Rational for Limited Government Interference in the Case of Tesla Inc. Essay Example

Rational for Limited Government Interference in the Case of Tesla Inc

By (Student)

The concept of government noninterference (laissez faire) implies that companies such as Tesla should be allowed to freely supply its products in the market and sell to any buyer who is able and willing to pay the price [ CITATION She03 l 1033 ]. This will be in line with the core principles of capitalism that advocates for government noninterference so as not discourage innovation and private initiative. Notably, it is only fair to contend that government must maintain a minimal degree of interference in the economy to promote the creation of jobs in the economy through support for both new and existing companies that are innovative and sustainable. However, such interference should not be meant to limit disruptive entrepreneurial initiatives such as Tesla’s electric vehicles. The interference should also be temporary to the extent that a business becomes financially self-reliant to compete in a capitalistic market.

As noted by Kasper (2003), the principle of laissez Faire can be credited as the major source of growth and development in the western economies particularly in the 20^th century. Economies that adopted the capitalistic economic model recorded impressive growth in industries and standards of living. Laissez faire holds that government should allow the forces of supply and demand to regulate the transactions between private parties in the economy. This ensures that prices are not controlled by the government. As a result, there is real financial incentive for private sector to be entrepreneurial and innovative with new products and services that exploit advanced technology [ CITATION Geo08 l 1033 ].

In 2008, Tesla released the Tesla Roadster, the first all-electric sports car in the world. The vehicle could manage 200 miles on a single charge [ CITATION Tes171 l 1033 ]. In 2012, the company released the Model S, a full-size luxury sedan powered by a 100 kWh lithium ion battery [ CITATION Tes17 l 1033 ]. The Model S retails at $71,000 in the U.S. the vehicle can manage 335 miles on a single charge [ CITATION Tit17 l 1033 ]. Tesla’s vehicles are relatively expensive compared to the fossil-fuel burning alternatives produced by the likes of Toyota, GM, Ford and VW. However, Tesla has recorded impressive sales growth and the value of the company rose above that of GM and Ford in the U.S. market. Tesla has so far sold over 186,000 vehicles as was valued at $48.7 billion as at April 2017 [ CITATION Tit17 l 1033 ]. The company aims to drive down the prices of its products significantly over the long-term in order to compete effectively with the established motor vehicle manufacturers.

Since its release of Tesla Roadster model 2008, Tesla Inc has enjoyed favorable market reception across North America, Europe and Asia. Due to favorable market reception, the Company has produced four models since 2008. Model 3 is the third generation in Tesla’s electric cars line. In 2016, Tesla sold 80,000 vehicles. In the first quarter of 2017, Tesla sold 25,000 cars, a 69% rise compared to the same period in 2016 [ CITATION Vla17 l 1033 ]. In the automobile industry, Tesla’s is perceived as the leader in electric car innovation. This perception has enabled Tesla to attract a growing customer base across the world. However, Tesla’s growth is likely to affect the market share of established players such as GM and Ford particularly in the U.S. market [ CITATION Tit17 l 1033 ]. Notably, GM has struggled to market its Chevrolet Bolt and Chevy Volt. The latter has only sold 100 units at $37,000 so far and can only manage 200 miles per charge [ CITATION Bro16 l 1033 ]. Ford has also announced plans to have 7 of its models to be fully-electric including a SUV that will manage 300 miles per charge [ CITATION Lam17 l 1033 ].

After Tesla announced it had sold over 25000 vehicles in the first quarter of 2017, its shares soared to surpass the value of GM and Ford market capitalization. Tesla has sold all the vehicles it has produced since 2008 [ CITATION Vla17 l 1033 ]. In May 2016, Tesla reported that it had received 373,000 reservations for its Model 3. The company aims to sell the Model 3 at a highly competitive price of $35,000 in the U.S. [ CITATION Bro16 l 1033 ]. Competitors such as GM and Ford have struggled to overturn negative growth in sales since the 2008 recession in the U.S. In 2009, the U.S. government commissioned a bailout package for GM, Chrysler and Ford to protect jobs that would have been lost due to collapse of the three companies. GM and Chrysler filed for bankruptcy protection in 2009 [ CITATION Kim17 l 1033 ]. Evidently, the U.S. automobile is a strategic industry that holds over 1.2 million jobs. However, the industry is fragile and players could be destabilized by disruptive newcomers such as Tesla Inc [ CITATION The172 l 1033 ].

The fears of the collapse of the Automobile manufacturing industry in the U.S. forced the government to offer a $700 billion bailout to rescue GM and Chrysler from bankruptcy. The government intervention was meant to save 1.2 million jobs in the local economy and to ensure the collapse of the industry did not send negative signal for investors in the U.S. economy [ CITATION Kim17 l 1033 ]. Apart from loss of jobs, a collapse of such a vital industry is likely to cause panic in the market resulting in fall in value of the remaining automakers shares. Ultimately, the government would lose a vital source of tax income and also struggle to rebuild an economy in recession [ CITATION Kim17 l 1033 ]. Evidently, it is critically important for the government to ensure that competition in the automobile manufacturing industry only strengthens the sector and provides more jobs for skilled workers. It is in the political and economic interests of any government to protect it domestic industries from unfair competition (Tarr, 2010). However, it is difficult for a government to provide a rational for protecting an industry from local competition that offers a product that is desired by consumers in the market [ CITATION She03 l 1033 ].

The future of the global energy consumption is moving towards renewable sources. Governments all over the world offer tax incentives and subsidies to support companies investing in renewable technology products (Jordan-Korte, 2011; Zapata et al., 2010). Tesla has benefited immensely from subsidies from government subsidies in America and Europe. Tesla customers are also eligible for a significant tax exemption on the vehicles they buy [ CITATION Vla17 l 1033 ]. The aim of the government is to encourage focus on renewable energy that is does not pollute the environment. In addition, governments aim to subsidize the high cost of refining emerging technology and investing in new plants (Michael and Pearce, 2009). This means that the future of the automobile manufacturing is moving towards production of vehicles that integrate renewable energy and are more efficient (Zhang et al., 2011). Clearly, there is a rational for government supporting innovators such as Tesla despite the fact that such players will destabilize existing companies and puts jobs at risk.

In line with the principle of noninterference, it is important that the government allow the forces of demand and supply to regulate the automobile manufacturing industry. As argued by Kasper (2003), this will allow the players to differentiate their products in terms of efficiency, quality and price. Currently, Tesla has invested significantly in improving the quality and efficiency of its electric vehicles. As a result, Tesla consumers are willing to pay a premium price for its products [ CITATION Tes171 l 1033 ]. Recently, Tesla is more focused on reducing the price of its products by minimizing the production cost. This will make its products more competitive in the market. Notably, consumers will finally be able to use efficient, environmental friendly cars due to Tesla’s focus on the technology [ CITATION Tes171 l 1033 ]. Companies such as GM and Ford must also differentiate their products and offer more efficient products that Tesla in order to retain their market share.

From the literature analyzed thus far, it is justifiable to argue that the government should not only focus on offering incentives in the traditional industries, but also support innovative and sustainable businesses. This will provide a level playing field for all players to compete on their core competencies. The government should allow demand and supply forces to regulate the market once all the players have the capacity to sustain their activities and compete effectively in the market. Traditional companies should integrate new technology to remain relevant. Historically, companies that have resisted change normally collapse. However, companies such as Toyota have remained dominant by adopting new technologies and integrating new knowledge. In the absence of financial challenges in the sector, it is in the interest of economic growth and technological development that the government allows demand and supply forces to regulate the automobile industry. Such a move may make existing jobs redundant but it would open up a new industry with numerous jobs and sources of revenue for the economy.

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