Tesla Motors in Norway: PESTLE Analysis

Tesla Motors in Norway: PESTLE Analysis

 

 

Tesla Motors Norway

Tesla Motors specialises in designing, developing, manufacturing and selling electric vehicles and energy storage systems. The company has established market presence in different countries. One of the markets in which the firm operates includes Norway (MarketLine 2015).  Tesla has managed to attain an optimal market position within the Norwegian automobile market. The firm has developed a comprehensive product portfolio that is comprised of different product categories that include; powertrain development and sales, Model X, Model S, stationary energy storage applications, and Model 3 (Esther 2013). Tesla motors undertake continuous research and development in an effort to develop automobiles that enhance the company’s competitiveness.  Currently, Tesla is focusing on producing and selling the Model S sedan, a fully electric 4-door, 5-adult passenger car. Model X entails a sport utility car that is characterised by improved functionality because of the electric features. On the other hand, Model 3 entails a third-generation electric vehicle, which is projected to be launched in 2017. The firm has also targeted home, utilities and commercial sites through its stationary energy storage products, which provide backup power. Apart from developing its own automobiles, Tesla has also targeted other automobile companies by designing and developing electric powertrain systems on their behalf (MarketLine 2015).  

 Over the past few years, the company has been experienced significant fluctuation in its performance. In 2014, the company’s sales revenue amounted to $3, 198.4 million which represents a 58.8% increase over 2013. Nevertheless, the company’s net loss in 2014 amounted to $294 million compared to a net loss of $74 million in 2013 (MarketLine 2015). This indicates that the firm performed significantly poor over the past few years.  Despite the overall poor performance experienced by Tesla Motors in the global market, the company’s performance in the international market can vary from one foreign market to another. This arises from the fact that foreign markets are characterised by varying market dynamics as a result of the prevailing macro-environmental characteristics. This paper evaluates the impact of macro-environmental factors on Tesla in Norway. The analysis is done on the basis of the PESTLE model.

PESTLE Analysis

Political factors

The prevailing political environment in a country may affect businesses’ operations either directly or indirectly. This impact arises from the different policies made by the government (Detar 2016).   Tesla is likely to benefit from the supportive government policies on development of electric cars. The Norwegian government has formulated a policy that support issuance of subsidy to companies that invest in designing and manufacturers of electric cars. Moreover, Holtsmark and Skonhoft (2014) accentuate that ‘electric cars are treated much more leniently in Norway’ (p. 160). This aspect is underlined by the fact that the cost of purchasing electric vehicles is tax exempted.  Additionally, electric vehicles are exempted from paying parking fees within the country’s city centre, offered free charging for the vehicles’ batteries and provided with enormous driving privileges. For example, electric vehicles can use ferry connections and toll roads in Norway for free (Holtsmark & Skonhof 2014). As a result of this subsidy policy, the demand for electric vehicles in Norway has increased substantially as illustrated by table 1 and graph 1 below.

Table 1

	Number of conventional cars	Number of electrical vehicles
2011	138, 345	1996
2012	137,967	3950
2013	142,151	7,882

Table 1

Graph 1

Source: (Trading Economics 2016)

Table 1 and graph 1 indicates that integration of the aforementioned government policies on purchase of electric vehicles has played a fundamental role in increasing the volume of sale for electric vehicles compared to conventional vehicles. This aspect presents a unique opportunity for Tesla to increase its sales due to growth in demand for electric vehicles within the Norwegian market.

Economic factors

Tesla’s success in Norway is also likely to be affected by economic factors. One of the factors likely to affect Tesla’s operation entails the rate of inflation. Norway has been characterised by significant fluctuation in the rate of inflation. For example, the rate of inflation with reference to transport increased by 2.6% in 2016 from 2.3% in 2015. The average rate of inflation in the country from 1950 to 2016 is estimated to be 4.67% (Trading Economics 2016). The graph below illustrates the trend in the country’s rate of inflation from January 2016 to October 2016.

Graph 2

Source: (Trading Economics 2016)

From the graph, Norway has been characterised by a relatively stable rate of inflation. This means that Tesla’s automobile products are likely to be characterised by minimal fluctuation in the prices. Norway has experienced a considerable improvement in the rate of economic growth as evidenced by the stability in the country’s Gross Domestic Product (GDP). However, in 2015, the country’s GDP declined significantly from a high of $500.52 billion in 2014 to a low of $388.31 billion as illustrated by graph 3 below: (Trading Economics 2016). This aspect is likely to affect the consumers’ purchasing power and hence the demand for electric vehicles in 2016.

Source: (Trading Economics)

Social factors

Norway is experiencing a remarkable change in consumer tastes and preferences with reference to automobiles. A significant proportion of consumers in Norway are inclining towards purchase of energy efficient vehicles.  According to Jolly (2016) it is estimated that approximately 20% of all cars sold in Norway are electric cars. This trend has arisen from increase in the cost of fuel.  In addition to customers’ preference to energy efficient vehicles, it is imperative for Tesla Motors to ensure that it delivers the customer promise. In September 2016, Tesla Motors in Norway was sued for the failure of its car models to deliver the ‘insane mode of acceleration’ as promised in the company’s advertisement. The customers argued that the car did not go fast enough (Walsgard 2016).  As a result of the lawsuit, the company was ordered to compensate the claimants (Maurer 2016). This indicates that customers are extensively concerned about product information provided through advertisement. To gain an edge in the Norwegian market, it is imperative for Tesla to desist from misleading advertisement. According to Murthy (2009) misleading advertisement can significantly reduce customer trust.

 

Technological factors

The market for new cars in Norway is undergoing remarkable evolution as a result of increased innovation and technological development. One of the notable technological changes relate to development of hybrid and electric cars.  Automobile companies in Norway such as Toyota Motors are increasingly investing in research and development in an effort to develop energy efficient vehicles (Holtsmark & Skonhof 2014).  The research and developments largely focus on different sources of energy for automobiles such as nuclear, electric, and hydro amongst other technologies. One of the areas of technological innovation that is likely to affect Tesla Motors relate to battery technology. Tesla Motors to consider investing in extensive research and development with reference to improvement in battery technology. This move will enhance the company’s future competitiveness.

Legal factors

Tesla’s operations in Norway are subject to the prevailing laws and regulations. Thus, the firm’s management team has a responsibility to ensure that it complies with the stipulated laws.  In an effort to promote trade with European Union member states, the Norwegian government affirmed its commitment at reducing greenhouse gas emissions by a margin of 40% below the emissions in 1990 by 2030. A study conducted by the Norwegian Environmental Agency shows that Norway has experienced a 4.6% increase in the volume of greenhouse gas emissions from 1990 (Norwegian Environmental Agency 2014).  

The government intends to achieve this goal through implementation of significant reduction in carbon emissions arising from different sources amongst them the transport sector (Climate Action Tracker 2016). The government’s policy to reduce greenhouse gas emission presents an opportunity for Tesla Motors. This arises from the fact that the legislation will create an increase in demand for energy efficient vehicles and other products such as energy storage products.

 

Environmental factors

            Norway is one of the European countries that are focused on achieving a green economy. In line with this goal, the Norwegian government has implemented policies aimed at protecting the economy by minimising the rate of environmental pollution.  One of the areas that the Norwegian legislators are concerned with relate to elimination of petrol and diesel engine cars (Giest 2016). Enactment of such legislation is likely to have a positive impact on Tesla’s performance in Norway. This arises from the fact that the demand for its automobiles will increase substantially.

Conclusion

Analysis of the macro environment in Norway indicates that the prevailing political, economic, social, legal, environmental and technological environments will have a positive impact on Tesla’s future performance. The government policy to offer subsidy to electric vehicle customers and to reduce greenhouse gas emissions will significantly increase demand for the firm’s electric vehicles and products.  The demand will further be strengthened by increase in consumer preference for energy efficient automobiles. Thus, Tesla is likely to experience a remarkable increase in the volume of sales in Norway. To achieve a competitive edge in Norway, it is imperative for Tesla Motors to ensure that it complies with the stipulated laws and regulations. Moreover, the firm should ensure that it delivers the customer promise.

 

References

Climate Action Tracker: Norway 2016. [Online]. Available at: http://climateactiontracker.org/countries/norway.html (Accessed December 9, 2016).

Detar, J 2016, ‘As Tesla leaves diesel luxury cars in the dust, Germany offers EV subsidies’, Investors Business Daily, vol. 3, no. 5, pp. 1-2.

Esther, F 2013, ‘Tesla Motors brings revolutionary supercharger to Europe with launch across Norway’, Automotive Industries, vol. 4, pp. 527-528.

Giest, R 2016, Norway minister; petrol and diesel engines in cars are a thing of the past. [Online]. Available at: https://www.euractiv.com/section/transport/interview/thursday-special-report-norway-minister-petrol-and-diesel-engines-in-cars-are-a-thing-of-the-past/ (Accessed December 9, 2016)

Holtsmark, B & Skonhoft, A 2014, ‘The Norwegian support and subsidy policy of electric cars. Should it be adopted by other countries’, Environmental Science & Policy, vol.42, pp. 160-168.

Jolly, D 2016, Norway is a model for encouraging electric car sales. [Online]. Available at: <http://www.nytimes.com/2015/10/17/business/international/norway-is-global-model-for-encouraging-sales-of-electric-cars.html?_r=0> (Accessed December 9, 2016)

MarketLine 2015, ‘New cars industry profile: Norway’, Industry Profile Norway, vol. 2, pp. 1-37.

Maurer, B 2016, Tesla continues to mislead customers. [Online]. Available at: http://seekingalpha.com/article/3986603-tesla-continues-mislead-consumers (Accessed December 9, 2016)

Murthy, B 2009, Advertising; an IMC perspective, Excel Books, London.

Norwegian Environmental Agency : Knowledge base for low carbon transition in Norway 2014. [Online]. Available at: <http://www.svt.ntnu.no/iso/anders.skonhoft/Environmental%20Science%20and%20Policy%20814.pdf> (Accessed December 9, 2016)

Trading Economics: Norway GDP 2016.  [Online]. Available at:  <http://www.tradingeconomics.com/norway/gdp> (Accessed December 9, 2016)

Walsgard, J 2016, Tesla sued by Norway car owners as speed is not insane enough. [Online]. Available at:   https://www.bloomberg.com/news/articles/2016-09-21/tesla-sued-by-car-owners-in-norway-as-speed-not-insane-enough (Accessed December 9, 2016)