Olga Jemeljanova Joona Kanerva Niko Kuki Mikko Nummela Tesla Motors Olga Jemeljanova Joona Kanerva Niko Kuki Mikko Nummela 3.5.2016 Group 10

Question “Discuss the strategies that Tesla has so far utilized in the electric car manufacturing industry. What has Tesla done differently in comparison to the other players? What has it done in a similar fashion? What should Tesla’s strategies be in the future? Envision how the dominant designs in the field will evolve.”

Outline Tesla Motors Tesla’s strategy Tesla’s strategy comparison Comparison to traditional car manufacturers with electric cars Comparison to other electric only car manufacturers Tesla’s future strategy and dominant design Summary

Tesla Motors American automotive and energy storage company that designs, manufactures, and sells electric cars, electric vehicle powertrain components and battery products Founded in 2003 Public company listed on NASDAQ Source: (IR, 2016) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla’s strategy ”So, in short, the master plan is: 1) Build sports car 2) Use that money to build an affordable car 3) 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.” -CEO Elon Musk, 2006 Tesla’s strategy Step one was making the Tesla Roadster high price, low volume The Model S is step two with mid price, mid volume The third generation will be low price, high volume (Tesla, 2016a) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Electric vehicle industry Competing technologies: Gasoline, Hybrid, Ethanol, … Typical challenges Limited range of the batteries Time it takes to charge the battery packs Need to emplace a sufficient number of battery stations Requirement for owners to replace the battery pack after several years of use due to wear and tear at high cost Source: (Halla, 2015) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla’s shaping strategy Shaping View Shaping Platform Participants Shaping Acts and Assets To succeed, a shaping strategy needs a critical mass of participants. The "Shaper" can attract them through: Shaping view: Convincingly articulating the opportunities and benefits of participation Shaping platform: Defining standards and practices that make participation easy, affordable and valuable Shaping acts and assets: Demonstrating they have the conviction and resources for the view to succeed (Hagel et al., 2008) (Hagel et al., 2008) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla’s shaping strategy Shaping View Long-term view Accelerate the advent of sustainable transport by bringing compelling mass market electric vehicles to market as soon as possible Promote electric vehicles globally Promote sustainable energy technologies globally Source: (Halla, 2015) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla’s shaping strategy Shaping Platform Electric vehicle charger network Rolling out thousands of “Supercharging” stations around the world Electric powertrain production facility that caters other electric vehicle manufacturers Providing components/batteries for other electric car manufacturers Providing battery swap for other electric car manufacturers Investing in a giant battery plant in Reno, Nevada Opening its patents to the competition Source: (Halla, 2015) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla’s shaping strategy Shaping Acts and Assets Tesla’s central competitive advantage is the low cost and high performance of Tesla’s battery pack Tesla has comprehensive and proprietary technology with over 40 patents related to EV vehicles They have a unique platform for the development of EV vehicles Tesla is not just an automaker, but also a technology and design company with a focus on energy innovation Sources: (Tesla, 2016b; Halla, 2015 ) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Tesla Motors’ current situation Year Car model Sold units 2017 Tesla Model 3 - 2015 Tesla Model X ~ 3 000 2012 Tesla Model S ~ 110 000 2008 Tesla Roadster ~ 2 000 Year Revenue (k$) Gross profit (k$) Operating income (k$) Net income (k$) 2015 4,046,025 923,503 -716,629 -888,663 2014 3,198,356 881,671 -186,689 -294,040 2013 2,013,496 456,262 -61,283 -74,014 Sources: (Tesla, 2016c; Yahoo Finance, 2016) Tesla’s gross profit is positive but operating income is negative due to Tesla’s operating expenses, which are categorized as Research Development and Selling General and Administrative (Yahoo Finance, 2016). Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

What has Tesla done similarly? Luxury brand car with high price Innovative development of electric vehicle Big data collection BUT the biggest difference is in a product innovation strategy (by Cooper & Edgett, 2010) Defining innovation goals and objectives Selecting strategic areas Developing a strategic map Allocating resources Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

What has Tesla done differently? Car by tech company CEO Elon Musk (founder of PayPal and SpaceX) First electric car to drive with a realistic range and is a true pleasure to drive Utilizes gathered data into good use for customers Autopilot (parking, steering) Focus on services Brand narrative (no marketing, sustainable transportation) No dealerships Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Innovation framework – Tesla Motors (Teece, 1986) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Future dominant design “After each technological discontinuity, sales of all versions of the new technology will peak after the emergence of a dominant design, not during the era of ferment.” “A dominant design will not be located on the frontier of technical performance at the time it becomes dominant.” (Andresson and Tushman, 1990) Electric cars and self-driving cars in era of ferment Fully electric cars predicted to have only 5% market share in 2025. (Goldman Sachs, 2015) Dominant design yet to emerge Development will pass the future dominant design before it becomes dominant Growth of sales in emerging markets Customer preferences in e.g. China (the largest market) affect what design is adapted Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Future dominant design The new dominant design will be electric and automatic May be reached separately When is the car good enough? Range vs. charging Reliability of automation Early dominant designs Standards for charging Standards for battery swap Further down the line Self-driving standards Mobility as a service standards Electric Battery technology Charger networks vs. battery swap network Automatic Mobility as a service Decreased customer purchases Increased fleet purchases Connected cars and infrastructure Increased safety Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Future strategies for Tesla Extend supercharger network Shift R&D focus from product to process Increase lobbying Dominant design in powertrain Extend product range to other markets Sources: (Tesla, 2016c; LeBeau, 2016) Tesla Motors – Strategy – Strategy Comparison – Dominant Designs & Future Strategy

Summary Current strategy driven by technology and design Well positioned to compete in future self-driving and zero-emission vehicles Should aim for dominant design in the electric car powertrain

References 1/2 Anderson, Philip, and Michael L. Tushman. "Technological discontinuities and dominant designs: A cyclical model of technological change." Administrative science quarterly (1990): 604-633. Cooper, R., & Edgett, S. (2010). Developing a product innovation and technology strategy for your business. Goldman Sachs. (2015). Cars 2025. Available from: http://www.goldmansachs.com/our- thinking/technology-driving-innovation/cars-2025/. [Accessed on 20 April 2016]. Hagel, J., Brown, J. & Davison, L. (2008). Shaping Strategy in a World of Constant Disruption. Harvard Business Review, October 2008, pp. 81-89. Halla, B. (2015). Piecing Together the Tesla Strategy Puzzle. Harvard Business Review. Available from: https://hbr.org/2015/09/piecing-together-the-tesla-strategy-puzzle. [Accessed on 18 April 2016]. IR. (2016). Tesla Motors: Investors Overview. Investor Relations. Available from: http://ir.teslamotors.com/. [Accessed on 18 April 2016]. LeBeau, P. (2016). Will end of tax credit slow Tesla's Model 3?. CNBC. Available from: http://www.cnbc.com/2016/04/04/tesla-model-3-tax-credit-worry.html. [Accessed on 20 April 2016]. McKinsey & Company. (2014). A road map to the future for the auto industry. Available from: http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/a-road- map-to-the-future-for-the-auto-industry. [Accessed on 20 April 2016].

References 2/2 TED Talks. (2013). The mind behind Tesla, SpaceX, SolarCity, … Available from: https://www.ted.com/talks/elon_musk_the_mind_behind_tesla_spacex_solarcity#t- 1239955. [Accessed on 16 April 2016]. Teece, D. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Elsevier Science Publishers B.V. (North- Holland), June 1986, pp. 285-305. Tesla. (2016a). The Secret Tesla Motors Master Plan (just between you and me). Tesla Motors. Available from: https://www.teslamotors.com/blog/secret-tesla-motors- master-plan-just-between-you-and-me. [Accessed on 18 April 2016]. Tesla. (2016b). Tesla’s mission is to accelerate the world’s transition to sustainable energy. Tesla Motors. Available from: https://www.teslamotors.com/about. [Accessed on 18 April 2016]. Tesla. (2016c). Supercharger. Tesla Motors. Available from: https://www.teslamotors.com/supercharger?redirect=no. [Accessed on 20 April 2016]. Yahoo Finance. (2016). Tesla Motors: Income Statement. Yahoo Finance. Available from: https://finance.yahoo.com/q/is?s=TSLA&annual. [Accessed on 18 April 2016]. Zucchi, K. (2016). What makes Tesla’s business model different?. Investopedia. Available from: http://www.investopedia.com/articles/active-trading/072115/what- makes-teslas-business-model-different.asp. [Accessed on 20 April 2016].