Tesla Motors Inc Macroeconomic Variables Analysis - Case Study Example

Tesla Motors Inc: Macroeconomic Variables Analysis Grade (March 17, Tesla Motors Inc: Macroeconomic Variables Analysis 1. Macroeconomic variables that affect the demand for and/or supply of the products or services produced by Tesla Motors Inc Tesla Motors Inc is a manufacture of electric vehicles, as well as electric train power components, which was established in 2003 in California USA, but only managed to launch its first vehicle in 2008 (Praem, 2014). There are various macroeconomic variables that affect Tesla Motors Inc. These factors include: Government regulations Government regulations stand as a major factor that affects Tesla Motors Inc. This is because; there are laws that have been established both at the federal and also at the state level, which requires that automotive companies to maintain their emission levels at certain rates (Department of Energy, 2011). In addition, other requirements, especially operating at the state level, provide for the automotive companies to produce a certain number of zero emission cars within a year. These regulations provide that; to the extent that an automotive manufacturer is not able to produce the emission free vehicles, they can purchase the free emission vehicles from the manufactures that earn excess credit ranking in this requirement (Praem, 2014). Consequently, since Tesla Motors Inc. operated from its base in California, the company is subject to these rules as issued by the State of California. Nevertheless, owing to the fact that Tesla Motors Inc is an electric cars manufacturer, the company is affected by these laws favorably, since it produces 100% of cars that are emission free (Praem, 2014). In this respect, Tesla Motors Inc earns additional revenues on its total sales, from selling the emission free cars to other automotive manufactures. Nevertheless, following the increased competition in the Electric car manufacturing in the recent years, coupled with the increased government sensitization that has seen a drastic reduction in emissions from manufactured cars, Tesla Motors Inc is facing the danger of revenue loss from this unconventional market segment (Praem, 2014). Supply limitation The other macroeconomic variable that affects Tesla Motors Inc is the supply limitation. The company operates in an especially sensitive industry, owing to the fact that there are only few specialized suppliers of electric car components, parts and materials. Thus, Tesla Motors Inc has been forced to be dependent on suppliers, most of whom are single-source suppliers that at times fail to deliver their supplies in the right qualities, quantities, specifications or the specified dates they are required to deliver (Tesla Motors Inc., 2013). The effect is that Tesla Motors Inc has been forced to delay its production of the electric cars, most notably the Model S, and for that reason has been unable to meet its projected production levels and satisfy the customer demands. The company started manufacturing the Model S electric car on June 2012, and by the end of September 2012, the company had only managed to produce 255 vehicles, and only delivered 132 to the customers (Tesla Motors Inc., 2013). The company targeted to deliver between 200 and 250 cars to the customers by the end of the third quarter, and deliver between 2500 and 3,000 vehicles by the end of the fourth quarter (Tesla Motors Inc., 2013). Nevertheless, it is highly unlikely that the targeted production and delivery will be achieved, owing to the fact that the supply limitation and its associated inconveniences delay the production process. A grapgh of Tesla Motors Inc Model S Maximum actual and projected production for the year 2012 The disparity between the actual production and the projected production as shown in the graph is too high. This simply means that with the existing trend of supply limitation, the company might be forced to adjust both the production and forecast goals, again due to the future delays (Tesla Motors Inc., 2013). The implication is that such production adjustments might taint the reputation of the company. Consumer income The consumer income is another macroeconomic variable that affects Tesla Motors Inc. The initial cost of an electric car has been perceived as higher compared to that of a gasoline car, despite the fact that an electric car might be economically efficient in the long-run (Praem, 2014). Additionally, it has been considered that the costs of purchasing car parts, spares and other components of an electric car are high, while the accessibility of such parts is also limited. Consequently, few consumers who earn average income will be able or even willing to purchase an electric car, due to these cost implications, when compared to the gasoline cars (Praem, 2014). In this respect, the gasoline cars sold in the USA market in 2014 were much higher compared to the electric cars. A grapgh of Electric Vs Gasoline cars sold in USA in 2014 Therefore, the income level of the consumers has meant that the consumers prefer to purchase gasoline cars compared to electric cars. In addition, the level of consumer income also affects Tesla Motors Inc, owing to the fact that the consumers will prefer to purchase the electric cars from a company that seems to be cheaper (Tesla Motors Inc., 2013). This has made the electric car industry in the USA to be very competitive, with Tesla Motors Inc only taking the second position in total electric car sales in the USA, in 2014. A grapgh of Best Selling Electric Car Companies in USA in 2014 2. Find historical data (three to five years) for these variables for one of the countries in which your company or industry has a major presence. Develop your own graphs and/or tables showing the data, and discuss how the variables have changed over the period you are examining. Change in government regulations Government regulation is a macroeconomic variable affecting Tesla Motors Inc, which has changed tremendously over the last three years. In the 2011 state of the union address, President Obama stated that one of the target of his government was to have over 1 million electric vehicles on the USA roads by 2015 (Department of Energy, 2011). Change in Electric Vehicle sales in USA; 2012-2014 Subsequently, the government has come up with other regulations and policies that have provided support for the development of the electric vehicle industry in the USA, such as offering federal tax rebates of up to $7,500 for all the electric vehicles purchased in the USA since 2010 (Department of Energy, 2011). This has seen a tremendous increase in the number of electric vehicles purchased by the USA customers since 2012. Change in suppliers In the state of nation address of 2011, President Obama pledged to support the electric car industry, towards the realization of the vision of having over 1 million cars in the USA roads by 2015 (Department of Energy, 2011). To this effect, President Obama pledged $2.4 billion for supporting the industry, out of which $1.5 billion was a grant to the USA electric car parts manufacturers and suppliers, so they can in turn deliver high quality electric batteries for the electric vehicle producers (Department of Energy, 2011). Further, $500 million out of this pledge would be offered to the manufacturers of the electric car parts and suppliers, so they can manufacture and supply other electric car components that are in short supply (Department of Energy, 2011). Consequently, the number of the major electric car parts and components suppliers has grown immensely. Most notably, the major electric car part wholesalers have increased greatly between 2012 and 2014. Change in the number of Major Electric Car Parts Whole Suppliers change in USA; 2012-2014 Change in consumer income The change in the consumer incomes in the USA has registered mixed results over the last decade. While the median household income for the USA had peaked in 2007, at a median household income of $52,250, the subsequent median household income has been consistently low (Department of Numbers, 2014). A graph of change in the real median household income for the United States; 2012-2014 3. Compare changes in the macroeconomic variables to changes in the company data you collected in analysis papers one and two. What observations can you make about the effects of movements in macroeconomic variables on the company’s performance? The effects of movements in macroeconomic variables on the company’s performance are both favorable and unfavorable. The change in the suppliers has been positive, with a registered increase in the number of major electric car parts wholesalers over the last three years. This has impacted on the company by affording the company an opportunity to make ambitious projections of producing between 2500 and 3,000 Model S cars in the fourth quarter of 2012, compared to the 255 cars produced in the first quarter. The change in the government regulation has also had a positive impact on the performance of Tesla Motors Inc, owing to the fact that the government has promoted the increment of use of electric car to over a million electric cars on the American roads by 2015 (Department of Energy, 2011). Consequently, the number of electric cars purchased has increased, though to a small margin between 2012 and 2014. However, the change in the consume income levels has not favored the performance of Tesla Motors Inc, since the median real household income was high in 2011, then dropped in 2012 and increased slightly in 2013, causing only a slight increase in the number of electric cars purchased by the USA consumers over the three years. References Department of Energy. (February 2011). One Million Electric Vehicles By 2015: February 2011 Status Report, 1-11. Department of Numbers. (2014). US Household Income. Web. March 17, 2015. Accessed: Praem, N. E. (August 2014). Valuation of Tesla Motors Inc. Copenhagen Business School, 1-80. Tesla Motors Inc. (2013). 2012 Annual Financial Reports. Tesla Motors Inc. Web. March 17, 2015. Accessed: < http://www.sec.gov/Archives/edgar/data/1318605/000119312512402293/d413621dex991.htm> Read More