Free Essay: How Tesla Motors is Changing the Economy

As research and development activities around the world scale to new heights, new technological innovations continue to shape the future of their respective industries. Further, these innovations produce a significant impact towards the economy as well. Tesla Motors is a perfect example of a firm that has clearly reshaped the motor vehicle industry. It is a firm that has made huge investments1 in developing innovative technologies that hold intense implications on transportation and energy storage. This way not only possess the potential of upsetting large sectors of the economy but also has the a long going concern in better productivity. This essay discusses how Tesla Motors has changed the U.S. economy by shedding light on the impact of its innovative technologies on different industries such as manufacturing, businesses, automobile, oil and gas that operate within the U.S. economy.

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Manufacturing

Perhaps one of the outstanding features witnessed in Tesla factories is the dominant use of automation in the manufacturing process. The corporation uses machines rather than human labor to carry out most of the assembling tasks when designing their prototype electric cars. The machines used are pre-programmed robotic arms capable of performing various sets of tasks with a high level of precision. This has a significant impact especially in areas of employment. In the long run2, it negatively affects the future of the labor market in the manufacturing industry and as a result develops an imbalance within the economy.

Like Tesla, the recent increase in technological spending by similar corporations have mostly been geared towards employment. The productivity in manufacturing is no longer centered on the head count but rather on the efficiency of operations (Institutional Investor). This is partly owed to the high level of technological substitution experienced in innovative companies such as Tesla. This, of course, serves to minimize the companys additional marginal costs3 but present concerns regarding the prospects of middle-skilled workers within this type of environment. This so especially in this period characterized by stagnant median wages as well as an increase in the level of income inequality4.

Businesses

Tesla is a fast growing company in the United States. Like many other manufacturing corporations, it cannot single-handedly sustain in manufacturing. It requires support in terms of economic resources5 as well as other relevant resources that are essential for their manufacturing processes. For instance, the assembly of each electric vehicle will rely on components, technology as well as systems that have been developed by other technological companies. These companies specifically spring up to serve this market in areas such as special electronics, battery development and software writing. As upcoming sectors of the economy, Tesla supports the growth of these companies by outsourcing their services and products. Given that such companies range from small to large companies that are spread all over the United States, their growth concurrently serves to enhance the level of economic growth6 in the nation.

In addition, as these technological companies continue to grow, the demand7 for their products continues to expand. They not only serve Tesla Motors but also work with other leading automobile corporations in the world. This is fueled by the need to increase the functionality and efficiency of fossil-fueled vehicles. The heightened demand is from the automobile companies that aims at increasing their competitive edge against the newly innovated electric vehicles. They do this by investing in new electronics, networks, computers and a range of sensors which are fitted to these vehicles as opposed to mechanical parts. This way fossil-fueled vehicle owners may, to a certain level, enjoy the same utility offered by electric vehicles manufactured by Tesla Motors. This has boosted the auto industry which is one of the major industrial boosters of the economy of the United States.

Oil and Gas Industry

The oil and gas industry is one of the major drivers of the U.S. economy. Experts in the industry are convinced of the strong correlation between the economy of the nation and the oil and gas industry (Fawcett). Research by the American Petroleum industry indicated that each job within the oil and gas industry supports roughly 2.7 jobs elsewhere in the economy. The manufacture of electric vehicles negatively impacts the oil industry. For several years, there has been an inter-industry competition8 between the oil electric-car battery industry and the oil and gas industry. However, as the cost of electric-car batteries continues to decrease attributed to the intensive research and development, the majority of the potential car owners will make the rational9 decision to purchase electric cars. This trend would lead to a major decrease in the usage of oil and eventually a contraction in the economy.

In addition, on April 23, Tesla reported having received orders for close to 200,000 of its new Model 3 electric vehicles within a span of two days (Vlasic). This has been rated as one of the fastest growing order books in the automobile industry as it surpasses the monthly sales made by general motors. This suggests a significant shift from internal combustions engines to electric powered engines. Since these combustion engines primarily use oil as a source of energy, the oil and gas industry, which is a major player in the U.S. economy, will inevitably experience the negative effects of this emergent trend. The growth in demand for the electric vehicles will hamper the continued growth of the national economy in the short run10. However, as more and more electric cars are purchased, the electric car industry may eventually grow and offset this economic decline. Nevertheless, this may take many years to achieve given the current poverty rates11 experienced in some parts of the United States.

Automobile Industry

Tesla is concerned with both the methods of propulsion and efficiency when designing its cars. It has engaged in several non-price competition12 strategies that have improved their competitive advantages as an automobile company. The motor company has managed to achieve something that no other automobile company has managed to do in the past. This is to create an object of desire. It is for this reason that electronic vehicles sales are booming. In August 2013, 11,392 electric vehicles along with 54,855 hybrids were sold. In addition, 8.4% of the luxury car market has been taken over by Teslas high-end electric vehicles. This has considerably boosted the economy given its financial impact in the automobile industry.

To match the market demand for electric vehicles, Tesla made efforts to expand its manufacturing functions, thereby taking advantage of the economies of scale13. However, the electric vehicle industry is an oligopoly14. This is because the market is shared by a small number of producers such BMW, Ford, Volkswagen, and Tesla. The high level of investments and superior technology required for production are the main barriers to entry15 that has contributed to this type of market structure16 in the electric vehicle industry. Despite this small competition, Tesla has managed to remain on top the game with their Model S being the best-selling electric car in the United States as of 2015. This is illustrated by the graph below.

Due to this stiff competition, the electronic vehicle industry is guaranteed to become one the largest industries that are already boosting the U.S. economy to new levels. Close to 256 million electric vehicles were registered in the United States in 2013 alone (The Statistics Portal). Such as industry is bound to become of the greatest economic boosters in the years to come.

Conclusion

In light of the above, Tesla has largely influenced the economy by stimulating growth in other industries while crippling other major players within its own industry. It manufacturing methods greatly affects the labor industry due to technological substitution. This threatens the place of middle-skilled workers who largely contribute to economic development of the nation. The motor company has also boosted upcoming companies that provide them with essential resources for their car assembly process thereby positively contributing towards economic development. Also, the oil and gas industry as one the major economic players in the U.S. economy, have been affected by the emergence of electric cars industry leading to a lag in economic development. In addition, the auto industry is fast becoming a major player in the development of the US economy given the fast growth of the electric car market, led by Tesla Motors.

List of Terms Used

Chapter 1

Investments1

Economic resources5

Economic growth6

Chapter 3

Demand7

Chapter 6

Long run2

Chapter 8

Rational9

Chapter 9

Marginal costs3

Short term10

Economies of scale13

Chapter 10

Oligopoly14

Market structure16

Chapter 12

Barriers to entry15

Chapter 13

Inter-industry competition8

Non-price competition12

Chapter 21

Income inequality4.

Poverty rates11

Works Cited

Fawcett, Max. "Is Tesla's Model-S The Beginning Of The End For Oil? - Alberta Oil Magazine". Alberta Oil Magazine. N.p., 2015. Web. 22 Apr. 2016.

Institutional Investor. "As Tesla Goes, So Goes the Economy." Institutionalinvestor.com. N.p., 2015. Web. 22 Apr. 2016.

The Statistics Portal. "Top-Selling Electric Cars in The United States 2015 | Statistic." Statista. N.p., 2015. Web. 22 Apr. 2016.

Vlasic, Bill. "TeslaS New Model 3 Jump-Starts Demand For Electric Cars." Nytimes.com. N.p., 2016. Web. 22 Apr. 2016.