Assignment task: Tesla Drives EV Market Growth
Tesla is a market leader in electric vehicles (EVs), controlling around 16 percent of the global EV segment. It sold around 500,000 electric vehicles in 2020 and roughly 930,000 in 2021, despite a global shortage of semiconductors that EVs require. The entire global market for EVs was 3.2 million in 2020 and could reach 27 million by the year 2030. Tesla builds each of its vehicles and batteries in its several Gigafactories around the world. Elon Musk, Tesla's founder, plans to charge ahead with an electric semi-truck, pickup-style Cybertruck, redesigned Roadster, current lineup of passenger vehicles, and a new, lower-priced $25,000 vehicle.
Tesla increased its EV sales revenue from just $400 million in 2012 to $31.5 billion in 2020. The company's earnings and the EV industry's projected growth is attracting rivals worldwide. Legacy automobile manufacturers that traditionally made gas-powered vehicles are designing and building their own lineup of electric vehicles. Volvo says EVs will account for all sales by 2030. General Motors will phase out all gas-powered vehicles by 2035. Ford will sell no gas-powered vehicles at all in Europe by 2030. And Volkswagen will manufacture 1.5 million EVs annually by 2025. US startups, Lucid Motors and Amazon-backed Rivian, are also driving ahead with EV plans to compete head-to-head against Tesla.
China's enormous population and rising incomes also excite EV makers. More than one million EVs were sold in China in 2020 and sales are forecast to be 5 million by 2025, 10 million by 2030, and 20 million by 2040. But Tesla now must fend off competition from China's EV makers Xpeng, BYD, and NIO. When Tesla's sales recently slowed in China in 2021, the company looked to world export markets. Tesla began exporting excess output from its Gigafactory in Shanghai, China, to Europe and to a lesser extent to Australia and Japan.
Governments worldwide support the reduction of carbon emissions and the switch from gas-powered to electric vehicles. For example, the US government is investing in a support structure for EVs by building 500,000 charging stations across the country. And Ford received a loan of nearly $6 billion to develop hybrid and EV vehicles. Other EV makers are also likely to receive financing for their EV initiatives.
Electric vehicles need powerful semiconductors (computer chips) to maximize the range they can travel on a fully charged battery. Whereas gas-powered vehicles contain fewer and less complicated chips worth around $80, electric vehicles use more chips and more advanced ones worth around $550. When economic lockdowns during the Covid-19 pandemic in 2020 created an extended global chip shortage, Tesla jumped into action. It located alternative chips that it could make work and then rewrote its vehicles' software. Tesla's quick action helped it to deliver nearly 200,000 vehicles and earn over $1 billion in profit while the chip shortage stifled sales of other auto makers.
Fearing an extended or new global chip shortage, national governments developed plans for regional clusters of high-tech businesses centered around semiconductor production facilities, or "fabs." The goal was to guarantee a domestic supply of semiconductors and to drive investment in high-tech industries as a way to boost economic growth. Phoenix, Arizona, attracted investments in chip making from US-based Intel and a new, $12 billion greenfield fab facility by Taiwan Semiconductor Manufacturing Company (TSMC), which controls around 52 percent of the global chip market. In Europe, Silicon Saxony, as it is called near Dresden, Germany, is expanding semiconductor-production facilities near Tesla's new Gigafactory there. Governments hope these clusters of supporting businesses will drive innovative, high-tech spinoff products that stimulate economic growth and boost trade.
Q1. What forces do you think were behind Tesla's first-mover advantage and market dominance?
Q2. Do you think the Porter diamond can help explain the success of Tesla, which began operations in the Palo Alto region of California? Explain.
Q3. Is there anything else that Tesla can do to ensure it has the semiconductors it needs for its EV production? Is there anything Tesla can do to ensure it has enough lithium for its battery production?