Tesla Strategy In China

Question 1

The current situation regarding Tesla’s involvement in China is very interesting (Du and Ouyang, 2017). This week was especially important due to the fact that there was confirmation from Tesla with regard to the fact that the Chinese government is allowing them to build a factory near the city of Shanghai (Du and Ouyang, 2017). It is a huge development as it would allow them to make sure that they can access the huge Chinese market with greater ease now.

The deal at the moment, though, is not confirmed, and if that happens, it is going to be one of the biggest achievements for Tesla in the coming time period (Moritz et al. 2015). The other major development that has happened currently is that there is confirmation with regards to the way the Chinese government is allowing Tesla to set up their shop in the free trade zone (Moritz et al. 2015). The rumors were circulating in this regard for a considerable amount of time as the electronic car maker has a clear agenda with regards to the Chinese market and how they want to enter into this market and capture the huge potential that this economy has to offer (Du and Ouyang, 2017).

The deal that they are going to set up with the Chinese Government is about making sure that three main objectives are achieved (Lin and Wu, 2017). The first objective is to make sure that their share in the Chinese market can be increased. The other thing that they want to achieve in this deal is to make sure that they are able to stay independent of China’s requirement of how foreign automakers are supposed to forge the JV with the manufacturers that belong to China. The third objective is to make sure that the proprietary and intellectual property rights of their electronic vehicles are protected (Du and Ouyang, 2017). The important thing that needs to be noted is that China itself is becoming more and more flexible in terms of the way they are going to be operating at the global scale now and how it is going to allow foreign companies to operate in its country (Du and Ouyang, 2017).

On Tesla’s part, they had carried out a deal with Tencent Holdings, which means that Tencent is going to be a major support as far as the expansion narrative of Tesla in the Chinese market is concerned (Jia et al. 2018). What Tesla seems to be planning at the moment is to make sure that they increase their production of the Model 3 small-scale Sedan, whose starting price is about $ 35,000, and it is supposed to charge about 220 miles per change range. It has to be noted that at the current moment, there are huge financial implications for Tesla to be operating in the Chinese market as the company is thinking about its production to increase by 500 % in the next year (Du and Ouyang, 2017).

Question 2

Now, as far as the production and the way it needs to be managed, it is an interesting scenario that Tesla has to make sure that they get it right. The way Chinese market is operating at the moment (Du and Ouyang, 2017); there are several key considerations that are needed to be taken into consideration (Jia et al. 2018). The way tax laws are working in China at the moment is pretty relaxed when it comes to facilitating foreign investors. Not only that, but the general environment and the new government’s approach are such that they are fairly liberal when it comes to their trade expansion (Du and Ouyang, 2017).

Coming to the way this whole thing is supposed to be managed, the key thing that needs to be kept in mind is how the municipality and the production facilities are going to work out in the given time period (Du and Ouyang, 2017). Not only that, but the cost of production that one gets to see in China is also fairly low (YANG and LIANG, 2017). All these things point out the fact that how China is a country that can be very good as far as the production perspective is kept in mind (Nunes et al. 2016). The other factor that needs to be kept in mind is the way the cost of production is going to work out. In China, the cost of labor and electricity is on the lower side, so eventually, the cost of production will always be lower (Du and Ouyang, 2017).

Keeping these considerations in mind, it would be better for Tesla to make sure that they do not keep their production at home and allow for setting up production plants in China (Du and Ouyang, 2017). If the production plants are set in China, another major advantage that is going to be happening is how, in the long run, it would turn out that when the cost of production is lower, the margins that Tesla expects to gain from this market is going to be severely increasing (Du and Ouyang, 2017). It has to be noted that China is one of the biggest markets in the world, and the way things are set up at the moment, there is significant earning potential that Chinese people have at their disposal (Winkler et al. 2018). So, the demand forecast for the region is quite positive. Not only that, but the financial stakes that Tesla is taking in the region are huge (Du and Ouyang, 2017). As they have support from the government and the local companies as well, it is worth that they should be willing to make sure that they consolidate their position in the electronic vehicle market in the Chinese region. It also goes with the CEO’s plan, where they see a considerable future for Tesla in the Chinese market (Du and Ouyang, 2017).

Question 3

At the moment, things are going fairly smoothly for Tesla in the Chinese market. There are a few things that Tesla could do to strengthen its hold in the Chinese market (Du and Ouyang, 2017). There must be an effort on Tesla’s part to make sure that they keep the prices at the initial level rather low in the Chinese market. Even though Tesla does not operate like that, it has to be noted that this is not the first time that companies have lowered their profit when operating in China to make sure that they are able to capture the market (Du and Ouyang, 2017). The idea is to make sure that the general consumer in China is able to have an insight into the product that they have at their disposal. The advantage that Tesla has over some of the other organizations is that while other companies would not be able to lower the price due to the higher tax rate, the sort of understanding that Tesla has with the Chinese government might work to their advantage (Du and Ouyang, 2017).

The other thing that needs to be done by them is to make sure that they do away with the traditional dealership model (Du and Ouyang, 2017). Tesla does not need any major dealerships due to the fact that it is one of the more established brand names, so the idea that should be their part is to make sure that they opt for direct selling (Du and Ouyang, 2017). Efforts must be made to make sure that they take control of the way marketing is working and set up their market channel, pretty much like the way Apple is currently operating in China (Han et al. 2014). Looking at the consumer profile of people in China, it can be seen that they are highly technical savvy, but at the same time, they are some of the more price-conscious customers (Han et al. 2014). As discussed in the earlier parts, if Tesla set up its production plant in the region, the lower cost of production would mean that it would be able to execute its business plan with a greater degree of ease. The key consideration that has to be kept in mind is how to make sure that proprietary issues are going to be resolved. This is where the sort of clout that Tesla enjoys in China is going to work out well to its advantage (Du and Ouyang, 2017).

The other major thing that Tesla needs to do in the Chinese market is to make sure that they get the market segmentation right (Tan et al. 2017). What it means is that the marketing interline has to be used by them to make sure that they are able to develop insight about the sort of pricing mechanism that they need to have at their disposal to make sure that they get their pricing right (Han et al. 2014). The market dynamics of the Chinese market are changing all the time, and the current market segments in China are based on income levels. What Tesla can do is target this market segment that values the efficiency of technology. The characterization of the market segment is another area where they have to look after (Du and Ouyang, 2017).

The security of the value delivery chain is another deliverable that they have to take care of in an appropriate manner (Han et al. 2014). The idea on their part is to make sure that they are able to deliver the quality stream in their business (Han et al. 2014). What it means is that the local partnership needs to be carried out in order to make sure that whatever value stream model they are working on is being looked after in the appropriate manner (Winkler et al. 2018). Tesla has always been one of the organizations that stresses technological advancement and makes sure that the personalized in-store experience is offered to the customer (Han et al. 2014). What needs to be done is that the same experience be replicated, and attempts should be made to make sure that the Tesla enthusiasts who reside in China are being looked after in the appropriate manner (Han et al. 2014). Tesla has amazingly adapted to this political environment (Jaruzelski et al. 2014). One must admit the dramatic change in attitude towards the Chinese government (Jaruzelski et al. 2014). To build a better relationship with the Chinese Government in the future, Tesla will have to consider both central and local factors (Jaruzelski et al. 2014).

Works Cited

Du, Jiuyu, and Danhua Ouyang. “Progress of Chinese electric vehicles industrialization in 2015: A review.” Applied energy188 (2017): 529-546.

Han, Weiqun, et al. “Demonstrations and marketing strategies of hydrogen fuel cell vehicles in China.” International Journal of Hydrogen Energy 39.25 (2014): 13859-13872.

Jaruzelski, Barry, Volker Staack, and Brad Goehle. “Proven paths to innovation success.” (2014).

Jia, Kai, et al. “The Application of Artificial Intelligence at Chinese Digital Platform Giants: Baidu, Alibaba and Tencent.” (2018).

Lin, Boqiang, and Wei Wu. “Economic viability of battery energy storage and grid strategy: A special case of China electricity market.” Energy 124 (2017): 423-434.

Moritz, Manuel, et al. “Tesla Motors, Inc.: Pioneer towards a new strategic approach in the automobile industry along the open source movement?.” Management of Engineering and Technology (PICMET), 2015 Portland International Conference on. IEEE, 2015.

Nunes, Breno, David Bennett, and Duncan Shaw. “Green operations strategy of a luxury car manufacturer.” Technology Analysis & Strategic Management 28.1 (2016): 24-39.

Tan, Xufei, et al. “Spontaneous Recovery from Unresponsive Wakefulness Syndrome to a Minimally Conscious State: Early Structural Changes Revealed by 7 Tesla Magnetic Resonance Imaging.” Frontiers in Neurology 8 (2017): 741.

Winkler, Dorothee, Florian Überbacher, and Andreas Georg Scherer. “The Role of Organizational Identity Claims in the Age of Ideological Complexity: The Case of Tesla.” (2018).

YANG, SHU, and CAI LIANG. “Analysis of the Competitiveness of Tesla Development Mode and Its Enlightenment to the Development of Chinese Electric Vehicle Industry.” DEStech Transactions on Environment, Energy and Earth Sciences epee (2017).