Tesla’s Business Approach To China’s E-Car Market And Its Impact

Since the dawn of the 21 st Century,there have been steady efforts to phase out internal combustion engine cars and replace them with electric cars.This is in part to consolidate the march towards clean energy which will,among others,notably lead to less environmental pollution.While prominent global ICE companies,such as Toyota,Mercedes-Benz and a few others have started producing hybrid and electric cars,companies such as Tesla,Inc.have emerged that are exclusively involved in the manufacturing of electric cars.Since its 2003,Tesla has largely operated in its domestic US market where demand for its cars has been boosted by supportive local government policies and incentives.Tesla also has a significant and growing presence in Europe and,in April 2014,made its foray into the Chinese market.Following the public release of Tesla’s development strategy in July 2016,which,among other things,comprises its long-term global strategy and expansion plan,Tesla signaled that its core competitive factors align with Chinese government plans for the development of China’s electric car industry.Indeed,Tesla’s core competitiveness is in its total industry chain technology integration and whole business mode innovation.It goes without saying that beginning with the 2006 unveiling of Tesla’s Roadster,and the later introduction of its Model S and Model X,the company has grown to own the global high-end electric car market,boosting and entrenching its global reputation and indirectly engendering expansion in the low-end side of the market.Thus,in more ways than one,Tesla and China are made for each other-what could be indeed referred to as a match made in heaven! The Chinese government has come up with a plan to make the country a leading producer of hybrid and all-electric cars,including electric buses.For example,in Shēnzhèn,which is headquarters to China’s leading hi-tech companies,all public buses went electric by December 2017 and just this January 2019,the city’s Transport Commission announced that 99% of its more than 21,000 taxis are now e-cars! In fact,as of April 2018,China accounted for well over 34% of all electric cars sold in the world! And,by the end of 2018,Chinese consumers bought 1 million electric cars! China’s government has identified the development of new energy vehicles in general and electric vehicles in particular as a major national strategy.Within the next decade,in part to curb air and environmental pollution,the Chinese government plans to increase annual sales of electric vehicles and hybrids up to ten times.Enter Tesla.Thanks to Tesla’s open source policy,China’s electric vehicle industry is surely poised not only to be immersed in the most advanced global technologies in the industry,but also boost the country’s well-touted pragmatic concept of deepening reform and enhancing global collaboration,and providing a somewhat level-playing field which will,in turn,enhance innovation and thus strengthen China’s quest to become a global electric vehicle industry leader.This paper reviews some existing literature on Tesla’s entry into and expansion in China’s e-car market and its repercussions on both Tesla and China.It also discusses the evolution of the Tesla-China relationship and the background of the various milestones reached thus far.The paper discusses in detail the agreement that resulted in Tesla’s Shànghǎi Gigafactory becoming the first wholly foreign-owned car plant in China,including the specific agreement with the Shànghǎi City Government for the allocation of land for the construction of the Gigafactory in Língǎng,in the city’s New Pǔdōng District.Using Michael Porter’s Diamond Model and Five Forces Analysis,the paper analyzes the effects of Tesla’s Business Strategy on China’s e-car market and,finally,drawing on the empirical research conclusions,the paper discusses the prospects for Tesla’s continued advancement in China.