Tesla Motors Foreign Entry Analysis

Foreign Entry Analysis – Developed Country
Introduction
In recent years, Tesla has grown to become one of the most renowned and successful companies in the US and across the globe. Tesla, Inc. is a clean company and a pioneer in electric vehicles with its headquarters in Palo Alto. It is a publicly-traded firm listed on the Nasdaq with the symbols TSLA (Agence France-Presse, 2010). The company is involved in the designing, developing, manufacturing, and retailing electric vehicles and designing, manufacturing, installing, and retailing solar energy products. Tesla's business operation comprises of three key divisions. First, there is the automotive division, which encompasses the process of how electric vehicles are designed until they are leased or retailed. The storage and energy generation divisions encompass generating solar energy and products for energy storage (Reuters, 2021).
The company was formed in 2003 by several engineers with the aspiration to validate that persons did not have to make any compromise when driving electric vehicles. They endeavored to substantiate that electric vehicles can be better, faster, and more enjoyable to drive than gasoline vehicles. In the present day, Tesla manufactures electronic cars and interminably scalable products for generating and storing clean energy. Tesla believes that the quicker society ceases to be dependent on fossil fuels and shifts towards a future of zero emissions, the better it will be for the world (Tesla Inc., 2021).
Products and Market Position
The company was founded on 1 July 2003 by JB Straubel, Martin Eberhard, Ian Wright, and Marc Tarpenning (Vance & Musk, 2015). The founders were inspired to start up the company after General Motors Company recalled its electric vehicles (EV1) in 2003 and got rid of them. Tesla Inc. founders believed that battery-electric cars had a higher-efficiency and viewed it as an opportunity to change the usual connection between high performance and low mileage. At present, the firm has more than 30,000 employees and over 200 stores worldwide. In June 2010, the company went public, and as a result, it generated over $200 million in its IPO (Vance & Musk, 2015).
Tesla Roadster was the pioneering electric vehicle to be manufactured by Tesla Inc. It was released in 2008, and about 2000 vehicles were sold to over thirty countries. This was possible after the company entered into a contract with Lotus to manufacture 2,500 Elise Gliders. In March 2009, the company released a prototype of the Model S at a public exhibition. This was the first fully electric, luxurious, and high-performance vehicle. There was positive feedback, great reviews, and thousands of pre-orders for the vehicle. Thus, in 2012, the company officially released its first electric vehicle. By 2013, the Model S managed to penetrate a bigger market share due to its significantly greater capabilities and affordability compared to the first electric sports car, Roadster (Vance & Musk, 2015). Tesla, Inc.'s additional product offerings include solar panels and solar roofs. The solar panels and roofs are intended to enable consumers to control the energy production of their homes and achieve cost savings on their monthly utility bills. Besides, these product offerings facilitate increased usage of renewable sources of energy, which implies a heightened inclination towards reducing greenhouse gas emissions. This improves the status of the environment (Tesla Inc., 2020).
At the present moment, Tesla's shares have a market value of $841.92. Besides, the market capitalization of the company is valued at $795.63 billion. Concerning the company's market position, worldwide, Tesla's vehicle deliveries got to virtually 500,000 units in 2020. In the contemporary market, Tesla continues to be the top manufacturer of electric vehicles. Simultaneously, Tesla's Model 3 has come to be the world's best-selling plug-in electric vehicle model (Statista, 2020). Tesla is distinctive because it is not simply retaining vehicles but also retailing new technologies. Fundamentally, wagering on Tesla Motors takes into account wagering on new technology. In other words, Tesla has fashioned and presently dominates the market for luxury, distant electric vehicles, and a market that is unique from both the market for less costly electric vehicles and the market for luxury gas-powered cars (Forbes, 2015).
The industry of Operation and Competition in Targeted Country
Tesla's purpose of attaining continued market growth. On top of the firm's endeavor for financial prosperity, the firm and CEO are interested in sustaining the greatest level of ethical standards and becoming a force for the advancement of humanity, society, and the planet as a whole. The company is considering expanding its business operations to France. Owing to major renowned automotive companies such as Renault, Peugeot, and Citroen, the French economy is significantly boosted by the automotive industry. On an annual basis, six million vehicles are manufactured by French automakers. Currently, France holds the topmost position in Europe concerning the electric vehicle market. In recent years, the sales of electric vehicles have increased by 63 percent. This is tied to the fact that the country continues to act towards the fight against climate change, reduce greenhouse gas emissions, and the increased use of renewable sources of energy (French Gouvernement, 2020).
In fact, in the past year, France boasts of having the electric vehicle with the highest sales in the form of Renault's Zoe models. Specifically, the French auto manufacturing company's all-electric vehicle, Zoe, surpassed Tesla's Model 3 to become the highest-selling full-electric vehicle in the European region (Bloomberg, 2020). The automotive electric vehicle industry is prime in France, considering the incentives that the French government is providing to consumers willing to purchase electric vehicles. Specifically, the French government is offering citizens as high as 7,000 euros for shifting to electric and an additional 5,000 euros in the form of subsidies tied to the cash-for-clunkers program (Bloomberg, 2020). The table below illustrates the demand for electric vehicles in the European market:

Model
Sales First Half 2020 fiscal year
% change First Half 2019 fiscal year

1
Renault Zoe
36,573
53%

2
Tesla Model 3
31,949
-14%

3
V.W. e-Golf
17,535
39%

4
Peugeot e-208
13,304
New

5
Nissan Leaf
12,629
-21%

6
Audi e-tron
12,449
90%

7
Hyundai Kona EV
11,414
2.2%

8
Kia e-Niro
8,455
38%

9
BMW i3
8,339
-47%

10
VW e-Up
7,298
509%

Segment Total
217,495
34%



Table 1: Electric Vehicles Sales in Europe (Source: Automotive News Europe)
The French electronic vehicle is expected to grow and experience intense competition in the coming years significantly. Notably, Renault is expected to make an even more considerable impact in the growing electronic vehicle market when it unveils two cost-effective E.V. models. These comprise the Spring small crossover model and the Renault Twingo Z.E model. Moreover, there is mounting competition in the market with Volkswagen unveiling the ID3 Model. Furthermore, two additional models in Opel Corsa-e and Peugeot e-208 will rival other plays in the market after being unveiled by the PSA Group (Patel, 2020).
Environmental Opportunities and Threats
There are various environmental opportunities and threats that Tesla will face concerning its proposed expansion to France regarding sustainability and country-distinct natural resources.
Opportunities
One of the fundamental opportunities is the sanctioning of carbon-neutral law. In the past year, France passed a new bill endeavored to diminish the country's level of emissions. Due to mounting severe impacts of climate change, France is set on achieving carbon neutrality in the next few decades, incorporated in the Paris Agreement. The fundamental principle encompassed in this means a significant reduction in France's greenhouse gas emissions (Sauer and Mathiesen, 2019).
This inclination has prompted the increased demand for electric vehicles to diminish greenhouse gas emissions in the environment. According to Birch (2020), European leaders such as France have sustained a stringent fleetwide carbon dioxide emission target of just shy of 100 grams of carbon dioxide for every kilometer in this year. Besides, original equipment manufacturers (OEMs) have also openly dedicated themselves to attaining this target. As a result, they have unveiled an unparalleled number of battery-powered electric vehicles and plug-in hybrid electronic vehicle models.
An additional opportunity in the target market is the support that the industry obtains from the government. The French government administration has unveiled new purchase subsidies, tax breaks, or assimilation of incentives to motivate people to embrace electric vehicles and promote green mobility. Whereas the government is enforcing such policies to enhance emissions, they are also reacting to mounting consumer worries about sustainability and environmental problems (Sigal, 2020).
An additional environmental opportunity is the projected growth of France's electronic vehicle market and the European region. Statistics indicate that it is anticipated that electronic vehicle sales in Europe could prospectively rise from 600,000 in the 2019 fiscal year to approximately 3 million in 2022 (Birch, 2020). Besides, the electronic vehicle market for Europe is increasing in tandem with dispositions that were taking place even before the crisis with the pandemic. The European market share increased from 3 percent in 2019 to more than 7 percent in 2020. In the forthcoming two years, it is expected that electric vehicles might have a market share ranging between 12 percent and 15 percent (Birch, 2020).
Moreover, this presents itself as a major opportunity for Tesla because of the decreasing number of E.V. sales in the United States, where its head offices are situated. Specifically, E.V. sales in the United States have been declining, with a yearly growth declined from 80 percent in the 2018 fiscal year to 12 percent in the 2019 fiscal year (Birch, 2020).
America's slowing economy in the course of the COVID-19 pandemic and the succeeding decline in consumer spending are key determining factors to a deteriorating E.V. market. What is more, low oil demand is a fundamental contributor to making ICE vehicles significantly cost-effective compared to electric vehicles to operate in America. This is because, in the United States, taxes levied on gasoline are comparatively cheaper than those in other nations (Gersdorf, Hensley, Hertzke, and Schaufuss, 2020).
France's regulatory changes also embrace the increased purchase and use of electronic vehicles compared to the United States. In recent times, regulatory changes in America are stumping the large-scale espousal of electronic vehicles. Imperatively, the federal government intends to diminish the fuel-economy benchmark and also relaxing targets for carbon emissions.
Consequently, this will result in lesser incentives for procuring and manufacturing electric vehicles. Different OEMs situated in the United States have proclaimed a deferral to the onset of production of new electric vehicle models (Gersdorf, Hensley, Hertzke, and Schaufuss, 2020).
Threats
One of the fundamental threats that Tesla will face in the French market is intense competition from other E.V. manufacturers. It is expected that Tesla will continue to experience major rivalry from key brands that act as the local companies in both France and neighboring European countries. Some major brands comprise Peugeot's 208, Mini Electric, the MG ZS, the Porsche Taycan, and the Skoda Citigo. The top-selling E.V. model in Europe, the Renault Zoe, will continue to compete very well with the Tesla's Model 3 in the French and European market overall (Taylor, 2020).
A second threat is the market's ambiguity due to the prevailing pandemic and other natural hazards. If the COVID-19 pandemic continues to prevail, it implies that the economy will be negatively impacted and face a tough time recovering. This could cause a decrease in the number of electric vehicles purchased.
An additional threat that Tesla could face is regulatory risks that could hamper the company's significant growth and development in the foreign market. For example, owing to the obligation to adhere to French regulations, the company could face problems such as delays in approvals, labor problems, late deliveries, and unforeseen standards that could substantially hinder Tesla's success (Wheelen and Hunger, 2011).
Appropriate Entry Mode
In the present day globalized economy, there are numerous ways through which a firm may attempt to enter into a foreign market. These entry modes differ in their suitability to a certain international market, encompassing the pragmatism, cost-effectiveness, and safety of the approach. For the most part, corporations take considerable time to consider all of the various options available for the entry mode before deciding on the right one to espouse (Morschett, Schramm-Klein, and Zentes, 2015).
In the case of Tesla's expansion to the French market, the appropriate market entry mode is wholly owned subsidiary. In delineation, this is a mode of entry whereby the parent company possesses 100 percent ownership of the subsidiary's stock. Notably, a wholly-owned subsidiary can be established by either making an acquisition or establishing an entirely new entity (Tallman, 2007).
Advantages
There are several advantages of capitalizing on this mode of entry. One of the key advantages in the case of Tesla is that this entry mode will sustain the company's competitive advantage centered on technological competence. One of the key success factors of Tesla is its technological understanding and advancement in designing and manufacturing electric vehicles.
As a result, a wholly-owned subsidiary is considered a suitable mode of entry because it diminishes the risk of loss of control over the technological proficiency. Moreover, establishing a wholly-owned subsidiary implies that the company will be able to preserve confidentiality and privacy tied to proprietary technology (Shenkar and Luo, 2008).
The second advantage of this entry mode is that it will give Tesla, Inc, the tight-knit control over business operations in the overseas country, which is suitable and pivotal for engaging in international strategic affiliation and coordination. This implies that the revenues and profits generated from France's business operations will be employed to support competitive attacks in other markets such as California or China (Rugman, Collinson, and Hodgetts, 2006).
Wholly owned subsidiaries as an entry mode will offer Tesla, Inc. a chance to achieve risk diversification and management. Imperatively, diversification is a means for a firm to diminish risk by developing various kinds of business. If one business or sector is not working properly, the other business operations will sustain the firm's profitability.
For instance, with the electric vehicle market in the United States experiencing a slow-down due to COVID-19 and challenges within the economy, expansion into the French market will allow the company to sustain its revenue generation and profitability. Similarly, the wholly-owned subsidiary will be a way for Tesla to diversify the firm's risk of loss. This is because a firm can diminish its risk in its market entry to a new market through subsidiaries, which aids in minimizing the exposure faced by the parent company (Elsner, 2013).
Disadvantages
There are shortcomings tied to utilizing wholly-owned subsidiaries as entry modes in foreign markets. First, the establishment of a wholly-owned subsidiary can be deemed the most expensive approach to entering an international market. For the most part, companies that opt for this approach are forced to bear the risks and total costs of setting up foreign operations. The risks tied to learning to undertake business within a new setting and culture are minimal if the firms acquire an enterprise established in the host nation.
Nonetheless, acquisitions increase an entire set of extra problems and difficulties, encompassing those tied to attempting to amalgamate divergent organizational cultures (Rugman, Collinson, and Hodgetts, 2006). The second shortcoming of this entry mode is that wholly-owned subsidiaries usually face substantial scrutiny and inspection by the foreign country's government administration. As a result, even genuine activities like sending home profits generated and additional assets can be a delicate matter and may give rise to corruption accusations (Root, 1994).
There might also be a concern in using this entry mode concerning conflict of interest. It is imperative to note that the parent companies are legally obligated to promote and advocate their different subsidiaries' corporate interests. However, a conflict of interest might come about between the two entities. For example, since Tesla is an electronic vehicle manufacturing company, it might aspire to get car parts supplied by the French subsidiary below the market price.
However, this would be in contrast to the entity's corporate interest in France (Elsner, 2013). An additional problem linked to this entry mode is that diversification can result in the parent company losing its concentration on the different areas of expertise. For example, there might be a concern that Tesla's expansion of the automotive segment into France could lose focus on the solar generation and storage segment (Elsner, 2013).
Relationship between the IMF and the ability to attract foreign investment
Research shows that there is a correlation amid the IMF and the capacity to attract foreign investment. In accordance to Biglaiser and DeRouen Jr (2010), taking into consideration the widely held perception that the United States government influences IMF policies and tends to support the business community, it may be anticipated that IMF programs benefit United States companies overseas and as a result borrower countries are attractive destinations for United States foreign direct investment (FDI).
The majority of the Macroeconomic frameworks under the International Monetary Fund (IMF)-supported programs make the projection bound to be a recovery or rise in Foreign Direct Investment (FDI) inflows. The fundamental supposition is that IMF-supported programs aid in the restoration of macroeconomic stability and consider structural restraints to growth, in that way renewing self-assurance and reassuring foreign investors to accept long-standing investment projects (Bal-Gunduz and Crystallin, 2014).
Research undertaken by Al-Sadiq (2015) ascertains a constructive correlation between IMF-supported programs and FDI flows to low-income countries. The study's experiential outcomes demonstrate that nations that have taken part in IMF-supported programs had the capacity to attract greater FDI compared to nations that did not. The approximated average treatment effects suggest that a nation with an IMF-supported program could attract about one to four times more foreign investment as a proportion of Gross Domestic Product than a nation devoid of a program.
The United States does have bilateral trade/investment treaties with France. Notably, France continues to be one of the members of the E.U. and is currently the third biggest United States trading partner in the European region. Investment and trade relationships between the two nations are strong. In the 2019 fiscal year, France and the United States traded goods and services valued at almost $140 billion.
The United States is the key destination for investors from France, and the nation is also the biggest foreign investor in France. These two nations have a prevailing bilateral convention on investment and a two-pronged tax agreement encompassing different aspects such as double taxation and tax evasion (U.S Department of State, 2020).
This sort of treaty is beneficial because the nations encompassed in it provide one another with accessibility to their markets, which gives rise to both trade and economic growth and development. Also, the treaty generates a setting that promotes impartiality and even-handedness because there are rules within business operations and transactions that are adhered to (American Bar Association, 2014).
These agreements between two nations safeguard investments made by financiers from one contracting country in the terrain of the other contracting country. It must make it possible to attain the encouragement of foreign investments by decreasing political risk. Therefore, this implies that investments made by foreign investors such as Tesla, in this case, are treated fairly and equitably. It also implies that Tesla would be permitted to freely transfer finances associated with investments in France devoid of any delay (American Bar Association, 2014).
Social Responsibility and Business Decisions in Target Country
Without a doubt, Tesla, Inc. must combine social responsibility with business decisions in France. Sustainable development of society and business has turned out to be a supernatural method in resolving both social difficulties and the difficulties of maintaining a safe environment, essential for human survival, in the circumstance of which the concepts of social responsibility are underlined. Corporate social responsibility is the obligation of a business to conduct itself ethically and contribute to economic development, enhancement of labor, family, adjacent community, and social life quality (Zukauskas, Vveinhardt, and Andriukaitien, 2018).
One way Tesla should combine social responsibility with business decisions is to make investments in social and environmental incentives. Tesla can provide backing to local and nationwide organizations through direct donations or holding events advocating for the fight against climate change and the increased adoption of electric vehicles.
Secondly, the company can partake in the promotion of philanthropy in addition to being environmentally aware. This includes creating an in-house department and working in tandem with other organizations to give back to the community. Being an E.V. manufacturer, Tesla can continue promoting the importance of reducing the environmental impact on the planet and shifting towards electric vehicles (Montgomery, 2020).
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