Conor Simmons
Professor Bajah
ECON 230
3/28/2022
Milestone #1
Tesla Motors has emerged in the last decade and now has a powerful hold over much of the electric vehicles market and even in the automotive manufacturing market all together. In 2020, automotive manufacturing contributed to 3% of the United States' GDP, making the value of this major industry, listed as contributing $627 billion dollars to the total GDP of $20.93 trillion. Tesla has a unique position in this market, not only to sell solely electrically powered automobiles, but also having a privilege in many states to be one of the sole manufacturers of cars who participates in direct-to-consumer sales (Stolze, 2015). Also, Tesla has a key co-opetitive advantage in the manufacturing of electric power trains and even supplies other big automotive manufacturers, such as Chevrolet and Bentley (Cheong & Hu, 2016). Finally, this paper will examine how Tesla actually seems poised to potentially benefit (relatively) from the global LRAS shock experienced globally due to Covid-19.
State Legislation in the United States of America has been favorable to dealerships, as denoted by Stolze, when analyzing the history of car manufacturing and sales in the United States of America. He states, “[The] Modern dealer franchise system [was] in place by the 1950s... The few major auto manufacturers amounted to an oligopoly, able to dictate the terms on which the sole supply of new automobiles would be available to the dealers [of said automobiles]' (Stolze, 2015). This abuse of leveraging power was eventually addressed by the Congress when it passed the 'Automobile Dealers Day in Court Act in 1956'. This Act shifted power from manufacturers of cars to dealers while overriding dealership agreement provisions, that inhibited any recompense to manufacturers if they did not act in 'good faith' (Solze, 2015). Tesla, however, has successfully beaten numerous lobbying and legal attempts to block its ability to directly sell its electric vehicles to customers and has benefited in this regard (Stolze, 2015). They are not only protected in this manner but grandfathered in to being one of the only car manufacturers in the United States of America to do so. This means that Tesla has incredible flexibility to take advantage of the varying economies of scale in America. Furthermore, it increases its environmental appeal at the same time, being directly involved in its own vehicle's sales and participating firsthand in the consumer education and training to back its own business model.
Tesla is also in a horizontal coopetition arrangement with other manufacturers (Cheong & Hu, 2016). The authors define this concept, “horizontal supply chain coopetition is a game where competitors cooperate in the same retail market... a firm offers work-in-progress parts to others, and competition when those same firms have to compete with each other for customer's attention on the retail market” (Cheong & Hu, 2016). This is an incredible advantage to Tesla Motors, as it can sell these parts to other manufacturers and signifies that they have a superior capital investment in R&D for electric power trains and parts. This also pits the other car manufacturing companies in a better position in this field as they will not have to invest as much to enter the EV market. As Cheong and Hu highlight the success of Borders utilizing Amazon's IT supply chains and leveraging this co-opetitive agreement to successfully enter the market with their own successful online marketplace (Cheong & Hu, 2016). Technological advancement is imperative to moving forward in the electric vehicle industry, and this position puts Tesla in a win-win situation, if they're careful. While all parties could win in this situation, many parties, suppliers and buyers alike, could lose valuable portions of the electric vehicle market. The supply shock experienced recently during the pandemic perhaps created potential for research and development in such an industry to be cut back on. This might reduce Tesla's ability to invest and continuously supply better and cheaper power trains, or cause other auto-manufacturers to rely more heavily on Tesla's power trains.
Nayak, et. al., (2022) states, “[the]extended truncation of customer demand due to the lock downs is observed drastically distressing auto manufacturers. The majority of companies are starving the support of R&D to maintain core functions and potentially getting back the growth made on mobility technologies as well as alternate fuels” (Nayak et. al., 2022). However, as postulated above, this could be a blessing in disguise for Tesla, who would perhaps be the least hit by this possible curbing of R&D, since they were perhaps the most established in the field of electric power trains. Also, global consensus and this administrations' attitude toward electric vehicles is growing in demand. It is worth saying still that just because Tesla has the apparent advantage in the electric vehicle market now, does not mean this is guaranteed to always be so. Many auto-manufacturers are still, and realistically, still improving and allocating their resources to combustible engine types, and designs to work around them. Then one can always think about how easily a co-opetitive arrangement could spell the end of hegemony for a supplier. In the example above listed, Borders had been a seller of books for longer than Amazon, and was a household name brand for book buying. While Tesla enjoys the privilege of the most iconic electric vehicle manufacturer, it is still relatively new and perhaps untested by the lobbying and special interest might of other traditionally combustible titans of United States auto manufacturing, to say nothing of many other international giants that compete to sell there cars here.
References
Cheong, T., S.H., & Hu, C. (2016). Strategic Alliance with Competitors in the Electric Vehicle Market: Tesla Motor's Case. Mathematical Problems in Engineering, 1-10 https://doi-org.exproxy.regent.edu/10.1155/2016/7210767
Nayak, J., Mishra, M. Naik, B., Swapnarekha, H., Cengiz, K., & Shanmuganthan, V. (2022). An Impact Study of Covid-19 on six different industries: Automobile, energy and power, agriculture, education, travel and tourism and consumer electronics. National Library Of Medicine. Retrieved 29 March 2022. from https://www.ncbi.nlm.nig.gov/pmc/articles/PMC8014102.
Stolze, E.D., (2015). A Billion Dollar Franchise Fee? Tesla Motor's Battle for Direct Sales.