Student Name Term Project Writing Sample BUS 4150 – XX
(Prepared by Professor Yuanyuan Li)
Tesla Investing in China
Student Name
1. Introduction
Tesla is a game-changing business in the automobile industry. Its idea about using a renewable-
energy-powered engine without sacrificing the vehicle’s speed made it a miracle in human
history. In many people’s eyes, Tesla is a tech-giant with courage. Despite several years of low-
profit margin, Tesla launched its foreign manufacturing subsidiary in China. Like all the other
emerging markets, China represents both opportunities and challenges to foreign companies.
China is the world‘s largest automobile market, followed by the United States (Wagner, 2020).
However, its lack of policy stability and intellectual property protection make China still a risky
host location for many foreign businesses, especially technology-intensive ones. This paper
intends to analyze whether China is a desirable host country for Tesla and what strategies should
Tesla adopt to minimize host country risks.
2. Company Background
In 2003, Tesla was founded in San Carlos, California, by engineers Martin Eberhard and Marc
Tarpenning. The founders wanted to prove that people could drive electric vehicles without
sacrificing certain capabilities offered by gas-powered automobiles – that electric vehicles can be
better, quicker, and more fun to drive (Wikipedia, 2019). Tesla’s long term mission was, and still
is, to accelerate the world’s transition to renewable energy. Today, led by its iconic CEO Elon
Musk, Tesla builds all-electric vehicles and clean energy generation and storage products using
the world’s cutting edge battery and electric powertrains.
In the U.S., Tesla is not one of the four major players (Toyota, Honda, Ford, and GM) in
the automobile industry (Egan, 2020). This can largely be attributed to its price range. Tesla has
four models. They are the Model S, Model 3, Model X, and Model Y. The average price of the
Model S is 250,000 USD. Tesla’s objective was to reinvent the image of the electric vehicle
(EV) – that EV not only can be an eco-friendly passenger car like Camry Hybrid but also could
be a luxury and high-performance sports car. However, Tesla never intends to give up the
traditional passenger car market. In 2017, the company unveiled its landmark achievement –
Model 3. Model 3 is the company’s low-price but the high-volume luxury electric vehicle, priced
at around 35,000 USD. Using Schumpeter (1934) language, once achieving economies of scale,
model 3 of Tesla can be a disruptive innovation in the vehicle market and re-write auto
manufacturing history.
Nonetheless, whether this smart toddler can survive the fierce competition and become a
real giant is in question. In the last five fiscal years, Tesla has endured a total net income loss of
roughly 4.8 billion dollars. This has occurred for two reasons: low-profit margins and high
Commented [Y1]: Need a title
Commented [Y2]: Your name is needed for you to receive
the points for this assignment.
Commented [Y3]: You should have an introduction of the
article to give readers a general idea on what your articles is
about.
Commented [Y4]: Wikipedia is a good source. Other
source includes IBISWorld and EBSCOhost. If the firm is
public listed, you can use the company’s annual report (“10–
k”) for financial information etc.
Student Name Term Project Writing Sample BUS 4150 – XX
(Prepared by Professor Yuanyuan Li)
amounts of startup costs/ infrastructure debt. While revenue for the firm has increased from 3.2
billion in 2014 to 21.46 billion in 2018, the cost of goods sold percentage has held roughly
eighty percent of income during that time. This means that Tesla has outstanding issues in
achieving economies of scale in the United States, and thus extremely difficult to sustain its
profit in the long run.
3. Country-level Analysis – Is China a desirable host country for Tesla?
On top of its competitive position issues in the domestic market, Tesla announced its entry plan
to China. In June 2018, Tesla and the Chinese government had agreed to a groundbreaking deal.
The company would open a two-billion-dollar manufacturing facility in Shanghai for its high–
volume Model 3 line. In the following paragraphs, I would like to focus on selected factors in the
PESTLE analysis to analyze whether China is a desirable location for Tesla.
3.1 Positive factors
3.1.1 Economic factor
Based on new car registration statistics, China has been the largest passenger car market in the
world. Although China’s electric vehicle buyer power is ranked as a medium, Chinese
Commented [Y5]: You must have a section for country-
level analysis. We spent half of the semester discussing
country-level factors. We learnt PESTLE analysis. I have also
attached a more advanced framework: institutional
distance. Please feel free to choose either one of the
framework.
Commented [Y6]: I have used PESTLE as an example here.
The take-away is (1) you do not need to use all six factors.
Only choose those that you think is relevant. Please see
legal factor for take-away (2).
information for international markets (non-US markets).
