TESLA Innovation Report

Introduction

Tesla Motors has built a reputation as an innovation-driven company that seeks to revolutionise the motor industry. The company has focused on producing battery-driven electric vehicles. The use of electric vehicles is seen as a way of eliminating the environmental impact of petrol and diesel vehicles (Holmberg, 2011). Electric vehicles represent clean energy use, a concept that is at the heart of global business and consumer discussions. Reducing the reliance on petrol and diesel vehicles is seen as a major step in reducing global warming, promoting clean energy use, and overall conservation of energy (Aggeri, Elmquist & Pohl, 2009). Tesla Motors electric vehicles also come with lots of futuristic features that represent cutting-edge technology.

 Business case for innovation

Innovation has become important for the achievement of success in today’s business world (Chiaroni, Chiesa & Frattini, 2010). There is a growing need for creative problem-solving in order to find suitable solutions that satisfy customer demands. Furthermore, there is tight competition amongst companies in every business sector and it is only through innovation that a company can gain competitive advantage (Belderbos & Faems, 2010). The automotive industry has always been driven by innovation as manufacturers strive to provide good value to customers through creations that are perceived as superior to others.

Innovation represents a means for companies to grow their revenues and enhance their capabilities (Ebersberger et al., 2010). New products with better features are preferred by customers. Customers are also looking for products that will satisfy their needs and solve their problems in a simple way. Innovation leads to constant improvement of existing products and introduction of new products that provide better value to customers (Chiaroni, Chiesa & Frattini, 2010). It represents a great way for companies to enter new markets and increase their market share by producing products that are perceived to be superior to their competitors. In a world of fast changing consumer needs and preferences, innovation represents a way for companies to remain sustainable by constantly responding to customer needs (Aggeri, Elmquist & Pohl, 2009).

In order for innovations to be valuable, new products and services ought to be robust enough to progress through rigorous commercialisation processes before they reach the marketplace (Ebersberger et al., 2010). Due to competition and strong demand, companies have to innovate quickly and put their products into the marketplace. Innovation does not just cover new products and services, but also new processes, business systems and methods of management. All these aspects have a significant impact on the company’s productivity and growth (Belderbos & Faems, 2010).

In this age of rapid technological development, companies that do not innovate fast risk seeing their products and services becoming obsolete (Karamitsios, 2013). The effects of globalisation, migration, knowledge-sharing and technological growth have combined to make the business place highly competitive. Tesla Motors seeks to lead in terms of innovation in the automotive industry by incorporating the latest technologies into their vehicles (Liu et al., 2014). The company is already creating a niche market for itself rather than compete with established auto manufacturers in the petrol and diesel category. Electric vehicles are a novel technology that is likely to capture customers’ imagination if Tesla succeeds in overcoming the challenges that they currently face (Chiaroni, Chiesa & Frattini, 2010).

 Leadership challenges

Tesla Motors was founded by current CEO Elon Musk together with other Silicon Valley tech engineers. Elon Musk has emerged as a strong, visionary leader who believes in innovation as the driving force for business solutions (Holmberg, 2011). He is seen as a transformational leader who leads by example and uses his drive for excellence to push the company towards its full potential. Elon Musk has demonstrated ability to make people believe in his vision even when critics think it is impossible. Transformational leaders bring change to the organisation and marketplace. This is what Elon Musk has done with Tesla Motors and his other companies such as Space X and PayPal (Holmberg, 2011).

The leadership problem at Tesla Motors is over-reliance on Elon Musk to provide the direction and inspiration (Liu et al., 2014). The success of the company mainly hangs on his ideas, without which they would not be able to distinguish themselves from the rest. As the company seeks to expand into the global market, it will need different types of leaders in different departments to drive its global growth (Aggeri, Elmquist & Pohl, 2009). Not every business leader can be like Elon Musk; therefore Tesla Motors needs to find the right mix and balance amongst its leadership and management group.

Within any organisation, there are people who will resist change or find it hard to embrace new ideas. As a rapidly developing company with global ambitions, Tesla has to come up with ways of training leaders and managers who will embrace and promote the company’s vision and long-term goals (Aggeri, Elmquist & Pohl, 2009). There is a need for more transformative leaders at Tesla who will be able to drive the company’s growth in different markets on the global stage. Tesla Motors also has to find ways of retaining its best leaders and managers within an industry with high turnover (Holmberg, 2011).

 Innovation challenges

Tesla Motors has experienced a sharp increase in customers’ demand for its electric vehicles, but its ability to meet this high demand might be hindered by a significant shortage of lithium-ion cells (Karamitsios, 2013). Battery-operated electric vehicles face two major limitations – high battery cost and limited battery range. Tesla has partnered with Panasonic as its main battery supplier but shortage challenges persist. Each Tesla Model S vehicle battery pack requires more than 7,000 cylindrical cells, and the company seeks to produce more than 40,000 cars annually (Liu et al., 2014). The Tesla Model S already accounts for about 40% of the world’s total cylindrical battery production. Furthermore, the cost of lithium-ion batteries is so high that it accounts for 50% of the price of battery-operated electric vehicles (Karamitsios, 2013).

Tesla has to invest in battery innovation if it is to support the production of electric vehicles (Liu et al., 2014). This may involve creating new battery factories to manufacture enough battery cells for its vehicles. Such an investment would be a sound move because there will be increasing numbers of electric vehicles in automotive markets (Belderbos & Faems, 2010). Many other electric vehicle manufacturers will be looking for batteries and this is likely to drive prices further upwards. A possible way of reducing costs is for Tesla to switch to flat prismatic cells instead of the current cylindrical batteries. Alternatively, the company could look for other suppliers in addition to Panasonic (Ebersberger et al., 2010).

In order for Tesla’s products to dominate the global market, there is a need for development of charging station infrastructure for conveniently charging electric vehicles (Karamitsios, 2013). Customers are not likely to buy electric vehicles if there is a shortage of charging stations or they take long charging hours. Currently, fuelling stations are easily accessible to people in every place and this makes fossil fuel vehicles more practicable. For electric vehicles, charging stations are not readily available and it would take a lot of infrastructure development to establish these on a global scale.

 A framework for innovation

Tesla employs various strategies to push its electric vehicles in the consumer market. The electric vehicles are sold through the company’s showrooms as well as online channels (Karamitsios, 2013). Tesla also provides other auto manufacturers interested in electric vehicles with patented electric powertrain components which they pay for. Additionally, the company has been encouraging other auto manufacturers to enter into the electric vehicles market by showing that there is a huge potential market for these vehicles (Ebersberger et al., 2010). The objective behind these moves by Tesla is to spur investment and innovation in the electric vehicles category, as well as to open up the huge potential market that exists.

Tesla Motors manufactures and markets its own electric vehicles. The company also acts as an original equipment manufacturer selling its electric powertrain components to other companies that might be interested in making their own electric vehicles (Karamitsios, 2013). This is because Tesla is a pioneer in this category and has patented most of the technology available. Furthermore, other companies are still cautious about the real potential of electric vehicles and are therefore not willing to fully invest in the initiative as much as Tesla has done.

Tesla partnered with established car manufacturer Lotus and this partnership has proven quiet useful to Tesla (Faems et al., 2010). First, the Lotus creative department provided the design for Tesla’s first car, which was similar to the Lotus Elite. Second, Tesla uses Lotus manufacturing plants in England to produce its vehicles. Lotus factory was able to accommodate Tesla’s production rate while maintaining its own operations. This has saved Tesla a lot of costs in setting up a new manufacturing plant. Furthermore, Tesla has avoided storage costs associated with unsold cars (Liu et al., 2014). Tesla has taken advantage of Lotus supply chain to push its electric vehicles into the market.

The partnership between Tesla and Lotus provides a basis for sharing technology between the two companies (Faems et al., 2010). Tesla relies on technology from Lotus especially in relation to structure and safety of vehicles. Lotus engineers have also been contracted by Tesla for various engineering and styling jobs. This is because Tesla still has a small pool of employees to handle all the work needed. Establishing a skilled team would take too much time and slow down the company’s roll out plans. Tesla also licensed key safety systems from Lotus thus saving time and money (Liu et al., 2014).

The battery pack remains the most important component of electric vehicles, making it necessary for Tesla Motors to seek stronger partnerships with battery cell manufacturers (Ebersberger et al., 2010). As a way of strengthening the partnership with Panasonic, the battery manufacturer invested $30 million in Tesla Motors. The two companies have a supply agreement for automotive grade lithium-ion battery cells, the main drivers for the Tesla Model S. The two companies are also collaborating in research and development (R&D) to develop the next generation of battery cells for electric cars (Karamitsios, 2013). The new battery cell uses nickel chemistry technology with special optimisation for electric vehicles. This will produce a more efficient battery to drive Tesla’s electric vehicles.

The incorporation of Panasonic’s next generation battery cells into Tesla electric vehicles will increase their range and performance (Faems et al., 2010). The new cells can achieve longer range with more energy density. This will help towards solving one of the major problems associated with electric vehicles – short battery life. Tesla is willing to invest towards innovation of longer-lasting, more powerful batteries that would allow the vehicles to be used for longer without charging. This will also ease concerns about charging of the vehicles while there are still few charging ports available.

Other auto manufacturers are starting to believe in Tesla’s dream and their partnerships can bring in capital, knowledge and experience that have made them successful in the auto industry. Daimler AG acquired a 10% equity stake in Tesla Motors in 2009 and the two companies have been cooperating on the development of electric drive and battery systems (Faems et al., 2010). The two companies share ideas and technology for the development for better vehicles. Daimler decided to make its own electric car and Tesla has been helping with the integration of its lithium-ion battery packs and charging electronics into Daimler’s electric car.  In 2010, Toyota also acquired a 3% stake in Tesla Motors and the partnership involves collaboration on the development of production systems and engineering support for electric vehicles (Faems et al., 2010).

 Conclusion

Tesla Motors is an innovation-driven company that seeks to revolutionise the motor industry through production of battery-driven electric vehicles. In this endeavour, it faces several challenges which it has to overcome, mainly through innovation. Electric vehicles run on batteries and a lot of these are required to meet Tesla’s demand. Tesla has to invest in the large scale production of longer-lasting, more powerful battery cells that will power its vehicles and meet its demand as it expands into the global market. Tesla also faces a leadership challenge due to overreliance on transformative leader Elon Musk. The company needs to train new leaders to take various positions and drive its growth into the global stage.

References

Aggeri, F., Elmquist, M., & Pohl, H. (2009). Managing learning in the automotive industry – the innovation race for electric vehicles. International Journal of Automotive Technology and Management , 9 (2), 123-147.

Belderbos, R., & Faems D, L. B. (2010). Technological activities and their impact on the financial performance of the firm: Exploitation and exploration within and between firms. Journal of Product Innovation Management , 27 (6), 869-882.

Chiaroni, D., Chiesa, V., & Frattini, F. (2010). Unraveling the process from closed to open innovation: evidence from mature, asset-intensive industries. R&D Management , 40 (3), pp. 222-245.

Ebersberger, B., Bloch, C., Herstad, S. J., & Van de Velde, E. (2010). Open innovation practices and their effect on innovation performance. International Journal of Innovation and Technology Management .

Faems, D., Visser, M., Andries, P., & Looy, B. V. (2010). Technology alliance portfolios and financial performance: Value-enhancing and cost-increasing effects of open innovation. Journal of Product Innovation Management , 27 (6), 785-796.

Holmberg, S. (2011). Emerging Green-Technology Entrepreneurs: Entrepreneurial Pathways to Growth in the Hybrid and Plug-In Hybrid/Electric Vehicle Space . ICSB World Conference Paper, (pp. 3-8). Stockholm.

Karamitsios, A. (2013). Open innovation in EVs: A case study of Tesla Motors.

Liu, Y. E., Kang, Y., Wu, H., Chen, C., & Hon, E. (2014). Tesla Motors Inc. Case Synopsis. Burnaby BC: Simon Fraser University. Retrieved, 10(18), 2014.