Innovation Management at Tesla Company
SEU Innovation Management at Tesla Company Case Study
In this module, we looked at technology-based industries and the management of innovation. For this week’s assignment, review Tesla: Disrupting the Auto Industry, Case 12 (in your textbook). Remember: A case study is a puzzle to be solved, so before reading and answering the specific case study questions, develop your proposed solution by following these five steps:
- Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course area which apply to the situation described in the case study.
- Record the facts from the case study which are relevant to the principles and concepts of the course area issues. The case may have extraneous information not relevant to the current course area. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
- Describe in some detail the actions that would address or correct the situation.
- Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
- Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
- Case Study Questions:
- How are the conventional (internal-combustion-powered) automobile industry and the electric-powered automobile industry similar and how are they different?
- Was it a mistake for Tesla to open its patents? Why or why not?
- What is Tesla’s strategy? What role does innovation play in this strategy?
- How sustainable is Tesla’s competitive advantage? What changes in Tesla’s strategy or its management systems, if any, would you recommend?
- Your well-written paper should meet the following requirements:
Case 12 Tesla: Disrupting the Auto Industry
Tesla’s strategy was no secret: in 2006, chairman and CEO, Elon Musk, had announced: “So, in short, the master plan is: ? Build a sports car ? Use that money to build an affordable car ? Use that money to build an even more affordable car ? While doing above, also provide zero emission electric power generation options ? Don’t tell anyone.”1 By July 2017, Tesla had implemented its master plan. Phase 1 (“Build a sports car”) was realized with the launch of its Roadster in 2007. Phase 2 (“Use that money to build an affordable car”) began in 2013 with the launch of Model S. Phase 3 (“Use that money to build an even more affordable car”) was realized with the launch of Model 3 in July 2017. Providing “zero emission electric power generation options” involved, first, establishing SolarCity, which installed solar power systems; then, merging SolarCity with Tesla in 2016. The only deviation from Musk’s original plan had been the introduction of Model X—an SUV derivative of Model S—in 2015. Tesla’s “Master Plan, Part Deux,” which would take Tesla into integrating solar energy generation with storage, expanding to “cover the major forms of terrestrial transport” (including heavy-duty trucks), fully autonomous driving, and vehicle sharing, was outlined by Elon Musk on July 20, 2016: “So, in short, Master Plan, Part Deux is: ? Create stunning solar roofs with seamlessly integrated battery storage ? Expand the electric vehicle product line to address all major segments ? Develop a self-driving capability that is 10X safer than manual via massive fleet learning ? Enable your car to make money for you when you aren’t using it.”2 The success of Tesla’s strategy was reflected in the company’s stock market performance. Despite incurring huge losses, Tesla’s stock market capitalization was $55 billion on August 2, 2018. By comparison, Ford Motor Company—which in 2017 had produced 6.6 million vehicles compared to Tesla’s 103,184—was valued at $39 billion. General Motors, which sold 9.6 vehicles in 2017, had a market valuation of $53 billion. The optimism that supported Tesla’s valuation reflected the company’s remarkable achievements during its short history—including the acclaim that has greeted its first four models of car—and investors’ faith in the ability of Elon Musk to realize his mission “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.”3
Indeed, Musk’s vision for Tesla extended beyond revolutionizing the automobile industry: Tesla’s battery technology would also provide an energy storage system that would change “the fundamental energy infrastructure of the world.” The installation of the world’s biggest lithium-ion battery at a South Australian wind farm on December 1, 2017 was a landmark in this ambition.4 For a technology-based, start-up company, Tesla’s strategy was unorthodox. This was most clearly manifest in the scale of its ambition: not only did Musk wish to establish Tesla as one of the world’s leading car companies, he also wanted to “accelerate the world’s transition to sustainable energy” and, if this wasn’t enough to save Planet Earth, to develop pace travel in order to make homo sapiens an interplanetary species.5 Rather than minimizing risk and investment requirements by outsourcing to other companies, Tesla was the world’s most vertically integrated automobile supplier. Instead of keeping tight control over its proprietary technology, Tesla had opened its patent portfolio to its competitors. During the first half of 2018, Tesla’s strategy was facing some major challenges. Operational difficulties in ramping up the production at its both Fremont CA auto plant and Nevada battery plant, the “Gigafactory,” had prevented Tesla from reaching its target production of 5000 Model 3s per week until the final week of June—six months behind schedule. With capital expenditures in 2018 expected to reach $2.5 billion spent in 2018, cash burn remained a problem, despite Tesla’s forecast that it would achieve a positive free cash flow in the second half of 2018. Meanwhile, competition in electric vehicles (EVs) was intensifying: the main feature of the March 2018 Geneva Motor Show was the number of new EVs being launched by the world’s leading automakers.6 Was Tesla’s strategy consistent with its capability and the emerging situation in the world vehicle market and with the resources and capabilities available to Tesla? Electric Cars The 21st century saw the “second coming” of electric cars. Electric motors were widely used in cars and buses during the 1890s and 1900s, but by the 1920s they had lost out to the internal combustion engine. However, most of the world’s leading automobile companies had been undertaking research into electric cars since the 1960s, including developing electric “concept cars,” and, in the early 1990s, several had introduced EVs to California in response to pressure from the state. The first commercially successful electric cars were hybrid electric vehicles (HEVs), the most successful of which was the Toyota Prius, 10 million of which had been sold by January 2017. The first all-electric, battery-powered cars (BEVs) were the Tesla Roadster (2008), the Mitsubishi i-MiEV (2009), the Nissan Leaf (2010), and the BYD e6 (launched in China in 2010), In addition, there were plug-in hybrid electric vehicles (PHEVs), which were fitted with an internal combustion engine to extend their range. General Motors’ Chevrolet Volt, introduced in 2009, was a PHEV. Other types of BEVs included highway-capable, low-speed, all-electric cars such as the Renault Twizy and the city cars produced by the Reva Electric Car of Bangalore, India. Others were for off-highway use. These “neighborhood electric vehicles” (NEVs) included golf carts and vehicles for university campuses, military bases, industrial plants, and other facilities. Global Electric Motorcars, a subsidiary of Polaris, was the US market leader in NEVs. Most NEVs used heavier, but cheaper, lead–acid batteries. Electric motors had very different properties from internal combustion engines—in particular, they delivered strong torque over a wide range of engine speeds, thereby CASE 12 Tesla: Disru
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