Few companies have attracted as much praise, derision, skepticism and enthusiasm as Telsa Motors and its founder Elon Musk. Having interviewed Elon Musk and the Tesla leadership as part of myresearch, one of the questions Im asked most frequently is: how can you make sense of Teslas wild strategies? The latest example is the move to create a Gigafactory for car batteries just outside Berlin.
Part of the challenge in understanding Teslas strategy are the commentators. These range from short selling to star worship. Many ask the wrong questions, such as why Tesla TSLA, +0.99% isnt making any money a question appropriate for a mature business, but not a growth one. While all businesses must be sustainable in the long run, Tesla is like most rapid growth companies that eat up more cash flow than they produce while in the early growth phase.
Read: Teslas Musk and Greenlight CEO lock horns in fiery Twitter feud
Vitaliy Katsenelson: Why Tesla might be the next Apple and Elon Musk the heir to Steve Jobs
But the biggest part of the challenge may simply be understanding Teslas strategy. Why would a new company, already taking on the Herculean task of introducing an entirely new type of car to the market, also take on the incredible risk of building some of the worlds largest battery factories? Or for that matter, a dealership and repair network? Or a charging network? Or, even crazier, a solar power business?
On the surface, it makes no sense and there is no doubt that it introduces more risk to the company, increasing its chances of failure. But when viewed through the lens of the decades of research on technology strategy, Teslas approach takes on a different light.
The big challenge to understanding Teslas strategy is that most of us only look at it from one level of analysis. Namely, when we see Tesla, we see a company that produces cars. But when I teach executives how to invest in future technology, I encourage them to think at multiple levels of the technology stack: not just products, but also components and systems. So lets take a closer look at Tesla.
At the level of the product, although a Tesla looks the same as other vehicles, underneath the hood the vehicle has a fundamentally different architecture, both in terms of hardware and software. This matters because a long research tradition underscores that when incumbents face a new technology architecture, they struggle to understand and adapt.
Even though they can see what the technology is, they struggle to adapt both because they are reluctant to give up the existing capabilities they have perfected over decades and to fully integrate the new ones. Although incumbents may imitate the new architecture, they have a hard time overcoming the way they have done things in the past and to match the superior performance of the new, purpose-built architecture.
You can see evidence of this playing out in the auto industry. Early electric vehicles produced by incumbents on internal combustion engine architectures paled in comparison to the Tesla, and even newer blank slate efforts sometimes dont quite measure up. Its always the little things that get in the way such as the fact that most vehicles built by other manufacturers have up to five separate software systems rather than a single integrated system like a Tesla, which gives a performance advantage.
Read: Tesla Blade Runner pickup truck could be so futuristic that it leaves buyers cold
If we lower our level of analysis to the level of components, rather than products, we see the Tesla strategy in a different light again. What we know about technical systems is that, as they mature, the value migrates to the bottlenecks that control the systems performance.
This is why in the PC industry, Intel INTC, +2.08% has made so much money for decades while hard drive and modem manufacturers made peanuts. Intel controlled the bottleneck to the performance of the PC whereas hard drive manufacturers did not.
The bottleneck for electric vehicles now and in the future is the batteries. If Tesla can dramatically lower the prices of batteries by manufacturing at scale, they lower the barriers to adoption for electric vehicles. But more importantly, the battery bottleneck isnt going away any time soon, which means, if they succeed, Tesla controls the biggest profit pool in the future of auto manufacturing.
Read: Elon Musk says he chose Berlin over U.K. for Tesla battery factory due to Brexit
Lastly, if we raise our level of analysis above components and products, to the level of systems, we see Tesla in yet another light. The truth is that consumers dont want products; they want solutions. Most car makers deliver products. But Tesla tries to deliver a complete experience: car, upgrades, charging, insurance the whole bundle. And as a result, the majority of Tesla owners talk in glowing terms about their Tesla, both because it is a great car, but also a great solution. In what other vehicle do you wake up in the morning to find new self-driving features?
Lets be clear: the risks are high. Tesla has compounded major bet upon major bet by having a multi-level strategy that targets components, products and systems. Everything has to go well to succeed. But if the stars align, its a brilliant strategy at all levels.
Nathan Furr is an associate professor of strategy at Insead outside Paris. This was first published by The Conversation Teslas business strategy is not chaotic its brilliant.
See the article here:
- Tesla Model Prices, Photos, News, Reviews and Videos | Autoblog - February 29th, 2020
- A look at all the different Tesla models, including its Cybertruck - Fox Business - February 29th, 2020
- Tesla (unit) - Wikipedia - February 29th, 2020
- Is The Model Y Truly The Best Tesla Yet? - InsideEVs - February 29th, 2020
- Power Line: Tesla's solar slide, and the top battery industries - Business Insider - Business Insider - February 29th, 2020
- Volvo Follows Tesla's Lead on EVs by Building Its Own Batteries - Car and Driver - February 29th, 2020
- Teslas Autopilot keeps causing its cars to crash - Vox.com - February 29th, 2020
- Kevin Rooke: The Genius of Tesla Superchargers - CleanTechnica - February 29th, 2020
- Tesla's Autopilot Fatality Demonstrates That the World Isn't Ready for Self-Driving Cars - Inc. - February 29th, 2020
- Gene Munster On Apple's Future, Tesla's Valuation And The 2020 Election - Benzinga - February 29th, 2020
- Tesla And PG&E To Build World's Largest Battery Farm - Yahoo Finance - February 29th, 2020
- Road-Raging Subaru Driver Attacks A Tesla With Mom And Kids Inside - InsideEVs - February 29th, 2020
- Tesla reports fully autonomous miles for first time in years, but its nothing to get excited about - Electrek - February 29th, 2020
- From Hummer to Tesla: Breaking down the electric truck battle - The Providence Journal - February 29th, 2020
- Tesla Reports Only 12.2 Miles of Autonomous Mode Testing in 2019 - Car and Driver - February 29th, 2020
- Tesla Stock Is Getting Hammered on Coronavirus Fears, but It Isnt Capitulation - Barron's - February 29th, 2020
- Tesla offers Model Y customers a cheat code to get delivery quicker - Fox Business - February 27th, 2020
- Teslas Followers Are Trying to Piggyback Off Elon Musks Sales Wins - Yahoo Finance - February 27th, 2020
- Turnpike Authority teams with Tesla to more than triple EV chargers - NJBIZ - February 27th, 2020
- Tesla's Biggest Advantage in the Auto Industry - Motley Fool - February 27th, 2020
- Virgin Galactic Stock Is Nothing Like Tesla Its Light-Years Worse - CCN.com - February 27th, 2020
- Bombs, bats, ants and now trees Teslas big green hurdle in Germany - MarketWatch - February 27th, 2020
- Tesla Voltage Reduced at Jefferies on Valuation Concern - TheStreet - February 27th, 2020
- Tesla Helps Solve Hit-And-Run Mystery In Olive Garden Parking Lot - CBS Denver - February 27th, 2020
- Teslas Secret Weapon In The EV Revolution - Yahoo Finance - February 27th, 2020
- A Tiny Piece of Tape Tricked Teslas Into Speeding Up 50 MPH - WIRED - February 27th, 2020
- Tesla's Failure To Reach $1000 Will Give Investors Bubble Vertigo - Time To Sell - Forbes - February 27th, 2020
- Tesla is 'bitcoin on wheels' - Fox Business - January 30th, 2020
- 2020 will be the most shocking year in Tesla's history but not for any of the usual reasons - Business Insider Nordic - January 30th, 2020
- Tesla Racks Up Another Record Year (and Another Loss) - Yahoo Finance - January 30th, 2020
- Cyberphone is an iPhone 11 Pro designed to look like Tesla Cybertruck - Business Insider - Business Insider - January 30th, 2020
- Tesla unveils new Model Y wheels: berturbine and Induction wheels - Electrek - January 30th, 2020
- Tesla is on a tear and is now the world's No. 2 automaker by market capitalization - Business Insider - Business Insider - January 30th, 2020
- Tesla Energy is back to growth, thanks to cheap solar subscriptions and Solarglass - Electrek - January 30th, 2020
- Here's what every major analyst had to say about Tesla's big earnings beat - CNBC - January 30th, 2020
- Tesla earnings win praise even from doubters: We fully admit things are better than we expected - MarketWatch - January 30th, 2020
- Jim Cramer on Tesla, Facebook, and Coca-Cola's Earnings - TheStreet - January 30th, 2020
- Tesla says you'll start seeing its futuristic Semi on the road this year - Business Insider - Business Insider - January 30th, 2020
- Stocks making the biggest moves after hours: Facebook, Microsoft, Tesla, PayPal and more - CNBC - January 30th, 2020
- Tesla Stock Is Rising Ahead of Earnings and Amid Coronavirus Concerns in China - Barron's - January 30th, 2020
- YouTuber's Tesla flies over Baxter and Alvarado to gasps and criticism - The Eastsider LA - January 30th, 2020
- Tesla is about to release Q4 earnings; heres what to expect - Electrek - January 30th, 2020
- The best bullish case ever made for Tesla, according to prominent Tesla bear - MarketWatch - January 30th, 2020
- Hacker finds Tesla's S and X getting new battery options, redesigned suspension - Autoblog - January 30th, 2020
- Sapiens (SPNS) and Tesla (TSLA) Are Aggressive Growth Stocks - Zacks.com - January 30th, 2020
- Tesla Reports Earnings Today. Heres What to Expect. - Barron's - January 30th, 2020
- Theres only one stock millennials prefer over Amazon and Tesla - MarketWatch - January 30th, 2020
- Musk Counters Critics Who Say Tesla Gigafactory In Berlin Will Hurt The Environment - Yahoo Finance - January 30th, 2020
- Heres How Teslas Stock Could Hit $0 - Forbes - January 30th, 2020
- How Tesla became the world's most overvalued car company - Wired.co.uk - January 30th, 2020
- Tesla is Now Worth More than Ford and GM Combined - Visual Capitalist - January 30th, 2020
- Join The Coolest Tesla Conference Call Livestream In The Universe! - CleanTechnica - January 30th, 2020
- Tesla Powerwall helps family save over $8,000 on their power bill - Electrek - January 30th, 2020
- Tesla earnings: Will results help keep the rally alive? - MarketWatch - January 30th, 2020
- Weekend reads: Are these red flags for Tesla, Apple and Netflix? - MarketWatch - January 30th, 2020
- Everything Jim Cramer said about the stock market on 'Mad Money,' including Apple's quarter, Tesla's high expectations, Masimo CEO - CNBC - January 30th, 2020
- Federal agency looking into Tesla driver complaints of sudden unintended acceleration - CNBC - January 19th, 2020
- Tesla is on a tear, with no end in sight. That means the naysayers' case is in ruins. - Business Insider - January 19th, 2020
- Tesla Driver Loses Control, Hits and Critically Injures Teen Girl in Long Beach - NBC Southern California - January 19th, 2020
- Tesla is now worth more than Ford and GMcombined - Ars Technica - January 19th, 2020
- Why Tesla [TSLA] Is On A Tear No Other Auto Company In The World Thats Growing That Quickly. - CleanTechnica - January 19th, 2020
- Tesla & EV Fans: The Perfect Reason You Should Be 'Going To Miami' - InsideEVs - January 19th, 2020
- Bulls And Bears Of The Week: IBM, Microsoft, Tesla And More - Yahoo Finance - January 19th, 2020
- Bitcoin fans just turned their Tesla car into a full node - The Next Web - January 19th, 2020
- Tesla stock could hit $6,000 per share in the next five years, analyst says - Yahoo Finance - January 19th, 2020
- Why BlackRock May Pump Teslas Stock to the Moon - CCN.com - January 19th, 2020
- Production Of Tesla Semi Set To Kick Off In Second Half Of 2020 - InsideEVs - January 19th, 2020
- Tesla - Paramus - 17 Photos & 17 Reviews - Car Dealers ... - January 14th, 2020
- Tesla's Elon Musk approaches $346M payout as market value soars - CNET - January 14th, 2020
- Tesla is now the most valuable US automaker ever - CNN - January 14th, 2020
- If the Telsa Rally Left You Behind, Heres What to Do - Barron's - January 14th, 2020
- Ride on Tesla's Hottest Run With These ETFs - Yahoo Finance - January 14th, 2020
- How Big Is The Tesla Model Y? - InsideEVs - January 14th, 2020
- Man caught on camera using knife to vandalize Tesla in Conifer - FOX 31 Denver - January 14th, 2020
- How the man who challenged Tesla went bankrupt - Business Insider - January 14th, 2020
- This simulator company reverse-engineered the Tesla Nrburgring lap - Ars Technica - January 14th, 2020
- Tuesday's calls of the day: Apple, Tesla, Netflix, Five Below & more. - CNBC - January 14th, 2020
- Tesla faces protest at Gigafactory 4 site over cutting down the forest - Electrek - January 14th, 2020
- Tesla All-Weather Kit: The Correction Is Worse Than The Defect - InsideEVs - January 14th, 2020
- Monday's analyst calls of the day: Tesla, Nvidia, Microsoft & more. - CNBC - January 14th, 2020