hi everyone today i'm going to take you through the case study of tesla the tesla case provides multiple opportunities to discuss core strategy and innovation topics such as patterns of innovation types of disruption the innovation ecosystem systems strategy the innovation process and so on before moving to this case study i would request you to subscribe 5 minutes learning channel in youtube in order to get my recent case study video updates on time also this video is enabled with english subtitles for your better understanding now let's move to the case study in the year 2003 martin eberhard a serial entrepreneur with concerns about global warming and u.s dependence on the middle east for oil decided to build a sports car that was environmentally friendly after investing a variety of alternative fuel options eberhard concluded that an electric powered vehicle was the answer to provide the greatest efficiency and performance during his investigation he came into contact with a il cocconi founder of ac propulsion ac propulsion had produced an electric car called t0 that could go from 0 to 60 miles per hour in just 4.1 seconds eberhard was impressed but because the t0 used heavy lead acid batteries he felt that he could improve performance using lighter lithium ion batteries which was mass produced for electronics such as laptops after several failed attempts to talk ac propulsion into producing the vehicles eberhard licensed the electric drivetrain technology from the company and teamed up with tarponing to found tesla motors the company was named after nikolai tesla the inventor who developed the key ideas behind ac electric systems used in the us today about this time ellen musk a co-founder of x.com and the space exploration company called spacex also became interested in developing electric vehicles based on the t0 like eberhard musk had concerns about fossil fuels he also recognized the speed and performance that was possible with electric vehicles particularly if technologies like ultra capacitors were able to compete commercially against traditional battery technologies when musk approached kakoni to discuss the possibility of buying the t0 and the embedded technology tom gage then ceo of ac propulsion suggested to collaborate with eberhard since they were trying to achieve the same objective musk was impressed with eberhard's plan and agreed to put in 6.3 million dollars to fund tesla's development of a long-range electric vehicle musk would become the chairman of the company while eberhard would serve as ceo jb straubel a young engineer who was fascinated with the idea of building electric powered vehicles joined the tesla team as another co-founder tesla introduced battery electric vehicles vevs into an electric vehicle market that was virtually non-existent although hybrid electric vehicles had gained some traction notably with the toyota prius has had plug-in hybrid vehicles ph ebs with the chevy volt and the priors must claim that they were bad electric cars since they carried around an additional gas engine and drivetrain adding weight cost and parts to maintain and repair despite his criticism for many customers these vehicles elevated the concerns of being stranded without a charge or service unit volumes grow steadily and in 2012 toyota estimated the sales of hybrid models would top 1 million per year going forward and that it planned to roll out 21 new or redesigned hybrid vehicles by the year 2015. if the hevs could get fuel economy up to 75 or 100 miles per gallon some observers felt this would prevent bevs from gaining traction tesla faced battery electric vehicle competition from the nissan leaf which was launched in the year 2010 and ford focus which was launched in the year 2011 and phev competition from gm's chevy volt which was launched in 2007. the leaf was priced from 22 000 to 29 000 and had a range of 75 miles and was the largest seller worldwide selling 80 000 total units in the us other car manufacturers were getting into the game in 2014 bmw launched its all-electric i3 a small setting priced at 43 000 with a range of 80 miles it also launched the plug-in hybrid i8 a high-performance sports car starting at 136 000 dollars that directly targeted tesla in the year 2015 porsche announced the mission esports sedan corps sub car another direct challenge to the model s of tesla let's see the tesla's approach and its strategies first is product development and design on the surface the tesla looked much like other cars but it hid a hint significant difference which drew price from some and criticism from others if you peeled the skin of a tesla and compared it to a combustion engine vehicle or electric vehicle like the nissan leaf you would see that the cars architecture is completely different all major auto manufacturer to date had operated of the traditional combustion engine platform inserting the battery as a module into the standard platform which included space in the frame for gear transmission and often for the drivetrain which created a tunnel through the frame in contrast in designing the model s of tesla tesla abandoned the standard car architecture because the systems and the drivetrain were engineered from the ground up around the battery packs moreover some of the cars subsystems like traction control were based on different technologies than a standard car perhaps most shockingly the tesla model s eliminated transmission although its designers hailed the benefits of the new architecture critics pointed out the challenges including the unforeseen errors that could crop up in designing a new platform and how to get repairs to an architecture that many mechanics would not understand tesla manufactured its cars somewhat differently from other major automakers the factory was highly vertically integrated and automated with extensive use of eight to ten feet tall red robots while typical auto factory robots performed one functions tesla's robot performed up to four tasks on multiple models which are welding riveting bonding and installing a component other manufacturing executives pointed out serious flaws for example employing only one robo per task typically resulted in more efficient manufacturing which in the hyper cost competitive auto industry could be a significant disadvantage in addition to the body tesla had to manufacture or purchase the battery batteries had been a concern for electric vehicles for some time in addition to being heavy volatile and expensive chemical batteries had limited storage capacity and dealers reported that their great challenge with customers was the fear of running out of power tesla invested heavily in developing the battery starting construction of a giga factory intended to produce more batteries in 2020. like most tesla moves it drew braces as well as criticism hitherto lithium-ion batteries were produced in complex supply chain with raw materials mined in south america shipped to north america for processing then shipped to japan for further processing and back to north america tesla hoped to save on cost by bringing all these operations under one roof by an estimated 30 percent in a net zero energy factory it also had plans to sell batteries for other applications including a power wall for home use marketed as a money saving device because it recharged when utility rates were low to achieve its ambitious goal tesla committed to build a 5 billion dollar factory operational by 2017 a massive investment for a new company even with panasonic putting up 30 to 40 percent of the capital despite the challenge tesla invested significantly to improve the performance of lithium-ion batteries developing its own techniques for linking the battery cells together and cooling them the battery cells were designed to vent heat in a proprietary way and employ coolant running through the entire pack to maintain optimal temperature it also invested heavily in protecting its innovations refusing to let outsiders store battery production and heavily patenting its innovations however in a surprise move in 2014 he renounced patent control in a blogspot titled all our patents belong to you making them open for use following this invitation nissan and bmw reportedly contacted tesla to potentially cooperate on charging networks tesla was unusual in that it spent no money on advertising nor planned to use tv or print advertising in the future early on when eberhard hired pr professionals to build publicity for the tesla roadster musk reportedly fired them because he felt his involvement would generate enough publicity as of 2015 marketing a tesla was done by a relatively small team of less than 10 individuals its marketing and advertising spend was minuscule compared to major automotive company but whether tesla could realistically sell more than 20 000 to 30 000 vehicles per year without significant advertising was unclear it might work as long as tesla was focused on the niche market at the high end but not for the model 3 which targeted the mass market rather than follow the typical franchisee dealership arrangements used by typical automakers to sell cars tesla chose instead to own and operate all of its own dealerships located in high-end malls or affluent suburbs not far from the apple stores on which they were modeled walk-in customers would see one or two model s cars plus an exposed version of the car chases near the back of the store to show off the battery pack they could order a car from the store or online and it would be delivered to their home without a large inventory of cars or salesmen tesla stores were far less expensive than typical dealership moreover because electric vehicles had so few moving parts compared to a combustion engine they didn't require a service bay at the store servicing was typically be done by technicians at the customer's home but the question was how this could possibly work if a large number of customers were buying tesla vehicles as electric vehicles were so different from combustion engines customers could not service their own vehicle or tap into the usual auto service shots at the core of transforming the auto industry from gas to electric engines was ensuring that customers could conveniently charge the battery when traveling to address that issue tesla started building solar powered super charging stations where customers could charge their battery when on the go tesla claimed that it took 30 minutes to charge a battery up to 175 miles and 45 minutes to get a full charge self service charging stations were located on major freeways and at locations near restaurants or malls so that customer could do other things while the car is being charged by the late 2015 tesla had built over 500 super charging stations most with six to eight chargers with many more planned these only worked with tesla cars and were provided for free for life this was promoted as a major advantage over gas vehicles with an estimated ten thousand dollars of gas savings over a four to five year period according to ellen musk tesla's strategy was to start selling vehicles in the high-end niche and gradually moved down market if all went according to plan the model s and x would be followed in 2017 by a far cheaper model 3 starting around 35 000 and even if it did could it succeed given the gas prices looked set to remain low for some time and overall sales for electric and hybrids were basically flat even musk had been unsure whether tesla would work at the beginning while it now seemed unlikely to fail whether tesla could be sold to the masses and truly disrupt industry incumbents by making the internal combustion engine obsolete was unknown as tesla prepared to launch the model x onlooker standard to polarize into idealist who believed it would change the industry and the skeptics who doubted its ability to change one of the oldest technology paradigms in recent history displacing the internal combustion engine would require significant technology advancements changes in customer preferences infrastructure enhancements and changes to government policy well beyond the reach of a startup with limited capital tesla seem to be too thinly spread developing multiple lines of vehicles then adding home energy storage the gigafactory charging stations and delay ships even its manufacturing appeared inefficient compared to incumbent auto manufacturer who had been working for years to shave sense of the production process while ice technologies continued to improve indeed many hybrids had become comparatively less attractive as ica engine efficiencies increased globally a fade that may befall electric cars in this context could tesla ever make money thank you everyone for watching this video see you soon with another interesting case study for more such case studies please subscribe 5 minutes learning channel in youtube