Tesla: Sustainable Product vs Sustainable Company?

Tesla has long reigned as the king of electric vehicles, but creating a low impact product does not guarantee a sustainable business. In order to gain a comprehensive understanding of a company’s sustainability all three factors must be addressed: Environmental, Social and Governance (ESG). 


Sustainability often becomes interchangeable with ‘eco-friendly’ to those who are fairly distant from the concept. It can be simplified down to switching off lights, beach clean-ups, and paper straws. While it is undeniable that these things are important when it comes to the future of our planet, the common ability to address the concept of sustainability simply with standard environmental improvements is even more detrimental than forgetting to recycle your coke bottle. The ability to recognize that sustainability requires equity and development not just in an environmental sense but also social issues, such as human rights, are required to create meaningful sustainable change. This is a link that is continually failed to be made in current society.  

Environmental

In my opinion, the epitome of this dynamic is Tesla. The modern enterprise specialising in electric vehicles (EVs) and renewable solar energy appears, on the face of it, to be successfully achieving its purpose to “accelerate the world’s transition to sustainable energy.” And this is true: EVs are a major driver in the future of road transportation. The products Tesla creates are aiding this process in a positive way; its cars produce significantly less carbon emissions than the Internal Combustion Engine and have some of the highest energy efficiencies in EVs to date.  

EVs are only as renewable and environmentally friendly as the electricity used to power them.

However, this shouldn’t be taken at face value. EVs are only as renewable and environmentally friendly as the electricity used to power them. In the US, the power grid is currently made up by 85% non-renewable energy, meaning that despite Tesla cars producing no direct emissions, the majority of the energy used to power them is rife with fossil fuels. This being said, Tesla’s recognition of the importance of solar energy is a commendable addition to their product portfolio, but the current non-renewable nature of EV charging needs to be highlighted. 

However ‘sustainable’ Tesla’s product may be, this does not necessarily result in a sustainable company. Upon reading Tesla’s Impact Report, it becomes glaringly obvious that its efforts to be sustainable are superficial. They have no quantitative long-term targets, provide little information regarding stakeholder engagement, and seem to internalise praise with little evidence of any meaningful external partnerships. Compared to sustainability giants such as Adidas and Unilever, Tesla’s hollow efforts to report not just their actions but their goals leave a lot to be desired. The distinct lack of information on the ‘S’ and ‘G’ of ESG (social and governance) puts into question the ‘impact’ of this ‘Impact Report’.  

Social

The importance of social issues within sustainability can be understood by the concept of manufacturing a t-shirt from renewable fabrics but using exploited labour. I think we can all agree there isn’t much that is sustainable about that. Although this analogy does not align exactly with Tesla’s production, the same need for respect of human rights and stakeholders is equally essential. Over the years, Tesla has received various reports of health and safety related concerns/ breeches in policy and law and has low reports of customer service satisfaction, even despite the allure for their products.

This questionable disrespect for stakeholders in general has arguably climaxed with the company’s response to the COVID-19 pandemic and the consequent “shelter-in-place” orders throughout America. Tesla was one of the last companies in Fremont, California to close their factory in late March when they continually broke “shelter-in-place” orders before they concluded with the local authority that they would have to close. Following this, when the Californian economy started opening back up, Tesla continuously tried to flirt with local guidelines in an attempt to justify the reopening of the factory, despite Fremont’s “shelter-in-place” orders still being in operation.

This complete disregard for local legislation and safety questions Tesla’s commitment to their Fremont factory stakeholders, with residents voicing major concerns about what effects the functioning factory would have on the county’s COVID-19 cases. Additionally, there were reports of employees getting fired after not returning to work due to fears of their family’s safety. There were also accounts of lax health and safety within Tesla factories, as there was a noticeable lack in PPE, social distancing, and guidance for employees. The irresponsibility that lies in putting production (which was not required for the company’s survival) before the safety of staff is a clear disregard for the social needs of not just Tesla’s employees but also wider society. 

Governance

Despite the global reach of Tesla, it is actually a relatively small company in comparison to other car manufacturers. In 2019, Tesla’s estimated sales were $24 billion while GM and Ford made $138 billion and $144 billion respectively: both almost 6 times the size of Tesla. Yet Tesla’s stock market value has exceeded that of GM and Ford combined. That may seem strange, but strange becomes outrageous if you combine it with the fact that Tesla has never made a profit, a fact that makes you begin to question the logic of Tesla’s stock evaluation. 

The mist clears when you look at the salary of Tesla’s CEO, Elon Musk. From 2018, Musk receives an annual salary of $0 from Tesla and instead receives all of his CEO compensation in company stock. Although linking CEO income to stock price can encourage growth and company development, it is also important to recognise the setbacks. Musk’s salary is further confused by not just being tied to stock price but also being dependent on immense targets, which cripples the ability to easily quantify how much one of the highest paid CEOs actually earns. This lack of transparency conflicts with the continued plea for greater clarity in the company’s financial and non-financial performance. Moreover, stock-dependent income can incentivise corporate governance to encourage the inflation of stock prices, which may lead to completely unsustainable practices. 

to generate utopian change, companies must be held accountable for not just their products but also for themselves

Beyond his dubious remuneration, Elon Musk’s leadership and behaviour leaves little to be admired. Musk is well known for his outspoken opinions on Twitter, which have cost him personally and wiped billions off the company’s value due to controversial tweets, such as falsely claiming he had received enough funding to take Tesla private at $420 a share. The unstable nature of Tesla’s leadership has meant that the board has had difficulty gaining personal liability insurance in regards to the company’s performance, which has resulted in Musk personally insuring them for a fee of almost $1 million. This introduces a conflict of interest between the board and the CEO they oversee and threatens the ability of the board to do their job and act in the best interests of the shareholders. 

The non-renewable aspect of charging, social discord created by poor respect for a multitude of stakeholders, and the complete fanfare that is Tesla leadership put into question whether or not Tesla’s “accelerat[ion] (…) to sustainable energy” is really that sustainable after all. Companies with innovative products can no longer leave the rest of their baggage at the door; to generate utopian change, companies must be held accountable for not just their products but also for themselves. 

Art by Tina Smaile

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