Tesla’s Most Underrated Challenge To Medium and Long-Term Success

When asked about the biggest key to Tesla’s
TSLA
success in the short and medium term, Elon Musk said two words, “autonomous driving.” He then explained, “the potential for autonomy is that the value of autonomy is so high, that even if you have a discount, a percentage probability of autonomy happening, that is so incredibly valuable.” One of the most obvious and significant challenges to autonomous driving will be for legislators, regulators, and inside and outside counsel to develop regulations that protect the public from unmanned vehicles while also allowing the innovation to gain traction with consumers all over the world. When you consider the legal component of autonomous driving and the importance of legislation that authorizes governments to support the electric vehicle industry, one would think that “navigating the legal framework” would be listed as one of the most crucial challenges for Tesla.

However, a simple Google
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search reveals that navigation of legal and regulatory challenges is not on the radar of experts and journalists following the EV market. None of the 5 top hits for “challenges for Tesla” list this factor (Reuters, Nasdaq, and Google) This is made all the more surprising by the fact that Tesla has a physical presence in more than 40 countries—all of which have different laws and regulations regulating EVs and autonomous driving.

Apparently, it was not high on Tesla’s list either when establishing its presence in Germany. Below, I provide a case study to demonstrate how Tesla’s apparent failure to explore legal nuances of Germany’s investment climate caused labor problems and significant manufacturing delays.

Tesla in Germany

In December of 2022, Tesla’s reputation and bottom line in Germany have taken a significant hit. Harsh working conditions that violate local employment laws have triggered widespread dissent within the facility, toxic press coverage, and significant labor shortages that caused the car manufacturer to fall “way short” of its production goals.

If they were looking at the right data in the due diligence stage, Tesla would not have been surprised by this problem. Conventional review of country data calls for analysts to look at “rule of law” or “political stability” to measure the quality of a host country’s investment climate. A review of this data would have revealed that Germany is a low-risk, high-reward location for inbound investment. That said, selection of data that was tailored to Tesla’s business model would have identified the need to look at the extent to which the host government restricts management’s efforts to control the labor environment.

The following numbers demonstrate that a proper review of specific data points is what should have been performed prior to considering operations in Germany.

Germany Rankings:

Rule of law rankings: 5 out of 139

Political stability rankings: 13 out of 180

Labor force rankings: 14 out of 180

Labor freedom index: 70 out of 180 (this measures the extent to which governments regulate the workplace.)

Consideration of conventional data for measuring government risk would be insufficient. As the data reveals, a search of the extent to which the government controls working environments would have alerted Tesla to the problem.

Tesla in the Future

In many cases, laws lag behind technology because many social, economic, or health effects are not known at the time that a product is ready to enter the market. For this reason, new products and services are put into circulation and the regulations are often implemented and adapted after the fact. However, given the safety risks of autonomous driving, the laws and regulations governing Tesla’s automatic driving will need to be figured out a priori. This means that Tesla’s leadership, in-house counsel, and government relations teams will play a very important role in helping the company maximize its value on a global scale. While attorneys and compliance officers often become more relevant after the product hits the market because law lags behind the technology, Tesla’s in-house team and external legal advisors will play a significant role earlier in the process as it aims to corner the global market on autonomy.