Tesla’s Expansion to China and Related Issues

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Table of Contents

Introduction
Description of the Company and the Products It Provides
The Reasons Behind Tesla’s Move to China
The Difficulties Involved in Tesla’s Move to China
Goleman’s Six Leadership Styles
Tesla’s Success
Conclusion
References

Introduction

Over the past few years, the electric vehicles (EVs) market has experienced immense growth. This can be attributed to technological advances, new regulations on vehicle emissions and safety, as well as shifting consumer preferences. Tesla is one of the rapidly growing companies in the vehicle manufacturing industry. The organization’s investment in research and development has enabled it to create innovative products, contributing to its success. Tesla’s move to China was inspired by the change in government policies and the need to serve the growing Asian market.

Description of the Company and the Products It Provides

Tesla is the biggest manufacturer of EVs in the world today. The company, originally known as Tesla Motors, was founded in 2003 by Marc Tarpenning and Martin Eberhard, who were the organization’s chief financial officer (CFO) and chief executive officer (CEO), respectively (Ferrell & Fraedrich, 2021). The business aimed to transform the automobile market by manufacturing environment-friendly electric vehicles to increase the sustainability of the transportation market. Elon Musk, one of the company’s initial investors, became its CEO in 2008, after which Tesla began diversifying its portfolio to include clean energy production (Ferrell & Fraedrich, 2021). Tesla has six factories that act as its manufacturing sites located in Fremont, Nevada, New York, Berlin, Texas, and Shanghai (Crider, 2022). Tesla’s headquarters, located in Palo Alto, California, was recently moved to Austin, Texas (Kolodny, 2021). The manufacture of environment-friendly products has significantly boosted Tesla’s sales.

Although Tesla was initially created to manufacture EVs, it has expanded its operations into energy production. In this case, the Roadster was the company’s first car produced in 2008. Tesla has also made other popular vehicles, including Model 3, S, Y, and X (Ferrell & Fraedrich, 2021). Additionally, the company is involved in buying and selling tax credits (Ferrell & Fraedrich, 2021). Similarly, Tesla manufactures solar panels and batteries for vehicles and home power storage (Ferrell & Fraedrich, 2021). These technologies enable businesses, homeowners, and utilities to effectively generate, store, and consume renewable energy.

Recently, Tesla has expanded its operations into different countries to increase its production of EVs to match the global demand. One of its expansions has been to China, where the company established a manufacturing plant in Shanghai in 2018 (Langley et al., 2020). However, most of Tesla’s operations remain in the United States. Therefore, only a part of the company moved to create the new plant in Shanghai.

The Reasons Behind Tesla’s Move to China

Several factors may have led to Tesla’s expansion to Shanghai. One of the major reasons for the company’s move to Shanghai was China’s acceptance of fully foreign-owned companies in vehicle manufacturing, especially renewable energy vehicles. In the past, foreign businesses intending to manufacture cars in China were required to form joint ventures with domestic vehicle producers. In such an arrangement, the local partner would own a 51% majority stake and an equivalent share of profits (Horwitz & Huang, 2017). Thus, the change in China’s regulations on foreign ownership of vehicle manufacturers greatly attracted Tesla to establish a plant in Shanghai. In addition, Tesla may have moved to the region to serve the large Asian market. Over the years, Tesla’s market in the country has significantly expanded. A report shows that by 2017 Tesla occupied an estimated 8.6% of China’s EV market (Horwitz & Huang, 2017). Hence, Tesla’s move to Shanghai was inspired by its need to serve its customers in Asia while increasing its market share in the region.

China’s reduction in import tariffs may have encouraged Tesla’s move to Shanghai. The nation had placed considerably high tariffs on imported vehicles, making Tesla’s vehicles costly and unaffordable to many consumers. Since the company is a wholly foreign-owned enterprise, it still pays import taxes. However, China reduced the import tariffs from 25% to 15% to facilitate Tesla’s expansion (Jourdan, 2018). Therefore, the decrease in taxes may have prompted Tesla’s move to Shanghai because it was a guarantee that its EVs could be more affordable to customers in China and the broader Asian region. The goal behind Tesla’s expansion to Shanghai was to serve the rapidly increasing Asian markets, particularly China. It also aimed to use Shanghai as an export hub to deliver vehicles to other regions, such as Europe.

The Difficulties Involved in Tesla’s Move to China

During its expansion to Shanghai, Tesla experienced a myriad of setbacks. One of the major challenges was stiff competition from local EV manufacturers. In China, companies such as SAIC Motor, BYD Auto, Geely Auto Group, and NIO occupied over 90% of the market share (Lambert, 2017). In addition, these local producers were highly subsidized by the government in its push for 100% EVs by 2030 (Horwitz & Huang, 2017). Thus, Tesla struggled to expand its niche due to the increased competition from local manufacturers. However, the most significant challenge regarding Tesla’s move to Shanghai was the trade wars between the United States and China. From 2018 to 2019, the ties between these countries had considerably deteriorated, resulting in sanctions and high tariffs against each other (Rosenbaum, 2018). In this case, Tesla’s operations in China were adversely affected by tariffs on American-made vehicles in retaliation to the United States import duty on Chinese goods. Therefore, stiff competition and political tensions between China and the United States were the primary challenges associated with Tesla’s move to Shanghai.

Goleman’s Six Leadership Styles

Various approaches to management are used according to the situation at hand. For instance, a visionary or authoritative leadership style is required when momentum is needed towards a shared goal (Price-Dowd, 2020). This type of leadership originates from an individual’s position and vast expertise in a given area. This strategy can be used when an organization needs a different direction. Thus, authoritative leaders can be vital when a company plans to move to a foreign market. Creating a new vision may ensure that employees’ efforts align with the organization’s goals and create products that meet customers’ needs.

Successful managers do not rely on a single leadership approach. The affiliative leadership style can be employed when a company has already initiated its operations in a foreign country. These leaders are known to create a positive work environment for their teams (Price-Dowd, 2020). Therefore, this approach can be critical in easing tension between workers or if they need to be motivated through a stressful time, such as meeting production targets within a short time.

The automotive industry is very competitive and requires constant creativity and innovation. Therefore, for a company like Tesla to stay ahead of the competition, a pacesetting leadership style is needed to set high-performance standards to realize short-term goals, such as being updated with the latest technological trends in car designs. These leaders are suitable when production is already in progress to obtain high-quality results from a motivated team.

Goleman’s coaching leadership approach focuses on mentoring and assisting the workforce in developing skills or competencies in certain areas. Mentors work closely with their teams to identify strengths and weaknesses to improve their job performance (Price-Dowd, 2020). These leaders may help employees develop new and long-term skills to adapt to a new market. For example, companies usually train their employees to remain updated with foreign market cultural needs and changes in technologies in the automotive industry. However, this leadership type is unsuitable, especially when operations run smoothly and leaders want to build team consensus or seek other members’ input to achieve certain targets. For this reason, the democratic leadership approach can help promote team collaboration and achieve the set objectives (Price-Dowd, 2020). This approach can be essential when leaders want to harness the ability of their employees to share knowledge to transform the organization through innovation and make it more competitive after moving to a foreign country.

Coercive or autocratic leadership is a top-down approach to management that usually depends on issuing orders and strict control. This style can be effective during a crisis or when a quick response is required, such as dealing with unproductive employees or introducing a drastic change in an organization (Price-Dowd, 2020). Autocratic leaders can improve employees’ performance in the short term, but they may hinder motivation and creativity.

The most appropriate approaches are authoritative and coaching leadership. For a company like Tesla, it needs to quickly adopt technological advances to deliver on its mission to make China a major production hub for clean energy cars. There has been increasing customer demand to make EVs with longer ranges and quicker charging times, which are the significant barriers to mass adoption of these technologies (Collin et al., 2019). For these reasons, visionary leaders can be effective where changes are required to gain a competitive advantage and improve sales. Since Tesla has moved parts of its operations to China, a leader such as Elon Musk may act as an inspiration to employees to develop new technologies to serve customers’ unique needs in the Asian market. For example, Tesla may need to produce low-cost alternatives to Model 3 and expand its superchargers infrastructure to accommodate increasing the number of Tesla cars in use.

Coaching leadership strategy is essential because it focuses on improving employees’ skills for future roles within the company. These leaders serve as mentors and work closely with their teams to attain excellence, which may be suitable for employees who are open to improvement (Price-Dowd, 2020). For example, under Tesla’s START program, managers provide candidates with needed expertise for a successful career in the organization. During the training, participants earn certifications through in-class theory learning and acquire technical knowledge. Therefore, the coaching leadership approach helps employees improve their performance and develop long-term work capabilities.

Tesla’s Success

Tesla’s move in China market has been successful in the long run. The Asian country is the company’s second-largest market after the United States, accounting for approximately 30% of its total sales (Mathews, 2021). However, a report shows that the electric car marker’s sales to Chinese customers have decreased by over 60% between March and April 2021 (Isidore & He, 2021). This is due to increased customers’ protests about faulty brake systems in Tesla’s China-built cars, contributing to accidents and another vehicle catching fire in Guangzhou province. (Harwit, 2021). All these have led to online criticism and negative press coverage, which has reduced the company’s sales.

Conclusion

Tesla is one of the leading EV manufacturers globally, and it has expanded its operations in other countries, including China. Apart from EVs, the company also produces solar panels and batteries for power storage which helps businesses and homeowners to generate and store renewable energy. Tesla’s move to Shanghai may have been inspired by a reduction in tariffs and the need to serve the growing Asian market.

References

Collin, R., Miao, Y., Yokochi, A., Enjeti, P., & von Jouanne, A. (2019). Advanced electric vehicle fast-charging technologies.Energies, 12(10), 1-26. Web.

Crider, J. (2022). Tesla’s 6 factories are a new phase of its future. Clean Technica. Web.

Ferrell, O. C., & Fraedrich, J. (2021). Business ethics: Ethical decision making and cases. Cengage Learning.

Harwit, E. (2021). Tesla’s path forward in China. China-US Focus. Web.

Horwitz, J., & Huang, E. (2017). Tesla might soon have “made-in-China” cars, but they’ll still get taxed there like imports. Quartz. Web.

Isidore, C., & He, L. (2021). Tesla may be much worse off in China than anyone thought. CNN. Web.

Jourdan, A. (2018). China cuts car import duty to 15% in boost for BMW, Tesla, Mercedes, Porsche. Automotive News Europe. Web.

Kolodny, L. (2021). Tesla moves headquarters from California to Texas. CNBC. Web.

Lambert, F. (2017). Tesla leads foreign electric car sales in China as government considers opening its growing market. Electrek. Web.

Langley, C. J., Novack, R. A., Gibson, B., & Coyle, J. J. (2020). Supply chain management: A logistics perspective. Cengage Learning.

Mathews, E. (2021). Tesla’s China orders fall by nearly half in May – Report. Reuters. Web.

Price-Dowd, C. (2020). Your leadership style: Why understanding yourself matters.BMJ Leader, 4(4), 165-167. Web.

Rosenbaum, E. (2018). Tesla and China trade war: Elon Musk’s belief China will outsell US gets a new test. CNBC. Web.

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