TESLA Case study | Disrupting the Auto Industry | Elon Musk | Electric Vehicle | Harvard case Study

The Tesla case study explores core strategy and innovation topics, including patterns of innovation, types of disruption, the ecosystem surrounding innovations, systems strategies, and processes. It highlights how Tesla exemplifies these concepts through its groundbreaking approaches in technology and market dynamics.

In 2003, Martin Eberhard, driven by concerns about global warming and oil dependency, envisioned an environmentally friendly sports car. After exploring alternative fuels, he concluded that electric vehicles offered the best efficiency and performance. Inspired by AC Propulsion's T0 electric car but seeking to improve it with lighter lithium-ion batteries used in electronics, Eberhard licensed their drivetrain technology and co-founded Tesla Motors with Marc Tarpenning. Around this time, Elon Musk shared similar goals for high-performance EVs; impressed by Eberhard’s vision after being introduced through AC Propulsion CEO Tom Gage, Musk invested $6.3 million into Tesla as chairman while Eberhard became CEO.

Tesla revolutionized a nearly non-existent electric vehicle (EV) market by introducing battery electric vehicles (BEVs), contrasting with hybrid models like Toyota Prius and Chevy Volt. While hybrids addressed range anxiety, they were criticized for their additional gas engines adding weight and complexity. Despite this, hybrids gained popularity, with Toyota projecting over 1 million annual sales of hybrid models post-2012 and planning numerous new releases by 2015. Tesla faced competition from Nissan Leaf’s affordable BEV option launched in 2010 and Ford Focus Electric introduced in 2011; both offered limited ranges but significant early adoption rates globally. By mid-decade, luxury brands such as BMW i3/i8 series and Porsche Mission E directly targeted Tesla's dominance.

Tesla redefined car design by abandoning traditional combustion engine platforms and creating a unique architecture centered around battery packs. Unlike competitors who adapted existing designs, Tesla engineered systems like traction control from scratch and eliminated components such as transmissions. While this innovation brought significant benefits, it also posed challenges with potential unforeseen errors and repair complexities unfamiliar to most mechanics.

Tesla revolutionized car manufacturing with a highly automated, vertically integrated factory using multi-tasking robots for welding, riveting, bonding, and component installation. Unlike traditional automakers who used single-function robots for efficiency in cost-competitive markets, Tesla faced criticism but pursued innovation. The company tackled battery challenges by constructing a $5 billion Gigafactory to centralize production processes under one roof while aiming to cut costs by 30% in an energy-efficient facility. It developed proprietary techniques for cooling lithium-ion batteries and patented its innovations extensively before making them open-source in 2014 to encourage collaboration on charging networks.

Elon Musk believed his involvement would generate sufficient publicity, leading to Tesla operating with a small marketing team of fewer than 10 people by 2015. The company spent minimal amounts on advertising compared to traditional automakers, raising questions about its ability to scale beyond niche markets without significant promotion. For the Model S and Roadster, this approach worked in high-end segments but posed challenges for mass-market vehicles like the Model 3. Instead of using franchise dealerships like competitors, Tesla owned all its stores located in affluent areas or malls resembling Apple Stores. These showrooms displayed limited models alongside exposed car chassis showcasing battery technology while allowing customers to order directly.

Tesla revolutionized car distribution by selling online, eliminating the need for large inventories or traditional dealerships. Their stores were cost-effective without service bays since electric vehicles have fewer moving parts than combustion engines. Maintenance was handled by technicians at customers' homes, addressing the unique challenges of servicing EVs that couldn't rely on conventional auto repair shops.

To facilitate the transition from gas to electric vehicles, Tesla developed solar-powered supercharging stations for convenient battery charging during travel. These self-service stations were strategically placed near freeways and amenities like restaurants or malls, allowing users to multitask while their cars charged. By late 2015, over 500 such stations existed with six to eight chargers each, exclusively serving Tesla cars for free lifetime use—a feature marketed as a significant cost-saving advantage over traditional gasoline.

Tesla aimed to revolutionize the automotive industry by starting with high-end vehicles before moving down-market, exemplified by plans for the affordable Model 3 in 2017. However, challenges loomed as low gas prices persisted, electric vehicle sales stagnated, and doubts arose about Tesla’s ability to disrupt entrenched internal combustion engine technology. Achieving mass adoption required advancements in technology, shifts in consumer behavior, infrastructure development, and supportive government policies—daunting tasks for a startup with limited resources. Additionally burdened by inefficiencies compared to established automakers and ambitious ventures like energy storage systems alongside its car lines raised questions about profitability.