to enter
various foreign markets to introduce sustainable vehicles. These environmentally sustainable
vehicles are very important key points which have helped Tesla to enter various foreign markets.
Tesla Inc.'s ecological factor has a direct impact on its political and economic elements.
Environmentally friendly Tesla automobiles rely more on electricity and less on fuel (El-Khalil
and Darwish, 2019). As a result, customers have a chance to receive a special tax credit for
driving an electric vehicle.

Recommendations
Tesla’s business model is more or less future-proof to sustain its environment. But the world
economy is going through a very critical phase which can affect Tesla’s business environment
very badly. In that case, Tesla can use some recommendations to improve its business strategy to
“Survive and Thrive”:

Making Cars More Affordable: Tesla should make their cars more affordable to target the
middle class and the volume zone people of the consumer pyramid. In that case, Tesla may need
to diversify its product line a bit more. But it will be helpful for Tesla as in the time of inflation
and economic distress the sales of the affordable sections will see less downfall.

Diversifying the Product Portfolio: Tesla should diversify its product portfolio in the case of
vehicles. Tesla has fewer varieties of products and the price range is also less diversified which

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is offering fewer options for the customers. If Tesla wants to enter the emerging markets, it will
have to use an adaptive business strategy to introduce products that can attract more people.

Using Arbitration: Tesla should use arbitration to outsource the materials and parts of its
products from the low-cost areas of the world. Emerging markets are good places for using
arbitration as these countries welcome FDI more than others. It will help Tesla to adopt a cost
leadership strategy.

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Conclusion
Analysing the business environment is very necessary for every business organisation. Both
micro and macro factors are important elements of the business environment and these factors
can affect the operations of a business. In that case, businesses should be more careful about
dealing with environmental factors. In the case of Tesla, the company uses a sustainable
approach to meet the situation of its business environment. And, internal competency is very
strong alongside its supportive macro-environmental factors which have helped the company to
reach the global market.

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References
Aldahwan, N.S. and Ramzan, M.S., 2021. Factors Affecting the Organizational Adoption of
Secure Community Cloud in KSA. Security and Communication Networks, 2021.

Aleshchenko, L.O., Averchev, O.V., Boiko, V.O., Bolila, S.Y., Borovik, L.V., Cheremisin, O.V.,
Debela, I.M., Dymova, H.O., Kaplina, A.I., Karnaushenko, A.S. and Petrenko, V.S.,
2021. Global aspects of national economic development in the conditions of transformational
changes.

El-Khalil, R. and Darwish, Z., 2019. Flexible manufacturing systems performance in US

automotive manufacturing plants: a case study. Production planning & control, 30(1),
pp.48-59.

Esmail, H.A.H. and Shili, N.N.J., 2018. The relationship between happiness and economic
development in KSA: a study of Jazan region. Asian Social Science, 14(3), pp.78-87.

Kim, C.K., Jang, S. and Kim, T.Y., 2018. Site selection for offshore wind farms on the southwest
coast of South Korea. Renewable energy, 120, pp.151-162.

Kirca, A.H., Randhawa, P., Talay, M.B. and Akdeniz, M.B., 2020. The interactive effects of
product and brand portfolio strategies on brand performance: Longitudinal evidence from
the US automotive industry. International Journal of Research in Marketing, 37(2),
pp.421-439.

Motors, T., 2015. About Tesla. Retrieved November, 22, p.2015.

Newburry, W., Deephouse, D.L. and Gardberg, N.A., 2019. Global aspects of reputation and
strategic management. In Global aspects of reputation and strategic management.
Emerald Publishing Limited.

Paik, W., 2020. The politics of Chinese tourism in South Korea: political economy, state-society
relations, and international security. The Pacific Review, 33(2), pp.331-355.

Riley, A.K., 2021. US Automotive Industry: Threats and Opportunities in a New Age of
Uncertainty (Doctoral dissertation, Dartmouth College).

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Srivastava, S., Singh, S. and Dhir, S., 2020. Culture and International business research: A
review and research agenda. International Business Review, 29(4), p.101709.

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