Comprehensive report analyzing the various microeconomic factors that influence the sales of EV Cars

Questions & Answers: Pretext/Questions: Imagine you are an economic consultant for Tesla, specifically focusing on their electric vehicle, the Model 3, in the U.S. market. Your task is to write a comprehensive report analyzing the various microeconomic factors that influence the sales of this vehicle. Your report should address the following points: Read the case study and explain the main challenges faced by prospective buyers of electric vehicles, and how these concerns affect the overall market.  Discuss the factors that will influence the demand for the Model 3. In your response, incorporate findings from independent online research to identify and explain the external factors that have a significant impact on the sales of Model 3. Calculate the Herfindahl-Hirschman index of the battery electric vehicles (BEV) market based on the data from table-1 above. Based on your result, identify, and analyze the type of market structure. Provide justification for your identification. How does Tesla's pricing strategy for the Model 3 align with the identified market structure? Provide a conclusive set of recommendations for Tesla to enhance the market performance of the Model 3. Q1:  Read the case study and explain the main challenges faced by prospective buyers of electric vehicles, and how these concerns affect the overall market. Answer: As could be observed from the article, there are multiple challenges often observed by people Who Want to Buy Electric Cars, in the United States people who want to buy electric have some difficulties that make them think before they decide, and these difficulties also affect the overall car market. These difficulties include worries about initial money the upfront cost to pay is on higher side, how far the car can drive – mileage is an important factor since car is the primary way of transportation for most Americans, places to charge the car – Its increasing with time but yet is not available everywhere, and not being sure about safety having concerns of accidents observed recently due to thermal runaway of batteries, such news impacts the market adversely. Cost of Vehicle : Electric cars usually cost more when you first buy them compared to regular cars that run on fuel. The starting price of electric cars, like the Tesla Model 3, can be a big problem for many people. This is especially true when you see that the average cost of electric cars stayed high, around $61,500 in December 2022. This higher cost happened partly because there were problems with getting enough parts for cars and the materials used to make them. Scarcity of Semiconductors and other materials have played significant role in increasing the cost. Mileage: Another big worry is how far the electric car can drive without needing to be charged. In a survey in October 2022, 47 out of 100 people in the U.S. said they thought an electric car should be able to go 400 miles or more without stopping to charge. Even though some electric cars, like the Tesla Model 3, can actually go far enough, many people still feel worried about running out of power, which is called "range anxiety." Finding Places to Charge: Even though there are lots of public places where you can charge electric cars in the U.S. (more than 136,500 places in 2022), many people want to charge their cars at home. But it can be expensive and hard to set up the charging equipment at home, and that makes it tough for some people to own an electric car. Not Sure About Car Prices and Changes: There are some things happening in the car market that are making people unsure. Some car parts are not easy to get, and the cost of materials is going up. This has caused worries about prices going up for regular cars. Electric cars have been affected less by these problems, but they still have higher starting prices, which might make people think twice before buying. All these worries together make people think electric cars are not as easy to use and own as regular cars. Solving these problems is really important so that people feel more confident and want to buy electric cars, like the Tesla Model 3.

Q2: Discuss the factors that will influence the demand for the Model 3. In your response, incorporate findings from independent online research to identify and explain the external factors that have a significant impact on the sales of Model 3. Answer:   Being the market leader in segment, Tesla model 3 has few strong advantages and influence over other EV options available in the market Below are few of the factors that influence the demand of Tesla model 3 and will play important role to keep influencing and impacting its demand:   1)    Brand Reputation  Tesla's reputation as an innovative and disruptive company, along with Elon Musk's high profile, has contributed to the Model 3's appeal. Tesla's leadership in the EV market and its commitment to pushing the boundaries of electric vehicle technology attract consumers seeking pioneering solutions. 2)    Early Market Capture Tesla is one of the Early mass-market vehicles which increase the expectation of Model 3. The market Penetration and the brand recognition of Tesla is way before the start of the Other EV’s. This opens up the opportunity to gain loyalty of users and showcase the potential consumers the level of support availability and enhancements that could be offered. 3)    Resale Value: The Resale value of Tesla tend to holds relatively high compared to other EV’s thus making it a long term value investment for the consumers. Since we know to have Batteriy is major component of EVs and significant part of costing for the Model 3 too, proven reliability of Tesla’s battery helps keeping the resale value at considerable point.   4)    Range of Model 3: Model 3 provides impressive electric range which is crucial to address daily use. its long-range capabilities often outperform many other EVs, giving it an edge in terms of usability and convenience. Even though 333 Miles is not the highest but fits somewhere in between to have least people having the “Range anxiety” while riding it.   5)    Charging Infrastructure With 45,000+ Superchargers, Tesla owns and operates the largest global, fast charging network in the world. Tesla’s supercharger network provides fast and convenient charging option which made long travel feasible. Model 3 gives competitive advantage over other EV’s addressing the charging concerns   6)    Performance: The estimated maximum power of the Tesla Model 3 Performance is 393 kW (527 hp). The estimated maximum torque is 487 lb-ft. The Tesla Model 3 Performance is all wheel drive and can accelerate from 0 to 62 miles per hour in 3.3 seconds. Tesla vehicles, including the Model 3, are known for their exhilarating acceleration and overall performance. The Model 3's electric powertrain delivers quick and smooth acceleration, enhancing the driving experience and setting it apart from Other competitive EV 7)    UI and infotainment: The Model 3's minimalist interior design, centered around a large touchscreen, sets a standard for intuitive user interfaces and infotainment systems. This streamlined approach to controls and displays enhances the overall user experience.   According to the research, Tesla model 3 captures the market share of 31% which is more than the total of other all other remaining EV. The main motto of EV success is the clear understanding of “What people want” Along with the above-mentioned factors, environmental consciousness and edge cutting technology makes Tesla a unique brand and sets to have higher expectations in the segment. Source: Statista.com  Q3:  Discuss the factors that will influence the demand for the Model 3. In your response, incorporate findings from independent online research to identify and explain the external factors that have a significant impact on the sales of Model 3.   Answer:   The Herfindahl-Hirschman Index (HHI) is a widely used measure of market concentration, calculated by summing the squares of the market shares of all firms in the market. It's useful in identifying market structures and is often used by government regulatory authorities to assess the potential anticompetitive effects of mergers. Manufacturer No of Registration Sum of Squares Tesla 155360 0.370308079 Chevorlet 19947 0.006104357 Ford 13362 0.002739225 Volkswagen 10053 0.001550516 Hyundai 8064 0.000997667 Mercedes-Benz 7168 0.00078828 Rivian 7134 0.00078082 BMW 7107 0.000774921 Kia 6046 0.000560817 Audi 4494 0.00030985 Nissan 4365 0.000292316 Volvo 2763 0.000117124 Polestar 2630 0.00010612 Lucid 1739 4.63964E-05 Toyota 1570 3.78167E-05 Subaru 1399 3.00276E-05 Cadilliac 945 1.37009E-05 Genesis 786 9.47829E-06 Lexis 338 1.75274E-06 GMC 17 4.43387E-09 Vinfast 17 4.43387E-09 255304 0.385569273   The HHI value can be interpreted in the following way: HHI below 0.01 (or 100): No concentration, the industry is considered to be competitive. HHI between 0.01 to 0.15: Low concentration. HHI between 0.15 to 0.25: Moderate concentration. HHI above 0.25: High concentration. Given an HHI of 0.35, this implies a high level of concentration in the BEV market, suggesting an oligopolistic structure. In oligopolies, a small number of firms have a large majority of market share. These industries often feature high barriers to entry, differentiated products, and the actions of one firm directly impact others. Tesla, with a significantly larger market share than any other company in the market, is the market leader. Their pricing strategy for the Model 3, their mass-market vehicle, aligns with this market structure. As the dominant firm, Tesla can exercise considerable influence over the price. They have chosen a strategy of premium pricing for innovative, high-quality products, justifying the higher price through product differentiation (e.g., technology, brand reputation, charging infrastructure). This helps maintain their large market share and high profits, discourages new entrants, and allows them to continue investing in research and development.   That said, the introduction of the more affordable Model 3 and Model Y is a strategic move to capture more of the market and prevent potential competition from gaining a foothold. Given the high concentration of the market, any significant change in Tesla's pricing strategy could force reactions from other players, illustrating the interdependent nature of firm behavior in an oligopoly.

Q4:   Provide a conclusive set of recommendations for Tesla to enhance the market performance of the Model 3.  Answer: Market performance is a key indicator that reflects business performance. Market performance can be shown by the increase of market share. Increase in Market share in turn is a end results of the relationship of selling price to costs, the size of output, the efficiency of production, progressiveness in techniques and products. We suggest the following recommendations to enhance the market performance of TESLA. To enhance the market performance of the Tesla Model 3, the following recommendations could be suggested: Cost Reduction: Exploring innovative ideas for cost reduction in production and supply chain management to lower the upfront price of the Model 3, making it more accessible to a broader range of consumers. Charging Infrastructure Investment: Collaboration with governments and private entities to invest in expanding the charging infrastructure, particularly at residential locations. This will help alleviate charging concerns and improve the overall ownership experience. Considering adapting to universal Charging setups would be adding up the help it needs to cater to adding volume of cars and hence would enhance the acceptability of Tesla EVs along with other EVs in the market. Consumer Education: Continue and expand educational efforts to inform consumers about the advantages of EV ownership, emphasizing long-term cost savings, environmental benefits, and the convenience of charging at home. Sharing information of breakeven duration to the consumers comparing it with the conventional cars would add up to the interest of potential buyers. Range Anxiety Mitigation: Develop marketing campaigns and information materials that emphasize the ample driving range of the Model 3 and other Tesla EVs, addressing the range anxiety concern. Being Tesla the leader of innovations in the EV segment, new technologies like battery swapping and other disruptive technologies can be explored. In case Tesla can convey market to not have to stop for charging the batteries will be a great boon to the market. Incentive Programs: Collaboration with governments to create incentive programs that provide financial assistance or tax credits to potential Model 3 buyers is necessary to cut down the effective upfront price for the potential buyers making it a lucrative alternative and more financially appealing. This also in turn will support governments initiatives to cut down carbon emission and fulfills concerns regarding global warming in some terms. Partnerships: Establish partnerships with other industries and organization in the segment to adapt to universal solutions for charging, using similar parts specially that of the semiconductors to ease the sourcing, also to renewable energy providers that could offer solutions that include solar panels and home charging installations, further enhancing the attractiveness of Model 3 ownership. In Conclusion, when we know that the market performance of TESLA will vary as per the market characteristics, our efforts in recommendation have been to devise to have satisfactory performance under market challenges. The challenges faced by prospective EV buyers are external factors influencing demand. Market structure analysis and strategic recommendations as above will collectively contribute to shaping the performance and acceptability of the Tesla Model in the U.S. electric vehicle market. By addressing these factors and implementing the proposed recommendations, Tesla being a technical giant can continue to lead in the EV space and further enhance the Model 3's market performance.