PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. Tesla PESTEL analysis involves the analysis of potential impact of these factors on the long-term growth prospects of the alternative fuel vehicles manufacturer.
There is a wide range of political factors that can potentially affect automobile manufacturers. Specifically, political factors for Tesla include freedom of press, corruption and bureaucracy in local markets and trade unions activities. Moreover, home market lobbying practices by governments and trade controls also belong to the list of political factors that can affect Tesla.
Political Factors in Tesla PESTEL Analysis
Political stability is one of the most important political factors affecting the company. Tesla uses cobalt extensively as a raw material to build its Model S, Model X, Model 3 vehicles. About 58% of the world’s cobalt production comes from the Democratic Republic of Congo (DCR). According to a report by Amnesty International, cobalt rush has increased the cases of conflicts, corruption and child labour in Congo. Accordingly, it can be argued that political instability and warfare in Congo can create supply chain risk for Tesla in relation to cobalt, an important component for electric vehicles.
Government incentives for electric vehicles
Government incentives to promote vehicles run by alternative fuel due to negative environmental implications of CO2 emissions is a noteworthy political factor for Tesla. The impact of this factor is positive and so far Tesla was able to benefit to a maximum extent. For example, US government offers USD 7500.00 tax credits to every buyer of new electric vehicles as an incentive, but there is a cap of 200,000 deliveries of electric vehicles in the US for each automaker. Tesla was the first manufacturer to hit the threshold back in 2018. Thanks to the new incentive reform, Tesla is set to regain access to tax credit worth USD 7,000 on 400,000 more electric cars in the US.
International trade agreements
The bottom line for the alternative fuel vehicles manufacturer is subject to international trade agreements due to the global scope of its business operations. For instance, Tesla has been hit by trade war between the US and China under Trump administration to a considerable extent. The company has even sued to block the Trump administration from collecting tariffs on parts the electric car maker imports from China.
Tesla engages in lobbying in an attempt to influence external political environment to make it more favourable for its business. However, its lobbying budget is not as big as the budget of some other global vehicle manufacturers. Specifically, as illustrated in figure below, the electric automaker engaged only 24 lobbyists and spent just above USD 360,000.00 for lobbying activities in 2020.
Tesla lobbying spending and the numbers of lobbyists
The range of economic factors that can affect Tesla is diverse. These include changes in foreign currency exchange rates, tax rates, availability and quality of infrastructure for economic vehicle manufacturing and overall macroeconomic climate in the country. Moreover, decreasing costs of battery, inflation and interest rates and costs of labour are also significant economic factors with potential impact for car manufacturers.
Currency exchange rates
Changes in foreign currency exchange rates are one of the most noteworthy economic factors for Tesla. This is due to the international scope of business operations of the alternative fuel vehicles manufacturer. Although home market US remains as the largest market for electric car maker, the volume of sales from international markets are consistently increasing. Specifically, in 2020 the company made USD 6.66 billion sales in China, which is 21% of the USD31.54 billion total. Due to changes in exchange rates Tesla had foreign currency transaction gains of USD 334 million in 2020.
Tax rates and taxation policies are other factors directly affecting businesses. Tesla has been able to benefit from government tax incentives provided to electric car manufacturers to a certain extent. California Alternative Energy and Advanced Transportation Financing Authority Tax Incentives and Nevada Tax Incentives can be mentioned to illustrate this point. Particularly, Nevada Tax Incentives provide Tesla with substantial tax advantages in a way that it provides abatements for sales and use taxes, real and personal property taxes, and employer excise taxes, discounts to the base tariff energy rates, and transferable tax credits until the year 2034.
The availability of Zero Emission Vehicle (ZEV) credits in California can be mentioned as another external economic factor with direct implications for Tesla. Specifically, ZEV credits are tradable regulatory credits that provide financial benefits for the business. Additional external economic factors for Tesla include but not limited to the overall macroeconomic climate in the country, inflation and interest rates, cost of labour and rate of unemployment and others.
Decreasing costs of battery
The cost of battery has been decreasing and it is a significant external economic factor for the electric car makers. According to estimations by Bloomberg New Energy Finance report, the current price of USD137 per kilowatt-hour for lithium-ion will drop as low as USD 100 per kWh by 2023. There are other studies and forecasts that support this viewpoint. Decreasing cost of battery is going to increase the appeal of electric vehicles among the general population with potentially positive implications for Tesla.
Tesla Inc. Report contains a full version of Tesla PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Tesla. Moreover, the report contains analyses of Tesla business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of Tesla marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 Kay, A. (2018) “Top Cobalt Production by Country” Investing News, Available at: https://investingnews.com/daily/resource-investing/critical-metals-investing/cobalt-investing/top-cobalt-producing-countries-congo-china-canada-russia-australia/
 The Dark Side of Electric Cars: Exploitative labor practice (2017) Amnesty International, Available at: https://www.amnesty.org/en/latest/news/2017/09/the-dark-side-of-electric-cars-exploitative-labor-practices/
 Lambert, F. (2021) “Tesla to get access to $7,000 tax credit on 400,000 more electric cars in the US with new incentive reform” Electrek, Available at: https://electrek.co/2021/02/11/tesla-7000-tax-credit-electric-cars-us-incentive-reform/
 Tesla sues to block Trump tariffs on trade with China (2020) Los Angeles Times, Available at: https://www.latimes.com/business/story/2020-09-23/tesla-sues-block-trump-tariffs-china
 Source: Open Secrets (2021) Available at: https://www.opensecrets.org/federal-lobbying/clients/summary?cycle=2020&id=D000057516
 Cheng, E. (2021) “Tesla’s China sales more than doubled in 2020” CNBC, Available at: https://www.cnbc.com/2021/02/09/teslas-china-sales-more-than-doubled-in-2020.html
 Q4 and FY2020 Update (2021) Tesla Inc.
 Annual Report (2017) Tesla Inc.
 Kharaya, A. (2021) “Beyond Declining Battery Prices: 6 Ways to Evaluate Energy Storage in 2021” GTM, Available at: https://www.greentechmedia.com/articles/read/beyond-declining-battery-prices-six-ways-to-evaluate-energy-storage-in-2021