THE SECRET TESLA MOTORS’ MASTER PLAN
Background
Electric cars have
been manufactured for as long as the internal combustion cars, but the dominant
method of propulsion has been the internal combustion engine. Moreover, for the
past 100 years the electric car has not been reimaged. Consequently the
electric car has been designed, manufactured and retailed in the same way as
the internal combustion engine car. However, in 2006 Elon Musk’s ideation
(master plan) for the electric car was put forward. Musk, the founder of Tesla
Motors, reimagined almost all aspects of how an electric car was designed,
manufactured and retailed. The “secret master plan” of Tesla was to enter the
high end of the electric car market, where customers would be willing to pay a
premium price. The aim was to produce higher unit volumes and reduce the unit
price of each successive model. Elon Musk explained the master plan of Tesla
briefly as follows:
1. Build a sports
car.
2. Use the money
earned to build an affordable car.
3. Use that money to
build an even more affordable car.
4. While doing the
above, also to provide zero emission electric power generation options.
However, in 2006,
Tesla was a start-up company that did not possess the bundles of resources and
capabilities to create a mass market electric car at the first attempt. The
goal was simply impossible to reach, because the company had never built an
electric car, had one technology iteration and no economies of scale. Elon Musk
realised that its first product was “R going to be expensive no matter what it
looked like”, so they decided to build a sports car, because it would probably
have the best chance of competing successfully with its gasoline alternatives.
Executing the master plan
To bring the first
compelling electric sports car to market required that a long list of
initiatives be deployed. These initiatives included: engineering a custom car
and manufacturing process; setting up a factory to assemble the car; designing
a new battery system; performing several iterations of safety tests and
subsequently making changes to the battery system; developing software
algorithms for the transmission; developing a new chassis and a new body, and
ensuring that every single part would meet legal safety requirements; performing
safety testing; creating infrastructure (service centres) for customers;
sourcing spares for every replaceable part; obtaining licenses to transport,
manufacture and sell cars and subassemblies; staffing an entire company; and
creating the necessary infrastructure to do all of the above. While
implementing the above master plan, planning had to be done for the second
model.
The second model was
priced at half the price point of the Tesla roadster and the third model was
even more affordable. Most of the cash generated was reinvested in research and
development to drive down costs and to bring the following models to market as
fast as possible. Therefore, when a customer buys a Tesla car, it helps to pay
for the development of the low-cost family car.
Yet, for all of
Tesla’s successes in introducing new models, with the number of cars that Tesla
produced it was unlikely to make a dent in the consumption of oil and the
number of internal combustion cars that were produced by mainstream car
manufacturers. Less than 1% of all cars manufactured were electric. To move
closer to achieving Tesla’s overarching strategic goal of sustainable transport
called for every aspect of electric car manufacturing and retailing to be
re-imagined. Tesla’s strategy was thus not the “business as usual” of
mainstream carmakers. Tesla’s strategic initiatives focused on moving beyond
the past 100 years of entrenched ways of car manufacturing and retailing. These
initiatives included: reimaging what the electric car could be; designing an
electric car from the ground up; reimagining the retail experience of buying an
electric car; reimagining customer service; creating a network of “electric
highways”; venturing into battery manufacturing; and accelerating the
manufacturing of electric cars by sharing patents and creating partnerships.
Design process
In 2006, Elon Musk
reimagined what the electric car could be. Moreover, Elon Musk envisioned that
the future of the car would be electric. This vision and belief in what the
electric car could be was very different from main stream car manufacturers’
beliefs. This belief in the future of the electric car also strongly influenced
the design process at Tesla. Elon Musk wrote in the Tesla blog:
Not too long from
now, most cars will be electric. Why? Two reasons: because electric cars are
far more efficient than any other kind of car, and because they are the
ultimate multifuel cars. Sound bold, maybe crazy?
Therefore to truly
benefit from electric efficiency, Tesla started the design process of an
electric car from the ground up. By following the ground-up design approach the
restrictions imposed by traditional combustion car design were not experienced.
As a result, the Model S design showed superior aerodynamics and remarkable
torsion rigidity. Safety tests showed it had the lowest probability of injury
of any car ever tested by the US government.
In 2011, Tesla chief
designer Franz von Holzhausen made the following comments during an interview
on the design philosophy and approach to designing the Model S:
Model S is a
revolutionary vehicle not only due to its electric propulsion, but also in that
its engineering and design go hand in hand. We have designed Model S from the
ground up as an EV. The unique powertrain integration allows for an
unprecedented package that is both rigid and incredibly safe. We set out to
redefine the electric car, but with room for seven passengers and more
functional storage space than any sedan on the market, Model S will set a new
bar for the premium sedan as well.
Retail experience
In reimagining the
experience of buying an electric car, Tesla started to recruit talented
individuals who wanted to be more innovative, create something different and
leave the world a better place. John Walker, recruited for his retail track
record at Audi, made the following comment:
It is really because
of Tesla that the automotive industry has turned so quickly to embrace
development of electric vehicles, and I feel confident that Tesla will continue
to be at the forefront of innovation. Joining the company now is a
once-in-a-lifetime opportunity to help create something different, change the
world for the better and have fun in the process.
The recruitment of
employees with specific talents ensured that customers’ retail experience at
Tesla would be unlike their retail experience at other typical car dealerships.
Tesla Motors opened stores in shopping malls where customers could examine a
floor model, learn about the design and engineering processes involved, and
schedule a test drive. Purchasing happens online, directly from Tesla, which
means that there are no intermediaries that add costs. Furthermore, by cutting
them out of the value chain, intermediaries lose the leverage they had for
decades over car manufacturers and customers.
Enhancing the customer experience
In reimaging the
customer experience, Tesla first set the goal to deliver the highest possible
level of ownership satisfaction in every way. Tesla measured customer
satisfaction using a survey that customers were asked to complete after each
service. Almost 90% of customers’ rated Tesla’s service at 9 or better on a
10-point scale, where 10 is best and 1 is worst. Tesla also made several
improvements to the Model S through software updates and added small but
important features, such as power folding mirrors and parking sensors. These
efforts were validated by an owner satisfaction survey, which gave Model S a
score of 99 out of 100, the highest satisfaction score achieved for any car in
the world. The next highest score was 95.
Electric highways
In April 2014, Tesla
announced it had opened 100 charging stations (86 Supercharger stations in
North America, 14 in Europe and 1 in China) as part of its initiative to create
“electric highways” that would make long distance driving possible. The
“electric highways” initiative made it convenient to travel long distances in
an electric car and addressed the practicality of growing the number electric
cars on roads. Charging stations were also an important component in creating a
carbon-free lifestyle for customers, enabling customers to combine other
renewable energy options with all electric cars. The network of charging
stations was part of a partnership with SolarCity and Rabobank aimed at
creating a corridor of fast charging stations between San Francisco and Los
Angeles.
Battery manufacturing
In 2014, Tesla
announced it would build the world’s largest and most advanced battery factory
in Nevada. This initiative would allow Tesla to achieve a major reduction in the
cost of battery packs and to accelerate the pace of battery innovation. Working
in partnership with suppliers, Tesla planned to integrate precursor material,
cell, module and pack production into one facility. With this facility, Tesla
would possess another capability, namely to create a compelling and affordable
electric car in a shorter timeframe. This capability would make it possible for
Tesla to address the solar power industry’s need for a massive volume of
stationary battery packs.
Patents and open structures
In 2014, Elon Musk
decided to join the open source movement by making the patents of Tesla
available to anyone who wanted to use them in good faith. Initially Tesla felt
that competitors would copy Tesla technology and therefore they felt compelled
to create patents. Elon Musk admitted that this assumption was wrong. Tesla
rather found that competitors were not copying Tesla’s technology, nor were
they using their resources and capabilities to overtake Tesla. The true state
affairs was that less than 1% of cars sold by major car companies were electric
cars and trying to protect patents in reality slowed down the advent of
sustainable transport. Tesla’s new logic assumed that patents were of more
value if shared across a large number of stakeholders interested in
manufacturing electric cars. Elon Musk wrote the following on Tesla’s open
patent initiative to accelerate the advent of sustainable transport:
At Tesla, however, we felt compelled to create patents out of
concern that the big car companies would copy our technology and then use their
massive manufacturing, sales and marketing power to overwhelm Tesla. We
couldn’t have been more wrong. The unfortunate reality is the opposite:
electric car programs (or programs for any vehicle that doesn’t burn
hydrocarbons) at the major manufacturers are small to non-existent,
constituting an average of far less than 1% of their total vehicle sales.
At best, the large automakers are producing electric cars with
limited range in limited volume. Some produce no zero emission cars at all.
Given that annual new vehicle production is approaching 100 million
per year and the global fleet is approximately 2 billion cars, it is impossible
for Tesla to build electric cars fast enough to address the carbon crisis. By
the same token, it means the market is enormous. Our true competition is not
the small trickle of non-Tesla electric cars being produced, but rather the
enormous flood of gasoline cars pouring out of the world’s factories every day.
We believe that Tesla, other companies making electric cars, and
the world would all benefit from a common, rapidly-evolving technology
platform.
Technology leadership is not defined by patents, which history has
repeatedly shown to be small protection indeed against a determined competitor,
but rather by the ability of a company to attract and motivate the world’s most
talented engineers. We believe that applying the open source philosophy to our
patents will strengthen rather than diminish Tesla’s position in this regard.
Conclusion
The strategic
initiatives undertaken by Tesla look beyond the present and 100 years of
entrenched ways of car manufacturing and retailing. Tesla’s strategic goal to
accelerate the advent of sustainable transport by bringing electric cars into
the market as soon as possible is big, bold and risky. Yet, Tesla’s ability to
execute strategy reveals that strategic change is not about trying to predict
change. It is rather about creating change.
Sources:
Adapted from
http://www.teslamotors.com/blog-and-press-releases, accessed September 2014.
Adapted from
http://www.wired.com/2014/03/tesla-banned-ensure-process-buying-car-keeps-sucking/,
accessed September 2014.
