Module 9 Corporate Strategy and Vertical Integration Discussion

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 generation 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, establishing 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 outlined 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 remarkable 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 establish 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 companies, 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 automakers.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 vehicles (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 Bangalore, India. Others were for off-highway use. These “neighborhood electric vehicles” (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 dieselpowered 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, incentives 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 conventional vehicles—in addition to lower battery prices, EVs benefitted from fewer components 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 technology 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 startups 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
FIGURE 1
World’s leading suppliers of plug-in electric vehicles, 2017 (thousands of units)
BEV
0
20
40
60
PHEV
80
100
120
BYD
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
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 seconds 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 Fremont, 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 showrooms, 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
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. Introduced 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 batteries 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 latest 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 patents) 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 manufacturers. 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 developing 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 modules 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 biggest 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 charging 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 charging 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 several 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 property 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 ecosystem; 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 patents 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
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.
41
n.a.
BMW
Notes:
a
M. Rimmer, “Tesla Motors: Intellectual Property, Open Innovation, and the Carbon Crisis,” Australian National University College of Law (September 2014).
b
Includes only patents that specifically mention “electric vehicles.” http://www.ipwatchdog.com/2015/09/02/electricvehicle-innovation-america-tops-japan/id=61178/, accessed March 8, 2018.
FIGURE 2
Patents awarded to Tesla Motors Inc. and Tesla Inc., 2008–2017
70
60
50
40
30
20
10
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
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 automakers 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
512 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE 2
Tesla’s rivals: Some of the battery-electric cars available in March 2018
Model (base model)
Type
Base price
Range
Tesla 3
5-seat compact sedan
$35,000
220 miles
Tesla X90D
Crossover SUV
$93,500
257 miles
Tesla S70
5-seat +2 compact sedan
$72,700
234 miles
Nissan Leaf
5-seat compact sedan
$29,990
150 miles
GM Chevrolet Bolt
5-seat compact sedan
$36,620
238 miles
Kia Soul EVi
subcompact, crossover SUV
$32,250
90 miles
Smart Fortwo (Daimler)
2-seat city car
$25,750
80 miles
Mitsubishi i-MiEV
4-seat sub-compact sedan
$23,845
80 miles
BMW i3
5-seat compact sedan
$42,400
114 miles
Ford Focus Electric
5-seat compact sedan
$29,120
73 miles
FIAT 500e
5-seat compact sedan
$32,995
84 miles
Jaguar I-PACE
Crossover SUV
$69,500
240 miles
BYD e6
5-seat compact sedan
$35,000
250 miles
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 p
­ roducers
of BEVs—BYD, BAIC, and ZD, in particular—had yet to establish themselves in
Western markets.
Given these short-term priorities and the financial constraints that Tesla faced, the
company might have been expected to limit the scope of its longer term projects.
­However, during summer 2018, Tesla showed little sign of moderating its ambitions.
Internationally, it sought to broaden its presence in Europe and Asia. It was expected
to announce a European Gigafactory to manufacture battery packs and assemble Tesla
cars. In China, where Tesla has 15 retail outlets, it planned to open an assembly plant
by 2020. Tesla’s vertical integration strategy makes international expansion especially
challenging—it has to develop its own retail network and charging network and, if it is
to produce within its overseas markets, it also needs to develop battery plants. At the
end of June 2018, it had just 347 retail stores worldwide.
Tesla was also committed to introducing a heavy-duty truck. The Tesla Semi, with a
hauling capacity of 40 tons and range of 500 miles, will begin production in 2019. By
January 2018 preorders had been received from Walmart, PepsiCo, Anheuser-Busch,
Sysco, UPS, DHL, and several other companies.
However, Elon Musk’s ambitions were not limited to Tesla. His other major venture,
SpaceX, is world market leader in commercial space launches. The successful launch
of its massive Falcon Heavy rocket on February 6, 2018 reinforced its leadership.
Other ventures include the Boring Company, which develops innovative solutions to
tunneling in order to relieve urban congestion, the “hyperloop” project to develop
ultra-high-speed intercity travel, and Neuralink, which seeks to combine human and
artificial intelligence.
Conventional business wisdom dictates that sustaining diverse and grandiose
long-term ambitious while grappling with short-term operational difficulties is a recipe
CASE 12 Tesla: Disrupting the Auto Industry   513
for disaster. However, Elon Musk had the capacity to deploy his long-term vision to
inspire faith in Tesla that dwarfed short-term fears. For example, the impact of Tesla’s
dismal 4th quarter results announced on February 7, 2018 was dwarfed by the publicity
arising from SpaceX’s launch of a Tesla Roadster into space just the day before. Fortunately, the quarterly financial data released on August 1, 2018 did not require such
gimmickry: despite a net loss of $718m, Tesla’s smaller-than-expected cash outflow and
projections of profitable upcoming quarters reinforced hopes that Tesla could become
a profitable volume manufacturer of cars.
Appendix
TABLE A1
Tesla Inc.: Selected financial data
($ millions)
2017
2016
2015
2014
2013
2012
2011
2010
Revenues
11,758
7000
4046
3198
2013
413
204
117
Gross profit
2222
1599
923
882
456
30
62
31
SG&A expenses
2477
1432
922
603
286
97
52
46
Research & development
1378
834
718
465
232
274
209
93
Operating profit
(1632)
(667)
(717)
(187)
(61)
(394)
(251)
(147)
Net profit
(1961)
(674)
(889)
(294)
(74)
(396)
(254)
(154)
Cash
3368
3393
2286
1906
846
458
255
100
Total assets
28,655
22,664
8067
5849
2417
1114
713
386
Total long-term obligations
15,348
10,923
4145
2772
1075
450
298
93
Cash flow from operating
activities
(61)
(124)
(525)
(57)
265
(264)
(114)
(128)
Cash flow from investment
activities
(4419)
(1416)
(1674)
(990)
(249)
(207)
(176)
(180)
TABLE A2 Extracts from Tesla’s income statements: Years 2015, 2016, and 2017; and
first six months of 2018
2017
2016
2015
5680
8535
5589
3432
413
1107
762
309
Total automotive revenues
6093
9641
6351
3741
Energy generation and storage
784
1116
181
14
Services and other
534
1001
468
291
Total revenues
7411
11,759
7000
4046
($ millions)
2018 (to June 30)
Revenues
Automotive sales
Automotive leasing
(Continues)
514 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE A2 Extracts from Tesla’s income statements: Years 2015, 2016, and 2017; and
first six months of 2018   (continued)
2018 (to June 30)
2017
2016
2015
4621
6724
4268
2640
241
708
482
183
4863
7433
4750
2823
Energy generation and storage
706
875
178
12
Services and other
767
1229
472
287
6336
9536
5401
3123
Gross profit
1075
2222
1599
924
Operating expenses
2294
3855
2267
1640
Loss from operations
(1218)
(1632)
(667)
(717)
10
20
9
2
(313)
(471)
(199)
(119)
13
(125)
111
(42)
Loss before income taxes
(1508)
(2209)
(746)
(876)
Net loss
(1527)
(2241)
(773)
(889)
($ millions)
Cost of revenues
Automotive sales
Automotive leasing
Total automotive cost of revenues
Total cost of revenues
Interest income
Interest expense
Other (expense) income, net
Notes
1. https://www.tesla.com/blog/secret-tesla-motors-masterplan-just-between-you-and-me?redirect=no, accessed
March 6, 2018.
2. https://www.tesla.com/blog/master-plan-part-deux
3. “The Mission of Tesla,” (November 18, 2013), http://www.
teslamotors.com/en_GB/blog/mission-tesla, accessed
July 20, 2015.
4. The 100 megawatt-hour battery was Musk’s response to
the power crisis that had gripped South Australia early
in 2017. Musk promised to have the battery farm up and
running within 100 days or supply it free of charge. The
project was completed in 62 days. See: “Tesla Delivers
the World’s Biggest Battery—and Wins a Bet,” Wall Street
Journal (November 23, 2017).
5. “How Elon Musk Does It,” Economist (February 10, 2018).
6. http://www.autoexpress.co.uk/motor-shows/geneva-motorshow/102380/geneva-motor-show-2018-live, accessed
March 6, 2018.
7. Tesla Motors, Inc. 10-K report for 2014: 4.
8. https://electrek.co/2017/09/27/tesla-powerwall-2-­
installations-swell/
9. Tesla, Inc. 10-K report for 2017: 3.
10. https://qnovo.com/inside-the-battery-of-a-nissan-leaf/
11. “How to Build a Tesla, According to Tesla,” Washington
Post ( June 23, 2014). https://www.washingtonpost.com/
12.
13.
14.
15.
16.
17.
18.
19.
news/the-switch/wp/2014/06/23/how-to-build-a-teslaaccording-to-tesla/?utm_term=.5e49a24eec38, accessed
March 7, 2018.
“Will Tesla’s Battery for Homes Change the Energy
Market?” Scientific American (May 4, 2015).
Tesla, Inc. 10-K report for 2017: 40.
http://www.businessinsider.com/the-companies-mostlikely-to-get-driverless-cars-on-the-road-first-2017-4,
accessed March 7, 2018.
https://www.investors.com/research/ibd-industry-themes/
self-driving-cars-tesla-general-motors-google-waymoeye-2018-milestones/, accessed March 7, 2018
Tesla Motors, Inc. 10-K report for 2012.
“All Our Patent Are Belong to You,” https://www.tesla
.com/blog/all-our-patent-are-belong-you, accessed
March 7, 2018.
https://hbr.org/2014/07/elon-musks-patent-decisionreflects-three-strategic-truths, accessed March 7, 2018.
“What’s Driving Tesla’s Open Source Gambit?” Knowledge@
Wharton ( June 25, 2014), http://knowledge.wharton.
upenn.edu/article/whats-driving-teslas-open-source-­
gambit/, accessed July 20, 2015.
SEU_MGT510
Critical Thinking Assignment Rubric – Module 9
Exceeds
Expectation
Content, Research, and Analysis
17-20 Points
Requirements
Includes all of the
required
components, as
specified in the
assignment.
29-35 Points
Content
Demonstrates
substantial and
extensive
knowledge of the
Case Study with no
errors or major
omissions.
29-35 Points
Analysis
Provides strong
thought, insight,
and analysis of
concepts and
applications.
5 Points
Sources
Sources go above
and beyond
required criteria
and are well
chosen to provide
effective
substance and
perspectives on
the issue under
examination.
Mechanics and Writing
9-10 Points
Demonstrates
Project is clearly
college-level
organized, well
proficiency in
written, and in
organization,
proper format as
grammar and
outlined in the
style.
assignment.
Demonstrates
strong sentence
and paragraph
structure, contains
no errors in
Meets Expectation
Below Expectation
Limited Evidence
13-16 Points
Includes most of
the required
components, as
specified in the
assignment.
22-28 Points
Demonstrates
adequate
knowledge of the
Case Study; may
include some
minor errors or
omissions.
22-28 Points
Provides adequate
thought, insight,
and analysis of
concepts and
applications.
4 Points
Sources meet
required criteria
and are adequately
chosen to provide
substance and
perspectives on the
issue under
examination.
12-9 Points
Includes some of
the required
components, as
specified in the
assignment.
14-21 Points
Demonstrates fair
knowledge of the
Case Study and/or
includes some
major errors or
omissions.
14-21 Points
Provides poor
though, insight,
and analysis of
concepts and
applications.
3 Points
Sources meet
required criteria
but are poorly
chosen to provide
substance and
perspectives on the
issue under
examination.
5-8 Points
Includes few of the
required
components, as
specified in the
assignment.
6-13 Points
Fails to
demonstrate
knowledge of the
Case Study and/or
includes many
major errors or
omissions.
6-13 Points
Provides little or no
thought, insight,
and analysis of
concepts and
applications.
1-2 Points
Source selection
and integration of
knowledge from
the course is
clearly deficient.
7-8 Points
Project is fairly well
organized and
written and is in
proper format as
outlined in the
assignment.
Demonstrates
reasonably good
sentence and
paragraph
structure, may
5-6 Points
Project is poorly
organized and
written and may
not follow proper
format as outlined
in the assignment.
Demonstrates
inconsistent to
inadequate
sentence and
paragraph
3-4 Points
Project is not
organized or well
written and is not
in proper format as
outlined in the
assignment.
Demonstrates poor
quality work and is
unacceptable in
terms of grammar,
spelling, APA style,
SEU_MGT510
Critical Thinking Assignment Rubric – Module 9
grammar, spelling,
APA style, or APA
citations and
references.
Total points possible = 105
include a few
minor errors in
grammar, spelling,
APA style, or APA
citations and
references.
development,
and/or includes
numerous or major
errors in grammar,
spelling, APA style
or APA citations
and references.
and APA citations
and references.

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