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Award name: BBA (Hons.) Business and Management

Module code: UMED8A-15-1
Module name: Understanding the Business and Economic Environment
Module run:
Coursework title: Component B/ PEST Analysis and Time Series Forecasting
Due Date: 29 / 11 / 2020
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Module leader: (In TBC): Jiten Shrestha
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Submission date & time: Date: November 29, 2020 Time: 1:45 PM (GMT +5:45)

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Signed: Ashna Pant Date: 29 / 11 / 2020

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Over the last few years the electric automobile industry has grown largely due to the limit
on oil resources. With the increasing pressure to reduce carbon emission, the demand for
electric cars has increased greatly. Electric vehicles are not just cheaper than fuel based cars
but are also environment friendly. Cars like Nissan, Tesla and Audi are some of the best-
selling electric vehicles in the UK market. Tesla Model 3 was the third best-selling car in UK
in 2019 (The Guardian, 2019). With its growing success Tesla is planning to open a
manufacturing unit in the UK as well. A PEST analysis for Tesla is conducted to analyse
whether it will be beneficial for the company to open a manufacturing unit in UK or not.
Peng and Nunes (2007) have cited the work of Wane and Rivani (2005) stating that PEST
assumes how external and indirect factors can affect a company’s capacity to produce. The
main purpose for conducting the PEST analysis is to find the external factors that might
affect Tesla. PEST constituents like minimum wage rates, oil prices, growing popularity and
use of renewable sources of energy and the progress made in electric and optical
technology are some factors which will have an impact on the company.

Political analysis is the most important part that is analysed before a company decides to
operate anywhere. Minimum wage rate is an important factor that companies take into
account before starting operations.

Graph 1 shows the change in the minimum wage rates from 1999. With slight dips in 2001
and 2003 the minimum wage rate has always been on a continuous rise. The minimum wage
rates is forecasted to increase in coming years as well.

Economic aspect of PEST is quite significant for companies. Change in diesel prices will also
have an effect on the electric vehicle industry.
Graph 2 shows the change in diesel prices. Diesel prices have continued to go up since 1978,
with a slight dip in 1988 and 2003. The prices went up in 2012 and sharply declined in 2016.
However, the price of diesel went back up 2018 and is expected to be on the rise.

Social factors shows consumers concern towards ecological issues. Today, people are opting
for renewable sources of energy to reduce carbon emission.

Graph 3 shows the trend in the usage of renewable sources of energy including electricity.
The use of renewable energy has been on the rise since 1990 and will continue to go in a
positive direction. This shows that consumers are aware about environmental issues and are
associating with companies that are socially responsible.
Technology is an important factor for companies like Tesla. Technological changes have a
huge impact on companies that rely heavily on technology for their operations.

Graph 4 shows that how much UK electrical equipment manufacturing sector has been
spending on research and development of electrical equipment. Except for steep drops in
1997, 2004 and 2012 the expenditure for research and development has been on a
continuous rise and is expected to rise until 2024.

Looking at the PEST analysis it can be seen that Tesla has a lot of benefits as well as threats.
In the case of political analysis, minimum wage rate has a significant impact on businesses.
The hourly minimum wage rate, set at £8.72 for age 25 and above can be seen as an
opportunity for companies. The increase in minimum wage rate will mean that people will
have more spending power in the long run which eventually will lead to higher demand and
this will benefit companies as well. Also, the increase will protect the living standards of
employees. According to Department of Business, Energy and Industrial Strategy (2020) the
minimum living wage rate will have a 2.2 percent increase in 2021 to protect the living
standards of hourly paid workers. This will motivate workers to do their work more
efficiently, leading to an increase in production value and long term profits for companies
like Tesla.

Another huge benefit for Tesla is the continuous rise in the prices of oil. The increase in the
price of oil will lead to customers buying less of fuel based cars hence decreasing the
demand for such cars thus, increasing the demand for electric cars. If the oil price continue
to rise, this would be a massive opportunity for Tesla to open a manufacturing unit in the
UK. According to BBC News (2020) the oil prices in the month of November has continued to
go up, reaching a new peak on 28 November at £48.84 per barrel. The business will benefit
from the price hike as the demand for electric vehicles will increase. However, increase in
the oil prices would also mean that demand for electric cars will also increase massively thus
threatening the financial position of the company as well. The company may not be able to
supply the huge demand at once. Tesla almost went bankrupt while trying to figure out how
to mass produce its Model 3 cars, which has a very high demand in the market (CNBC,
2020). This part of the PEST analysis for Tesla, Inc. shows the opportunity for the company
despite the financial problem it might face.

Social trends affect a company through various factors. The PEST analysis shows how Tesla
benefits with social trends in the market. Due to the raising popularity among consumers
towards renewable energy and low-carbon emission products, the consumption for
renewable products has changed greatly. This is the biggest benefit for Tesla. Being a brand
that provides eco-friendly vehicles, Tesla has made a huge name in the electric automobile
industry for its products. According to the trend today people are more drawn towards
companies that are socially responsible towards society and wish to associate themselves
with such companies. If this trend continues Tesla will be able to gain a huge market in the
UK as well. Opening a manufacturing unit in the UK, will surely benefit Tesla in the long run.
Also, Tesla cars are much cheaper than many fuel based cars thus more people are willing to
buy their products. This will also have a positive impact on the company’s profits.

The change in the technological aspect acts as an opportunity as well as threat. With the
increasing demand for better technological products, many companies are facing a huge
threat. To compete in the global market, Tesla must strive to come up with better and
improved technology. Many sectors UK’s manufacturing industry have been spending a lot
of money on research and development. This shows that companies are constantly trying to
come up with better products to stay in this competitive market. In the case of Tesla, the
company can try to come out with low costing yet more efficient batteries if it wants to gain
an upper hand in the electric automobile business. The company will also have to invest in
high amounts for the research and development of such products. This will be a huge threat
on the financial position of the company as well. However, if the company is able to
successfully come out with a breakthrough idea then it will prove to be the biggest benefit
for the company.

In regards to the UK market, it can be concluded that opening a manufacturing unit in the
UK will be a benefit for Tesla as they will be able to increase the production for their
products and thus try to fulfil the high market demand for their vehicles. Although there are
a few threats like advancement in technology there are a lot more benefits for the company
if it opens a unit in the UK in the future. With a growing positive attitude of customers
towards eco-friendly products, Tesla already has an upper hand. With this customer attitude
opening a unit in the UK would prove to be huge benefit for the company. According to
Robson and Kenchatt (2010) during the UK innovation survey conducted in 2009, the electric
and optical manufacturing industry had the highest rate of innovation among UK
manufacturing sector. This proves that the electric automobile manufacturing sector is
highly competitive market. To try and eliminate this threats, Tesla must continue to invest in
research and development and come up with much more efficient products at a lower cost.
Developing products with newer technology will help Tesla get an upper hand in the electric
automobile market.

References:

 BBC News (2020). Brent Crude Oil Features. 25 November. Available from
https://www.bbc.com/news/topics/cmjpj223708t/oil [Accessed 25 November, 2020]
 Department of Business, Energy and Industrial Strategy (2020) National Living Wage
increase to protect workers' living standards [online]. London: Department of
Business, Energy and Industrial Strategy. Available from
https://www.gov.uk/government/news/national-living-wage-increase-to-protect-
workers-living-standards#:~:text=The%20National%20Living%20Wage%20will,the
%20current%20economic%20situation%20poses. [Accessed 27 November, 2020]

 Jolly, J. (2019) Tesla Model 3 was UK’s third bestselling car in August. The Guardian
[online]. 5 September. Available from
https://www.theguardian.com/technology/2019/sep/05/tesla-model-3-was-uk-third-
best-selling-car-in-august [Accessed 25 November, 2020]
 Kolondy, L. (2020) Elon Musk says Tesla was ‘about a month’ from bankruptcy during
Model 3 ramp. CNBC [online]. 3 November. Available from
https://www.cnbc.com/2020/11/03/musk-tesla-was-about-a-month-from-
bankruptcy-during-model-3-ramp.html [Accessed 26 November, 2020]
 Peng, G., Nunes, M. (2007) Using PEST Analysis as a Tool for Refining and Focusing
Contexts for Information Systems Research. Department of Information Studies
[online]. pp. 230. Available from https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1417274 [Accessed 25 November, 2020]
 Robson, S., Kenchatt, M. (2010) First Findings from the UK Innovation Survey
2009.Economic and Labour Market Review [online]. 4(3), pp. 31. Available from
https://link.springer.com/article/10.1057/elmr.2010.34 [Accessed 25 November,
2020]