Macroeconomic Analysis of Countries Selected for Tesla Model 3 Global Expansion

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The purpose of this analysis is to leverage the macroeconomic indicator extract from public data source that impact countries that can help inform decisions on choosing final candidate for Tesla Model 3 global expansion and investment project.

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Nội dung Text: Macroeconomic Analysis of Countries Selected for Tesla Model 3 Global Expansion

Macroeconomic Analysis of Countries Selected for Tesla Model 3 Global Expansion Background Developing countries depend heavily on imports of foreign oil and heavy oil consumption is widely unregulated that cause extreme air pollution. Electric cars can reduce dependency on oil fuel consumption and greenhouse gas emission. Despite higher initial costs, electric vehicles have the potential to save money and help communities become healthier and more energy independent. Electric vehicles are making much more economic sense, and their environmental benefits will soon see them become widely adopted. Forward thinking governments started to provide additional incentives at the time of purchase, Although initially electric vehicles by Tesla were very expensive and targeted for customers less sensitive to price , the company business strategy more recently has also been focused on bringing down the cost of battery, which in turn allow them to offer cheaper and higher volume cars. The most recent Model 3 and the Model Y, are priced much lower, and aimed at a higher volume market, selling over 100,000 vehicles each quarter. Tesla continuously updates the hardware of its cars rather than waiting for a new model year, as opposed to nearly every other car manufacturer. Outside United States, Tesla opened its first "Gigafactory" in China and Germany between 2019- 2020 and aim to expand market share in Asia, Mideast and Europe. Purpose The purpose of this analysis is to leverage the macroeconomic indicator extract from public data source that impact countries that can help inform decisions on choosing final candidate for Tesla Model 3 global expansion and investment project. The analysis compares top 2 countries selected in previous assignment based on indexing and ranking. Looking at both dynamic economic indicators trend over past 5 years as well as static indicator of most recent year will help decide which one is best fit for investment project. Data Source GDP per capita, Inflation and unemployment, trade openness were extracted from The World Bank. The World Bank Corruption was extracted from Transparency International, Corruption Perceptions Index 2018 (CPI- 2018. Transparency International CPI
Dynamic Variables Analysis 1. GDP per Capita Trend over 5 years Gross Domestic Product (GDP) per capita shows a country's GDP divided by its total population. Global analysis of per capita GDP helps provide comparable insight on economic prosperity and economic developments across the globe. Malaysia had higher GDP per capita than China (9,818 vs. 8,148) back to 2016. After 2016, Malaysia growth started to slow down, plateau at ~11K in 2019 and dropped to ~10K in 2020. China however, is shown to be continuously growing and reached similar level ~10K as Malaysia in 2020. If the historical trend continues, we would expect to see more growth in China and exceed Malaysia in next a few years. With fast growth in GDP per capita, China consumer purchasing power will likely surplus Malaysia and generates more demand for goods in near future. GDP per Capita Trend over 5 Years 12000 11500 GDP per capita (current US$) 11,378 11,414 11000 10500 10,500 10,402 10,259 10,217 10000 9,977 9,818 9500 9000 8,879 China 8500 Malaysia 8,148 8000 2016 2017 2018 2019 2020 Year 2. Inflation, GDP deflator (annual %) The GDP price deflator, also known as the GDP deflator or the implicit price deflator, measures the changes in prices for all of the goods and services produced in an economy. Using the GDP price deflator helps economists compare the levels of real economic activity from one year to another. When looking at inflation trend of China and Malaysia over the past 5 years, both countries show similar pattern that inflation increased from ~1% to 4% in 2107 and then started to decline and below 1% in 2020, although Malaysia we saw slightly stronger dampen.
Inflation, GDP deflator Trend over 5 Years 5.0 China Inflation, GDP deflator (annual %) 4.0 4.2 3.8 Malaysia 3.5 3.0 2.0 1.7 1.4 1.3 1.0 0.7 0.7 0.0 0.1 -1.0 -0.8 -2.0 2016 2017 2018 2019 2020 Year If correcting GDP per capita with inflation rate as shown below, we still see similar trend that Malaysia GDP growth slows down, while China is growing and expected to exceed Malaysia in next few year if historical trend continues. Real GDP per Capita Corrected with Inflation 12000 Trend over 5 Years Real GDP per capita (current US$) 11500 11,407 11,301 11000 10500 10,483 10,430 10000 10,085 9,872 9,655 9,628 9500 9000 China 8500 8,504 Malaysia 8000 8,033 2016 2017 2018 2019 2020 Year
3. Unemployment Unemployment refers to the share of the labor force that is without work but available for and seeking employment. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall. When comparing unemployment between China and Malaysia, China’s rate has been relatively steady around 4-5%, while Malaysia rate was lower around 3% before 2019 and increased to 4.5% in 2020. Overall, the trend of both countries is steady with small fluctuation. 5.5 Unemployment Rate Trend over 5 Unemployment (% of total labor 5 5 Years 4.5 4.5 4.6 4.55 4.4 4.3 4 force) 3.5 3.44 3.41 3.3 3.31 3 China 2.5 Malaysia 2 2016 2017 2018 2019 2020 Year Static Variable Analysis 1. Corruption The index, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean. More than two-thirds of countries score below 50 on this year’s [2018] CPI, with an average score of just 43." This indicator typically matters, because it is risky and expensive to do business in corrupt countries. When comparing China to Malaysia, China is scored as 42, similar to the global average 43, while Malaysia is scored higher with less corruption and slightly better for foreigner business.
Corruption Index 2020 60 51 50 42 40 Corruption 30 20 10 0 China Malaysia 2. Trade Openness (%GDP) Trade is the sum of exports and imports of goods and services measured as a share of gross domestic product. We will use trade expressed as percentage of GDP as a proxy for country's openness to trade. This indicator matters because countries that are more open to trade are generally more hospitable to foreign direct investment. Malaysia has much higher rate as 117% comparing to China with 35%, indicating large influence of trade on its domestic activities. Trade Openness (%GDP) 2020 140% Trade Openness (Trade, %GDP) 117% 120% 100% 80% 60% 35% 40% 20% 0% China Malaysia
Conclusion By comparing dynamic variable trend such as GDP, inflation and unemployment, as well as static variable corruption and trade openness, China and Malaysia are well differentiated on GDP growth, and trade openness, but found to be similar in other aspects such as inflation, unemployment and corruption. To evaluate countries best fit for Tesla Model 3 investment, the top factors to be considered are purchasing power, economic growth and government support etc. Tesla model 3 requires certain level of purchasing power that meets initial cost and later payback, the most recent GDP per capita of China is similar to Malaysia and the purchasing power are comparable between two. However China GDP per capita growth rate is much higher than Malaysia and if trend continues, it would create higher demand of EV in the near future and more sales for Tesla. The trade openness of Malaysia is higher than China, implying a more hospitable environment in general. However, the demand of Electric Vehicle (EV) at country level is driven by other factors like air pollution, government support, tax exemption, urban population density and commute needs etc. With growing urban population and air pollution in past decades, China government is concerned with much higher cost for fixing it later and started to encourage and provide tax exemption for environmental friendly EV car. Thus China government support provide more hospitable environment specifically for EV market and Tesla, and weigh more than trade openness in general. Taking together, China macroeconomic environment is friendlier for Tesla Model 3 EV comparing to Malaysia and considered as best fit for investment in the near future.