Tesla Case Study Notes

Introduction

• Focus on core strategy and innovation topics
• Core areas: patterns of innovation, types of disruption, innovation ecosystem, systems strategy, innovation process
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Background

• 2003: Martin Eberhard founded Tesla Motors after concerns about global warming and oil dependence
• Initial Idea: Build an environmentally friendly sports car powered by electric energy
• Inspiration: Electric car T0 by AC Propulsion (0-60 mph in 4.1 seconds)
• Transition to lithium-ion batteries for better performance compared to lead-acid batteries

Collaboration with Elon Musk

• Elon Musk: Co-founder of x.com and SpaceX, interested in electric vehicles
• Collaboration with Eberhard after discussions with AC Propulsion
• Musk invested $6.3 million and became chairman of Tesla; Eberhard served as CEO
• Research Team: JB Straubel joined as another co-founder

Market Landscape

• Non-Existent Market: Tesla introduced battery electric vehicles (BEVs) in a limited market dominated by hybrids (e.g., Toyota Prius)
• Competitors: Nissan Leaf (2010), Chevy Volt (2007), and Ford Focus (2011)
  • Nissan Leaf: Priced $22,000-$29,000 with a range of 75 miles
  • Chevy Volt: Plug-in hybrid that targeted early adopters

Growing Competition

• 2014: BMW launched i3 (electric) and i8 (plug-in hybrid)
• 2015: Porsche announced Mission E, directly challenging Tesla Model S

Tesla's Unique Approach

Product Development and Design

• Distinct architecture compared to traditional combustion engine vehicles
• Abandoned standard car architecture to design Model S around battery packs
• Elimination of transmission and adoption of new technologies
• Criticism: Concerns over maintenance and repairs

Manufacturing and Battery Development

• Highly vertical integration and automation in manufacturing
• Use of advanced robotics capable of performing multiple tasks
• Tesla's investment in battery technology (Giga Factory) aimed to reduce costs by 30%
  • Intended to produce batteries for home use (Power Wall)
• 2014: Open-sourced patents to encourage collaboration on charging networks

Marketing and Sales Strategies

• Minimal advertising budget, relying on word-of-mouth and Musk’s public presence
• Own and operate all Tesla dealerships
  • Strategically located in affluent areas, modeled after Apple stores
• Customers could see cars and place orders online without large inventories

Charging Infrastructure

• Building solar-powered Supercharging stations to facilitate long-distance travel
• Fast charging: 175 miles in 30 minutes; full charge in 45 minutes
• By late 2015, over 500 Supercharging stations built, promoting free lifetime use

Future Challenges and Considerations

• Tesla's strategy: Start with high-end models, progressively move to mass-market (e.g., Model 3)
• Risks: Low gas prices, flat electric and hybrid sales, challenges in mass production
• Industry skepticism: Concerns about Tesla's ability to disrupt traditional internal combustion vehicles
  • Required advancements in technology, consumer preferences, infrastructure, and policy
• Questionable financial sustainability due to high capital expenses and competition

Conclusion

• Tesla's journey reflects a mix of innovation and skepticism in an evolving automotive landscape
• Emphasis on significant changes needed to transition from combustion engines to electric vehicles
• Final thoughts on Tesla's potential for success in the automotive industry.