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Lessons from Tesla’s Approach to Innovation
- Nathan Furr
There is a method to the madness.
Tesla has shifted the auto industry toward electric vehicles, achieved consistently growing revenues, and at the start of 2020 was the highest-performing automaker in terms of total return, sales growth, and long-term shareholder value. As a technology and innovation scholar, the author has studied how innovators commercialize new technologies and found that Tesla’s strategy offers enduring lessons for any innovator, especially in terms of how to win support for an idea and how to bring new technologies to market. To understand Tesla’s strategy, one must separate its two primary pillars: headline-grabbing moves like launching the Cybertruck or the Roadster 2.0 and the big bets it is making on its core vehicles, the models S, X, 3, and Y.
Few companies have attracted as much scorn and adoration as Tesla. When Tesla launches a product like the Cybertruck, the reception tends to be divisive: Critics see it as further evidence that founder Elon Musk is out of touch and doomed to fail, while supporters buy in — within a month Tesla received 200,000 preorders for the new vehicle. Compare that with the Ford-150, the world’s best-selling car in 2018, which sold just over 1 million vehicles that year.
- Nathan Furr is a Professor of Strategy at INSEAD and a coauthor of five best-selling books, including The Upside of Uncertainty, The Innovator’s Method, Leading Transformation, Innovation Cap i tal , and Nail It then Scale It .
- Jeff Dyer is the Horace Beesley Professor of Strategy at BYU’s Marriott School of Management. He is the lead author of the best-selling book, The Innovator’s DNA , and coauthor of The Innovator’s Method .
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Ideas Made to Matter
New case study takes up Tesla’s entry into the auto industry
Dylan Walsh
May 13, 2019
Within three years of Tesla’s founding in 2003, Elon Musk had invested $55 million of his own money in the company. And yet things were not going as planned. CEOs were leaving after short tenures. The company’s first model, the Roadster, was experiencing cost overruns. In response, in October of 2008, Musk appointed himself CEO. “I have so many chips on the table,” he explained. “I need to steer the boat completely.”
How has he done at the helm? A new case study on MIT Sloan’s LearningEdge website considers the question with in-depth context about the U.S. automobile market and Tesla’s position within it.
“Prior to Tesla, no domestic manufacturer had entered the U.S. automotive market at scale since the Second World War,” said Donald Sull , a senior lecturer in innovation and entrepreneurship at MIT Sloan and one of the case study’s co-authors. “This case, which includes rich data on the industry, customers’ willingness to pay for electric vehicles, and Tesla’s financial situation, explores whether Tesla’s strategy of establishing a beachhead in the luxury segment and out-innovating its competitors can trump the challenging fundamentals of the auto industry.”
Tesla went public in June 2010 at a price of $17 per share. Eight years later, the stock was trading at $335, making Tesla the most valuable car manufacturer in the U.S. But the company had only posted two profitable quarters by that point. Investors were skeptical of its long-term viability, and media coverage wasn’t helping: the mass-market Model 3 was woefully behind schedule, lost in “production hell,” while a series of errant tweets by Musk brought SEC scrutiny and an eventual fine. The company has continued along a bumpy road, with a record $312 million of profit between July and September of 2018, followed by a plunge in stock prices, followed by a slump in sales, followed by promises of a driverless taxi fleet by 2020.
Given this wild variability in Tesla’s performance — sometimes a shining example of Silicon Valley potential, sometimes appearing to be on the brink of collapse — investors and industry experts are split on the company’s future. Where does the company stand? What are its prospects in a broader car market experiencing seismic changes?The case study explores these questions, beginning with a broad overview of how automakers, their suppliers, and their customers define one of America’s most fundamental industries. It then provides detailed background on four modern and connected forces powerfully reshaping this market:
Electrification. In 2017, 200,000 electric vehicles were sold in the United States, a 25% increase over 2016 sales. The trend is continuing, and new business opportunities are emerging.
- Autonomous driving. Self-driving cars are drawing investment from many giant companies, and the implications are striking. As one industry observer put it: “In the past, cars were primarily about driving and secondarily about content consumption. With autonomous cars, that prioritization will be reversed. Fully automatic cars will be battery-powered living rooms on wheels.”
- Connectivity. As cars increasingly connect to the internet, old automotive business models are coming into question. The CEO of one Chinese conglomerate suggested that he would eventually be able to offer his company’s electric car for free, earning money instead from services the company sold to customers.
- Alternatives to car ownership. A 2017 transportation study out of Stanford University predicts that by 2030, 95% of U.S. passenger miles will be served by on-demand autonomous electric vehicles and there will be an 80% drop in private car ownership in the United States.
Against this backdrop, the case study positions the emergence of Tesla — how the company has both driven and responded to these radical evolutions in the automobile market.
According to Sull: “This case is perfect for analyzing an industry in flux, the financial and operational risks of a disruptive strategy, and how to create value by driving up willingness to pay in an industry with limited product differentiation.”
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Tesla in 2023: 'Electrified' Competition
- Format: Print
- | Language: English
- | Pages: 59
About The Authors
Eric J. Van den Steen
Ramon Casadesus-Masanell
Related work.
- Faculty Research
Tesla in 2024: Holding On to the EV Lead?
- Tesla in 2023: 'Electrified' Competition By: Ramon Casadesus-Masanell and Jordan Mitchell
- Tesla in 2024: Holding On to the EV Lead? By: Ramon Casadesus-Masanell, Eric J. Van den Steen and Karen Elterman
- Tesla in 2023: 'Electrified' Competition By: Eric Van den Steen, Ramon Casadesus-Masanell and Karen Elterman
IMAGES
VIDEO
COMMENTS
To understand Tesla’s strategy, one must separate its two primary pillars: headline-grabbing moves like launching the Cybertruck or the Roadster 2.0 and the big bets it is making on its core...
Judging from Politics, Economy, Society and Technology perspectives, Tesla’s market value can potentially be overvalued due to its leading role in the Electrical vehicle market. Economically,...
Tesla is one of the key drivers of innovation as the auto industry is forced to evolve, but Tesla also shows how difficult it is to succeed in the auto industry at all, and how there is still room for improvement within the hotly competitive, tight margin business.
Key findings conclude that: (1) the battery electric vehicle industry is poised for explosive growth; (2) Tesla Motors is uniquely positioned to capitalize upon this growth opportunity; and (3)...
In mid-2013, Tesla Motors was riding a wave of success: It had launched its first really mass-produced car—the model S—to rave reviews; had recently raised first-year production targets; and had started taking orders for its next car, the Model X. Tesla seemed to be on its way to defying the skeptics and becoming the first US company to ...
This paper is a strategic analysis of Tesla Motors, Inc.: “How Tesla Motors Inc. can improve its strategy to sustain its competitive advantage on the electric vehicle market and confirm...
How has he done at the helm? A new case study on MIT Sloan’s LearningEdge website considers the question with in-depth context about the U.S. automobile market and Tesla’s position within it.
This case traces the evolution of Tesla’s business and operating model over time. Students will explore how the priorities, capabilities, and challenges of the automaker changed during each stage of business model development.
Over its 17 years in existence, Tesla had redefined people’s view of electric cars, and in 2020, the company saw its stock rise by more than 700% to became the most valuable carmaker in the world. In December 2020, Tesla celebrated its fifth consecutive quarter of profit and joined the S&P 500.
The Tesla case provides multiple opportunities to discuss core strategy and innovation topics, such as: • Patterns of innovation, e.g., new technologies competing to replace older generations • Types of disruption, e.g., low-end versus high-end • The innovation ecosystem, e.g., thinking beyond a single technology to the interdependence of ...