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Homework answers / question archive / MBS686 Economics and Business Strategy   INDIVIDUAL PROJECT – Economic Concepts (20%):   An Application of Basic Economics Concepts to the supply, demand and production of various types of electric vehicles in the global marketplace

MBS686 Economics and Business Strategy   INDIVIDUAL PROJECT – Economic Concepts (20%):   An Application of Basic Economics Concepts to the supply, demand and production of various types of electric vehicles in the global marketplace

Economics

MBS686 Economics and Business Strategy

 

INDIVIDUAL PROJECT – Economic Concepts (20%):

 

An Application of Basic Economics Concepts to the supply, demand and production of various types of electric vehicles in the global marketplace.

 

Using the following press release as a starting point show how the economics concepts can be applied to a contemporary economics issue.

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¬_ 14/01/2023, 19:34 Tesla cuts prices by up to a fifth in US and Europe as EV price war starts | Tesla | The Guardian

  

Tesla

Tesla cuts prices by up to a fifth in US and Europe as EV price war starts

Price of cheapest Model 3 saloon car dropped by £5,500 to £42,990 to combat slowing demand as carmaker shares drop

Jasper Jolly

@jjpjolly

Sat 14 Jan 2023 00.57 AEDT

Tesla has cut the prices of its cars in the US and Europe by up to a fifth as it contends with slowing demand and increased competition.

The US carmaker expanded its sales by 40% during 2022 to 1.3m, making it the world’s largest manufacturer of pure battery electric cars, ahead of China’s BYD. However, investors have started to worry that sales growth will be limited by economic slowdowns in some of its key markets.

Carmakers around the world are ramping up production of electric vehicles to comply with bans on internal combustion engines that will start to come into force in the UK and Europe at the end of the decade. Tesla faces competition from new electric-only rivals such as Lucid, Fisker and Polestar as well as electric cars from long-established brands such as Volkswagen, General Motors and Hyundai.

After a period when the supply of new cars outstripped demand because of coronavirus pandemic-related supply chain disruption, carmakers’ attentions are turning to the possibility of falling demand.

The concerns have contributed to the plunge in Tesla’s stock market valuation since the height of investor enthusiasm in 2021. Tesla’s market value has fallen by more than two-thirds from more than $1.2tn in November 2021 to less than $400bn.

The fall in value has meant that Elon Musk, its chief executive and major shareholder, is no longer the world’s richest person and has broken the world record for the largest loss of personal fortune in history, according to a Guinness World Records report. The distraction of Musk’s takeover of social network Twitter is also thought to have contributed to the decline in the carmaker’s value.

Tesla shares, which are listed on New York’s Nasdaq stock exchange, dropped by 6% in pre-market trading on Friday.

A Tesla spokesperson said the company had seen “a normalisation of some of the cost inflation” after “a turbulent year of supply chain disruptions” which allowed it to cut costs for customers.

The price of the cheapest Model 3 saloon car, the rear-wheel drive version, dropped by £5,500 to £42,990. The cheapest Model Y crossover dropped to £44,990, although the biggest cut was applied to the most expensive Performance version, which dropped by £8,000 to £59,990.

In the US the entry-level version of its Model Y now costs $52,990 (£43,526), down from $65,990 – a 20% drop that will mean the vehicle qualifies for US tax credits. The Model 3 dropped to $43,990, a $3,000 reduction.

Dan Ives, an analyst at US investment bank Wedbush, said that the US and European price cuts were “eye-popping” and that investors would probably respond negatively. He added that an “EV price war” between manufacturers was now under way.  However, he said it was the “right strategic poker move by Musk”, and that the cuts could increase deliveries by between 12% and 15%.

“Tesla now has global scale it did not have a few years ago and has margin flexibility to make aggressive moves like this to gain further market share in this EV arms race,” Ives said.

Ginny Buckley, chief executive of car website Electrifying.com, said Tesla buyers who took delivery in recent months would be “less than impressed by the move, which could ultimately undermine confidence in the company”.

“Carmakers will usually carefully manage prices and incentives to avoid crashing used values and upsetting customers,” she said.      

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The following economics concepts may be considered in your analyses.

•             Choice

•             Markets

•             Substitutes, complements

•             Elasticities

•             Inflation

•             Inputs

•             Production costs

•             Budget constraint

•             Preferences

•             Supply and Demand

•             Opportunity Cost

 

In your analysis consider, for example, ranking of the importance of these concepts to the present issue in the article, measurement issues associated with the concepts, etc. It is not necessary to consider all the above economics concepts.

 

 

 

GENERAL REQUIREMENTS:

Develop logical and coherent responses to the issues raised above. The opinions or decisions that are presented should be supported by references to appropriate texts, articles, websites, and current economic practices.

 

The following lists of deadline and requirements should be adhered to. Failure to do so will result in a lower grade on the project.

 

SUBMISSION DATE:  22th February 2023, 11.00pm

 

 

FORMAT REQUIREMENTS:

The paper should

•             be typed and double spaced;

•             flow as a well documented coherent paper;

•             cite all sources;

•             have correct formats for the bibliography, footnotes, and references;

•             have on the first page of the paper, the title of the paper, the author’s names.

 

Quality is the most appropriate determinant of the grade awarded but it is suggested that approximately 1,500 words be a suitable length.

 

 

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