The Russian automotive sector is vibrant. According to Kelly (2011), a booming Russian economy is the one that fuels it. It is also dynamic. Russia was the fifth largest passenger car selling country in Europe in 2006 (Kelly, 2011). Analysts focus that in 2017, the number will be over three million (Kelly, 2011). The reasons for the growth of the automotive industry in the country is the improving purchasing power of citizens, dealer networks that keep on expanding and government programs that stimulate production among many other factors. They create favorable conditions for both foreign and domestic producers of components and cars. These conditions, among many others, are responsible for Tesla’s decision to enter the Russian market. However, some political factors or risks affect it.
One crucial political factor that affects Tesla in entering into the Russian market is the favorable business condition that the Russian government creates. Milosheska (2013) mentions that incentives are imperative in enabling companies to invest in countries. Kelly (2011) also says that the Russian government implements programs that encourage businesses and organizations to invest in the country. Such are incentives that will promote Tesla to manufacture and sell its cars in Russia. The incentives or programs are both financial and non-financial. There are labor laws that provide cost-effectiveness for companies in the Russian automotive industry. The other political factor that presents an opportunity for Tesla to operate in the Russian automotive market is the continuous expansion of trade agreements. Milosheska (2013) mentions that when Russian opened its economy to foreign trade, it facilitated trade agreements, which ensure that it gains from investors. Tesla can take advantage of such and collaborate with local car dealers to smoothen their operations and sales of cars in Russia. Furthermore, Russia has a political stability, which is also an opportunity for it to sell its products in the market. A political situation in a country is a great determinant of its economic environment. Since Russia has a well-functioning government without instability like other countries, its economic environment is favorable for Tesla to sell its products.
Another political factor that favors Tesla’s manufacturing of cars in Russia is its position and encouragement to automakers to manufacture electric vehicles. The country has several initiatives that support innovation and development of hybrid cars and electrical engines. For instance, the government offers a tax credit of $6500 for the purchase of electrical vehicles (Kelly, 2011 & Milosheska, 2013). Since Tesla’s focus is on the development of hybrid and electric vehicles, this is an excellent opportunity for it to venture into the market and manufacture such cars.
One political factor that possess as a risk in entering the Russian market is its plan to eliminate middlemen. According to Milosheska (2013), Tesla plans to remove its middlemen and sell directly to the consumers. It is a problem because the Russian vehicle industry flourishes on middlemen. Relatively, by excluding them, Tesla will not have domestic partners and dealers of with whom it can partner to sell its products effectively. Direct selling will be problematic because of cultural issues since it does not understand the market dynamics well. Factors that can cushion it against this problem are the level of employment and economic activities. The regulatory environment is also not a problem because the Russian vehicle industry is open. It presents opportunities for growth in the automotive industry.
In essence, political risks that Tesla faces in entering in the Russian market are major opportunities for it. Government programs, incentives, regulatory environment and many others support the company’s plans to manufacture and sell its products. Coupled with the growing economy and the booming middle class, Tesla has a high chance of experiencing success. Therefore, it should enter the market, but in partnership with local dealers so that cultural factors among others will not negate its success.
- Kelly, M. (2011). Russian motor vehicles: Soviet limousines 1930-2003. Dorchester: Veloce.
- Milosheska, D. (2013). Tesla Motors, The Reinvention Of The Luxury Sports Car Industry. Global Luxury Trends, 209-223. doi:10.1057/9781137287397_16.