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Critical Thinking: Scope of the Modern Company (105 points)
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? 

 

Directions:-
– Write an essay that includes an introduction paragraph, the essay’s    body, and a conclusion paragraph to address the assignment’s    guide questions. – Do not address the questions using a   question-and-answer format.  
 –  Charts/diagrams should be labeled and can be added within the body of your paper.  
– APA style should be used  
– Font will be: Times roman 12, and double space should be between  lines   
-At least 3-4 scholarly, peer-reviewed journal articles will be  used as references (including the below two).     

Recommended Reference:   
 Hodge, N. (2019). Learning  from corporate collapse: By recognizing the warning signs of fatal  failures in corporate strategy, risk managers can help their companies  course-correct before it is too late. Risk Management, 1(31). 
 Todorov, K., & Akbar, Y. H. (2019, January 15). Strategic management in emerging markets: Aligning business and corporate strategy. Emerald Publishing Limited.

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 genera-
tion 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, estab-
lishing 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 out-
lined 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 remark-
able 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

This case was prepared by Robert M. Grant assisted by Nitish Mohan. ©2019 Robert M. Grant.

504 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

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 estab-
lish 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 com-
panies, 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 auto-
makers.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 vehi-
cles (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 Ban-
galore, India. Others were for off-highway use. These “neighborhood electric vehi-
cles” (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: DISRuPTING ThE AuTO INDuSTRY 505

dispensing with the need for a gearbox. This range of torque also gave them rapid
acceleration. Although electric motors were much lighter than internal combustion
engines, the weight advantages were offset by the need for heavy batteries, which were
also the most expensive part of an electric car, costing from $10,000 to $25,000.

Electric cars were either redesigns of existing gasoline-powered models (e.g., the
Ford Focus Electric and Volkswagen’s e-Golf) or newly designed electric cars (e.g., the
Tesla Roadster and Nissan’s Leaf). Complete redesign had major technical advantages:
the battery pack formed part of the floor of the passenger cabin, which saved on space
and improved stability and handling due to a lower center of gravity.

Predictions that electric cars would rapidly displace conventionally powered cars
proved false. In 2017, global registrations of plug-in EVs totaled 1,223,600. Although
this was a 58% increase on 2016, this still represented just 1.3% of total sales of cars and
light trucks, with China the world’s largest market. Forecasts of the growth in demand
varied substantially—most predicted that the market share of EVs would be between
7% and 20% by 2025. Much depended on government policy: by March 2018, eight
countries had announced their intention to ban the sale of new gasoline and diesel-
powered vehicles at some date between 2020 and 2040. The countries where EVs
had gained the highest market shares were those with the most generous government
incentives. Thus, in Norway, where plug-in EVs had a 39% market share in 2017, incen-
tives included exemption from purchase taxes on cars (including VAT), road tax, and
fees in public car parks, and the right to use bus lanes. In the US, federal government
incentives included development grants to the manufacturers of EVs and batteries, and
tax credits for purchases of EVs. Several countries had announced a phasing out or
scaling back of subsidies. The US federal government’s $7,500 tax credit to buyers of
Tesla cars would be halved In January 2019 and phased out a year later. The impact of
lower fiscal incentives would be offset, in part, by EVs falling prices relative to conven-
tional vehicles—in addition to lower battery prices, EVs benefitted from fewer compo-
nents than conventional vehicles.

“Range anxiety”—the threat of running out of battery charge—was seen as a major
obstacle to the market penetration of battery-powered EVs. However, by 2018, these
concerns were dissipating. Improved battery technology had doubled the average
range of EVs between 2015 and 2018. Secondly, the density of charging stations was
increasing rapidly. By the end of 2017, there were 210,000 publicly available charging
points in China, 43,000 in the US, 33,000 in Netherlands, and 24,000 in Germany.

Although battery-powered electric propulsion was the leading zero-emission tech-
nology available to automakers, it was not the only one: fuel cells offered an alternative.
Several automakers had developed prototypes of fuel-cell cars, but in 2018 only Toyota
was producing cars powered by fuel cells. The dependence of fuel cell vehicles on a
network of hydrogen fueling stations was the main disadvantage of this technology.

Figure 1 shows the leading suppliers of EVs in 2017.

Tesla Motors, 2003–2018

Elon Musk is a South-African-born, serial entrepreneur, who moved to Canada at the
age of 17. He cofounded Zip2, a developer of Web-based publishing software, and then
PayPal, which earned him $165 million when it was acquired by eBay. His next start-
ups were SpaceX, which became the world’s leading satellite launch company, and
SolarCity, which aimed to become “the Walmart of solar panel installations.”

Tesla Motors Inc., founded in 2003, was named after Nikola Tesla, a pioneer of
electric motors and electrical power systems. In 2004, Musk became its lead shareholder

506 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

and chairman, and then took over as CEO in 2008. Two years later, Tesla Motors’ shares
began trading on the NASDAQ market.

The Tesla Roadster, launched in 2007, was a sensation. Priced at $109,000, it was a
luxury sports car that could accelerate from 0 to 60 miles per hour in less than four sec-
onds and had a range of 260 miles on a single charge. It immediately became a favorite
among Hollywood celebrities and Silicon Valley entrepreneurs. The battery pack was
built by Tesla from Panasonic lithium-ion cells, car assembly was by Lotus in the UK,
and the car was delivered direct to the final customer without using dealers. Although
only 2500 Roadsters were produced between 2007 and 2012, the huge publicity the car
attracted is credited with changing public perceptions of electric cars.

Model S was the first car Tesla built at the GM-Toyota joint-venture plant in Fre-
mont, California, a plant that Tesla acquired from Toyota for $42 million. It was a
four-door, five-seater sedan, with an additional seat to accommodate two children. It
offered different battery sizes (up to 85 KWh). It’s launch price was between $52,400
and $72,400. The car’s electronics featured a touchscreen that controlled almost all the
car’s functions, eliminating the need for most knobs and other controls. Its software
allowed the driver to adjust the car’s suspension and steering behavior and allowed
Tesla to remotely monitor performance, diagnose problems, and provide updates to
expand functionality. In order to control its interface with customers, Tesla rejected the
traditional franchised dealer model, and set up its own directly managed retail show-
rooms, mainly in downtown locations. This direct sales model conflicted with the laws
of several US states. These laws required retail sales of automobiles to be undertaken

BYD

0 20 40 60 80 100 120

BAIC
Tesla

BMW Group
VW Group

Geely
SAIC

GM
Nissan

TMC
Renault

Hyundai-Kia
Daimler

Zotye
Chery

JAC
JMC

Changan
Mitsubishi

Ford
Volvo

Dongfeng
Kandi

Hawtai
FCA

BEV PHEV

FIGURE 1 World’s leading suppliers of plug-in electric vehicles, 2017 (thousands of units)

CASE 12 TESLA: DISRuPTING ThE AuTO INDuSTRY 507

through independent dealers. As a result, Tesla was unable to open retail outlets in six
states, including Texas.

The Tesla S was launched in 2013 to a torrent of rave reviews. It won Motor Trend’s
Car of the Year for 2013, Consumer Reports gave it the highest customer satisfaction
score for any car it had tested, and it was awarded the National Highway Traffic Safety
Administration’s highest safety rating.7

Model X, a sedan/SUV crossover built upon the same platform as Model S, was
launched in September 2015 with a base price of $79,500. Like the Model S, it received
superlative reviews; however, the difficulties that Tesla encountered in its manufacture,
including problems with its falcon-wing doors, were warning signs of the much bigger
manufacturing problems that would plague the Model 3.

Model 3 would take Tesla from being a niche producer of luxury cars to a volume
manufacturer. However, this transition tested Tesla—and its leader—to the limit. Intro-
duced in July 2017, problems at the Gigafactory in ramping up the production of battery
packs and assembly difficulties at Fremont resulted in Tesla’s target of producing 10,000
vehicles a week being deferred to December 2018. During the latter half of 2017, just
2686 Model 3s were produced; during the first half of 2018, this increased to 28,215. By
the middle of 2018, very few of the more than 400,000 people who has each paid $1,000
for a place on the waiting list for a Model 3 had received their car.

In addition to EVs, Tesla has two other lines of business:

● Energy Storage. Tesla’s Powerwall was a 7 kWh battery pack for home storage
of electrical power. In 2016, this was superseded by the 13.5 kWh Powerwall
2. During 2017, Tesla’s Powerwall accounted for almost 80% of power storage
installations under California’s Self-Generation Incentive Program.8 Tesla also
produced large-scale battery storage for grid storage. Tesla’s power storage bat-
teries are particularly useful for bridging asymmetries in the demand and supply
of power from solar and wind generation.

● Solar Energy Systems. SolarCity installs solar energy systems in residential and
commercial properties. Most of the residential systems are supplied on 20-year
leases that allow customers to take advantage of federal tax credits. In October
2016, Tesla introduced its Solar Roof—photovoltaic glass roofing tiles produced
at Tesla’s Gigafactory 2 in Buffalo, New York.

During the first half of 2018, energy generation and storage revenues were $784m
compared to $6092m from automotive.

Tesla’s Technology

Tesla regards itself as a technological leader within EVs:

Our core competencies are powertrain engineering, vehicle engineering, innovative
manufacturing and energy storage. Our core intellectual property includes our electric
powertrain, our ability to design a vehicle that utilizes the unique advantages of an
electric powertrain and our development of self-driving technologies. Our powertrain
consists of our battery pack, power electronics, motor, gearbox and control software.
We offer several powertrain variants for our vehicles that incorporate years of research
and development. In addition, we have designed our vehicles to incorporate the lat-
est advances in consumer technologies, such as mobile computing, sensing, displays,
and connectivity.9

508 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

However, for the most part, Tesla’s cars combined existing automotive, electric motor,
and battery technologies with few radically new innovations. In electric motors, for
example, the technology was mature and Tesla’s advances (including several of its pat-
ents) related to refinements in design (e.g., a liquid-cooled rotor). However, the critical
technical advantages of Tesla’s electric motors related to their overall integration within
the electrical powertrain and the software that managed that system.

Batteries

Electrical storage was the most formidable challenge facing electrical vehicle manufac-
turers. The lithium-ion battery was first introduced in 1991 and became the dominant
type of battery for rechargeable mobile devices. By 2005, all the automakers devel-
oping EVs had adopted lithium-ion batteries because of their superior power density.
To power electric cars, lithium-ion cells are combined into modules, which are then
assembled into battery packs. Battery packs are controlled by software that monitors
and manages their charging, usage, balancing, and temperature.

Each of the leading automakers partnered with a battery producer to develop and
supply batteries for their electric cars: Renault–Nissan with NEC, General Motors with
LG Chemical, BMW with Samsung SDI. With the exception of Chinese EV giant, BYD,
the automakers were unwilling to backward integrate into lithium-ion batteries.

Although most of the automakers sought to develop customized lithium-ion cells
for their battery packs, Tesla used the standard 18650 lithium-ion cell, which it bought
from Panasonic. This off-the-shelf lithium-ion cell is used in laptop computers and
many other portable devices. Because of their small size, a large number were required.
The Tesla S with an 85 kWh battery pack uses 7104 lithium-ion battery cells in 16 mod-
ules wired in series and weighs 1200 lb (540 kg). By contrast, the Nissan Leaf uses
a much bigger cell: its 24 kWh battery pack comprises 192 cells in 48 modules and
weighs 403 lb (182 kg).10

The paradox of Tesla’s battery technology is that in using standard lithium cells,
it has achieved superior performance from its battery packs. The key to this lies in
Tesla’s configuration of its cells and modules and the software for managing battery
performance.

In July 2014, Tesla announced an agreement with Panasonic to build the world’s big-
gest manufacturing plant for lithium-ion batteries. The “Gigafactory,” built near Reno,
Nevada, has the capacity to manufacture 35 gigawatt-hours of battery cells and 50
gigawatt-hours of battery packs. The $5 billion cost was shared between Tesla and
Panasonic, with the state of Nevada providing $1.25 billion in grants and tax breaks.
Tesla’s goal was to ensure sufficient supply of battery packs for its cars and to reduce
the cost of batteries from about $260 per kilowatt-hour in 2015 to $120 by 2020.

During 2017, the Gigafactory began producing a new cell, the “2170,” which referred
to the cell’s size: 21 mm in diameter and 70 mm long, compared to the 18650 with its
18 mm diameter and 65 mm length. The new cell was used in the Model 3 whose 50 kWh
battery pack comprises 2976 of these cells. Shortly afterward, Samsung SDI launched
its own battery pack using the larger 2170 cell.

At the end of 2012, one third of Tesla’s patents and patent applications related
to batteries and another 28% to battery charging.11 Tesla’s battery patents were
mainly concerned with the configuration of batteries, their cooling and temperature
management, and systems for their monitoring and management. Although Tesla
closely monitored developments in battery chemistry, very few of its patents related
to the design or chemistry of lithium-ion cells. Hence, amidst excitement over Tesla’s

CASE 12 TESLA: DISRuPTING ThE AuTO INDuSTRY 509

prospects in supplying battery packs for stationary power storage, Scientific American
noted that, first, Tesla possessed no breakthrough technology in batteries and, secondly,
it was doubtful whether Tesla’s cost advantage in battery packs was sustainable.12

Battery Charging

In battery charging, Tesla’s Supercharger stations offered—until recently—the world’s fastest
recharging of EV batteries: delivering up to 120 kWh of direct current directly to the battery,
a 30-minute Supercharger permitted about 170 miles’ driving, whereas a 30-minute charge
from a standard public charging station would allow about 10 miles’ driving. The speed of
the Supercharger is a result of the architecture of Tesla’s car battery packs, the high-voltage
cables that feed the battery, and the computer system that managed the charging process. In
June 2015, Tesla had 64 patents relating to its charging system.

At the beginning of March 2018, Tesla had 480 Supercharger stations in the US and
698 elsewhere. The total number of public charging stations in the US was about 21,000.

There were two competing technical standards for fast charging: the CHAdeMO
standard, supported by Nissan, Mitsubishi, and Toyota and the SAE J1772 standard,
supported by GM, Ford, Volkswagen, and BMW. Tesla’s proprietary system was not
compatible with either: hence, to use the large number of CHAdeMO and SAE charg-
ing stations, Tesla owners needed special adapters. In the US in January 2018, the
Tesla’s 390 Supercharger stations were outnumbered by 1651 CHAdeMO and 1438 SAE
charging stations—though Tesla possessed the greatest number of charging points.

The different networks of charging stations had different systems of payment. In the
US, the biggest network of fast-charging stations was owned by ChargePoint, which
required users to purchase an annual subscription. Networks of charging stations
were also operated by electricity providers: in China, the leading provider of charg-
ing stations was the State Grid. In Europe, the Ionity network was backed by BMW,
Mercedes, Ford, and Volkswagen. In 2018, several European charging networks were
introducing ultra-fast 350 kW chargers.

Self-Driving Cars

Tesla’s first version of Autopilot, its semi-autonomous driving system, was offered as
an option for the Tesla S in October 2013. Then from October 2016, all Tesla vehicles
were equipped with the sensing and computing hardware for future fully-autonomous
operation, with the software becoming available as it developed. Tesla was a latecomer
to autonomous driving: other car manufacturers began testing driverless systems sev-
eral years earlier: Ford and BMW since 2005, VW since 2010, GM since 2011. By 2018,
at least 30 companies were developing their own driverless car systems. While Tesla’s
rivals were experimenting with fully autonomous driving systems, Tesla’s emphasis
was on gaining experience through collecting and analyzing the vast quantities of data
generated by its Autopilot system on its entire fleet of cars: “The aggregate of such data
and learnings, which we refer to as our ‘neural net,’ is able to collect and analyze more
high-quality data than ever before, enabling us to roll out a series of new autopilot
features in 2018 and beyond.”13 As a result of its distinctive approach, assessments of
different companies’ progress in bringing fully autonomous driving to market viewed
Tesla as lagging behind its rivals: Navigant Research placed Ford, GM, Renault-Nissan,
and Daimler as leaders, with Tesla a distant 12th.14 Investor’s Business Daily observed
that: “Tesla largely has eschewed self-driving alliances and acquisitions in favor of
developing its Autopilot feature, which has some autonomous capabilities. Although

510 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

the company has amassed a vast trove of data from Autopilot usage that could improve
performance, Tesla is now seen at risk of falling behind other carmakers on rolling
out full autonomy.”15 Tesla’s preference for radar over lidar sensors was viewed as a
particular weakness of its self-driving technology.

Tesla Opens Its Patents

Early on, Tesla had rigorously protected its intellectual property. Its 2012 Annual
Report stated:

Our success depends, at least in part, on our ability to protect our core technology
and intellectual property. To accomplish this, we rely on a combination of patents,
patent applications, trade secrets – including know-how employee and third party
non-disclosure agreements, copyright laws, trademarks, intellectual property licenses
and other contractual rights to establish and protect our proprietary rights in our
technology.16

Hence the amazement when, on June 12, 2014, Elon announced:

Tesla Motors was created to accelerate the advent of sustainable transport. If we clear
a path to the creation of compelling electric vehicles, but then lay intellectual prop-
erty landmines behind us to inhibit others, we are acting in a manner contrary to that
goal. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants
to use our technology.17

The announcement was followed by a flurry of speculation as to the reasons why
Tesla would want to relinquish its most important source of competitive advantage
in the intensifying battle for leadership in EVs. Tesla’s motivation was unclear. Was
it Elon Musk’s personal commitment to saving the plant from fossil-fueled vehicles,
or a calculated judgment that Tesla’s interest would be better served by speeding
the development of an EV infrastructure rather than by holding on to its proprietary
technologies? Certainly, diffusing its technology would help Tesla influence technical
standards and dominant designs with regard to batteries, charging technology, electric
powertrains, and control systems. Writing in the Harvard Business Review, Paul Nunes
and Joshua Bellin emphasized Tesla’s strategic position as an innovator within its eco-
system; by adopting an open-source approach to its technology, Tesla could strengthen
its centrality within its ecosystem.18

Professor Karl Ulrich of Wharton Business School emphasized the limits of Tesla’s
patent portfolio: “I don’t believe Tesla is giving up much of substance here. Their pat-
ents most likely did not actually protect against others creating similar vehicles.”19 This
observation was reinforced by the recognition that Tesla’s patent portfolio was smaller
than those of most major auto companies (Table 1). Tesla’s strengths were much more
in the know-how needed to combine existing technologies in order to optimize vehicle
performance, design, add-on features, and the overall user experience. Figure 2 shows
the annual numbers of patents received by Tesla.

Tesla’s Future

During the first half of 2018, Tesla’s dominant priority was resolving its operational
difficulties. At its Nevada Gigafactory and Fremont auto plant, employees worked

CASE 12 TESLA: DISRuPTING ThE AuTO INDuSTRY 511

desperately to boost the output of its battery packs and Model 3 cars. During most of
June, Elon Musk was sleeping at the factory amidst “production hell” as the company
struggled to achieve its weekly production target of 5000 Model 3s. Unless Tesla
could deliver cars to its waiting list of about 360,000 customers, there was a risk they
might request refunds on their $1000 deposits and defect to the other major auto-
makers that were launching new models of BEVs. Table 2 shows just a few of some
of the BEVs available early in 2018. Competition in the sector would continue to

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

FIGURE 2 Patents awarded to Tesla Motors Inc. and Tesla Inc., 2008–2017

TABLE 1 Automobile companies’ numbers of patents relating to electric vehicles,
2012 and 2014

Company 2012a 2014b

General Motors 686 370

Toyota 663 201

Honda 662 255

Ford 446 459

Nissan 238 102

Daimler 194 48

Tesla Motors 172 84

Hyundai 109 n.a.

BMW 41 n.a.

Notes:
a M. Rimmer, “Tesla Motors: Intellectual Property, Open Innovation, and the Carbon Crisis,” Australian National Univer-
sity College of Law (September 2014).
b Includes only patents that specifically mention “electric vehicles.” http://www.ipwatchdog.com/2015/09/02/electric-
vehicle-innovation-america-tops-japan/id=61178/, accessed March 8, 2018.

512 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

increase—all the world’s major automakers were committed to increasing the number
of BEV models they offered. Moreover, several of the world’s leading producers
of BEVs—BYD, BAIC, and ZD, in particular—had yet to …

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