HOW TESLA’S TECHNOLOGY WILL REVOLUTIONIZE THE AUTOMOBILE

27/05/2016 – Par Anaël Diémé, Alexandre Oliveira, François Blaisot, Benjamin Adabachi, Antoine Cornudet, Loïc Chalavon

 

The future of the automobile is already far beyond anything you can imagine. Electric, connected and autonomous, it does not pollute and never gets in an accident. To do so, it relies on several unexpected innovations.

The automobile sector and even the mobility/transportation sector are in great transformation due to energy transition, sharing economy and saturation of networks. Technology will play an enormous role in this transformation.

Future’s cars will naturally be autonomous, and will offer a smartphone-like experience to its passengers. But more than that, Volvo hopes that accidents will not be deadly anymore by 2020. In the long-term, cars would have no accident at all. Qualcomm bets on the combination of 5G internet reduced latency on one hand, and the communication of cars between each other or with infrastructures on the other hand.

In a general matter, electric cars benefit from a much simpler design. Basically, they are only composed of a frame, a car body, a passenger compartment and a battery. Car manufacturers are therefore already offering to update the engine or the battery of a current car, for example with the Roadster 3.0 package from Tesla.

 

A glance at Tesla’s technology

Tesla Motors presents some very innovative features such as the automatic steering, speed, lane changing, parking and the autonomous driving. The technology associated to the new Model S is truly revolutionary : with a 442 km autonomy, reaching 100 km/h in 5.4 seconds, the Model S is also equipped with a front radar, 12 ultrasonic captors positioned in order to apprehend the car’s environment in a 4.9 meters range no matter its speed, a front camera and a numerical high precision braking system, a GPS, numerical maps and an automatic driving system. Tesla Motors synthesizes a wide array of new technologies, ranging from digital and numerical innovations to electric and electronic ones.

How do Tesla cars work? Tesla cars are electric vehicles, equipped with two electric engines, one at the front and one at the back. As electric cars, Tesla cars need to be recharged with one of the 613 superchargers stations equipped with wall chargers based in the US. The battery can be recharged to 80% in 40 minutes, 100% in 75 minutes.

 

Ahead of the competitors

Most cars don’t improve over time. But Tesla Motors Model S does. It gets faster, smarter, and better as time passes. With Tesla’s regular over-the-air software updates, Model S actually improves while you sleep. Among other things, the latest update introduces two key applications that ensure you never unintentionally run out of range, giving you peace of mind at all times : Range Assurance and Trip Planner. Model S already has the lowest probability of injury of any car ever tested and Tesla took it further by adding important active safety features, such as Automatic Emergency Braking, Blind Spot Warning and Side Collision Warning. Another Tesla’s advantage is that while gasoline cars get worse with altitude, electric cars actually get faster.

 

A true disruptive innovation in the car industry

Tesla aims at radically changing the car industry thanks to the use of softwares and informatic tools, which is why the headquarters are based in the Silicon Valley and not in Chicago or Detroit, where most of traditional car producers are located. Tesla’s strategy is truly influenced by the spirit of the Silicon Valley, they innovate as much as possible and have succeeded in creating a real ecosystem around electric and connected cars. Tesla’s research was really focused on developing the links between automobile industry, numerical/digital technologies and Physics/Electrostatics. That is why Tesla offers its patents to create a true disruptive innovation and to open a new economic market.

Tesla is one of the first firm that enters into a mass-market electric car with the Model 3, with 300 km of autonomy at a price of $35 000. Tesla brings a product on the market that is simple and affordable so that a new segment of the population, which previously hadn’t had enough money to buy one could do so.

Tesla is also innovative and disruptive in the way the company sees the process of car production and the contact with the clients. Tesla’s vision of car production is far from Toyotism or Fordism : the factories are equipped with robotic polyvalent machines and are also very integrative, with a huge “intellectual capital” concentration: engineering, medical field, agro-industry, high-tech, all these employees work in the same place for the same company! Tesla keeps reinventing its processes in order to react quickly to the changes on the « new tech » market. Tesla acts as a 5000-employees start up: The Silicon Valley meets Detroit.

The relation with car conductors is at the core of Tesla’s business model: be ready for a day-to- day relationship with Tesla if you decide to buy a car produced by this firm! Tesla aims at creating a true community around its brand thanks to sharing experiences on social media for example.

A new drivers’ demand has appeared : to benefit from connected elements that can help to drive and better comfort and security inside the vehicle. With Tesla and other firms that follow the path, the automobile sector progressively evolves from an industry-oriented activity to a service-oriented activity.

 

Principal areas of application and industries involved

Tesla brings new advantages on the car market that can seduce a new demand. Indeed, many people cannot drive a regular car but could use a Tesla since no other car is as user-friendly as Tesla. For instance, handicapped people and the elderly could benefit from the no-driver system for obvious reasons. But Tesla automatic-driving system could also be interesting for very busy people such as politicians and CEOs, who could spend their time working instead of driving. Among the many areas of application of a car that does not need a driver, a major one could also be the transportation of kids without a parent. In fact, the areas of application of such a system seem limitless, it could for example even be considered as a solution for a Jew willing to drive on a Shabbat day.

There is a wide array of industries involved in production process of a Tesla : Software industry / Automobile industry / Energetic industry (Electricity) / Mining industry (lithium) / « Raw materials » industry (general components to build a car) / Engineering sector (Physics, Mechanics, Nanotechnology…) / Telecommunication industry (GPS, automatic parking, traffic information, guide, maps etc…) / Electronic industry / Computer technology industry (Programming for example) / Semiconductors industry / Multimedia industry (radio, MP3 music, photos and videos).

Tesla is at the crossroads of several industries and aims at synthesizing the different assets of each industry to create a true connected car with many different features, ranging from informatic tools and softwares to a revolutionary motion system. Tesla’s technology helped at creating new standards and applications in many fields of the industry, in R&D (Research and Development) and in Science.

 

An all-new technology

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This technology is located at the beginning of the curb, with a low abscissa (x) and a low ordinate (y), because this technology offers new opportunities since Tesla is a very efficient innovative firm and its new technology is only at the beginning of its life cycle. It is only the beginning of accessible electric cars, that’s why one can forecast that the electric car sector could have a bright future with new innovations that need to be invented in the decades to come.

The majority of the features enabled by this technology could be improved, for example the autonomy of the battery. One can really improves the performances associated with Tesla’s technology and the limits of this technology are far from being reached. The research efforts could also be intensified since Tesla opened the new market of electric cars a few years ago : many things need to be changed, because of this radical and disruptive innovation. We are still in the first generation of technology associated with electric cars and the next generation could be the exportation of Tesla’s technology to other transportation sectors.

 

Dominant design or not ?

When it comes to electric cars, there is no dominant design yet. Indeed, democratization has not happened for electric vehicles since prices are still too high and investors are too anxious. In fact, a very affordable electric car will be released by Tesla in 2017 but it is undeniable that in all countries, electric vehicles do not meet a substantial demand unless the government implements a proactive policy. Therefore, electric cars are currently still going through their introduction stage in terms of product life cycle so economies of scale, that come with mass production are not possible yet. Tesla has provided a design that is very likely to become the dominant one on the market. Indeed, in addition to Tesla’s model 3 which, as the first affordable electric car, will probably change Tesla’s design into the dominant one, the brand already benefits from a very strong position on the automobile market.

 

A company which owns its value chain

Tesla owns almost all of its value chain, from production to design and also customer services. Most of the transactions are internal. This system helps them to reduce the costs and to better control quality. This quasi autonomy is characteristic of Tesla and fits the global spirit of Tesla. They manufacture their most important components themselves while other components are delivered from numerous suppliers in a way it improves efficiency.

They assemble all of their cars in a factory in Northern California ; the manufacturing process is highly innovative and automated. Tesla’s distribution channel (outbound logistics) consists in having their own stores, across 30 countries.

Concerning their marketing and sales, Tesla spends no money in traditional marketing and does not employ an advertising agency. Instead of that, they develop the network of their own stores. They built and expand the super-fast free charging station for their customers’ vehicles, enhancing the value of their products.

 

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Traditional competitors are innovating as well

The competitors leaders are mostly the traditional players of the automobile sector, who at first did not take Tesla’s electric revolution seriously. Tesla was one of the very first firm who enters into the mass-market electric car, and the other firms now try to catch up so that they could be in the right market competition in the years to come: they therefore build their own electric cars:

–  Nissan Leaf 2.0 and the Nissan e-NV200,

–  the Volkswagen e-Golf,

–  Renault Zoé, Kwid, Next Two,

–  the Peugeot iOn,

–  the BMW i3,

–  the Mercedes Classe B Electric Drive,

–  the Volvo Concept 26…

In 2016/2017 the Chevrolet Bolt (General Motors), the Volkswagen Budd-e and the BMW i Vision Future Interaction will enter into the electric cars market. General Motors and its Chevrolet Bolt will become the main competitor of Tesla, with almost the same features for half the price of a Tesla Model S (i.e around 30 000 $). They forced Tesla to create the Tesla Model 3 to be competitive on the mass-market of electric cars and to stay the leader of this new industry.

 

Value creation in the market

The majority of the leaders involved in the electric cars industry did not create the value, they rather captured it and tried to do as good as Tesla does by designing and building their own electric cars, with their own features and characteristics.

Technology does not always provide competitive advantages. The technology Tesla developed did provide them competitive advantages, but it could probably change in 2016-2017 with the arrival on the mass-market of the Chevrolet Bolt of General Motors. GM will probably be the first firm to succeed in building a mass-market electric car, with a 300 km autonomy and a price of 30 000 $.

By using Teece’s model from 1986, one can see that in the case of Tesla’s technology, both appropriability regime and complementary assets play a key role in the value capture of the technology by the traditional leaders of the automobile industry.

In this case, the appropriability regime is weak because Tesla’s technology is easy to imitate thanks to the strategy of free and open patterns developed by Tesla. Since the complementary assets are quite difficult to obtain, only the great leaders of the industry, such as GM for example, can truly benefit from this weak appropriability regime because they will have the capacity to exploit the technology and to create added value to it. Tesla does have complementary assets in this market, such as the electrical charging stations or SolarCity (an American firm, founded by Musk, which provides energy services and installs solar power systems), but they are not as strong and diversified as those of the traditional leaders.

The risk for Tesla in the decades to come is to become an average firm in the sector or simply to collapse, because or their lack of complementary assets compared to the traditional competitors, and also because of this weak appropriability regime of the technology enabled by Tesla’s strategy of free patterns. Tesla have two choices to make soon if the firm wants to keep its position on the market : to lock out the market by creating entry barriers to the market thanks to lawsuits, lower prices or intellectual property for example, or to build strong alliances with traditional leaders of the automobile sector with joint ventures or acquisitions (see Teece’s model).

 

Adoption of technology

In the case of Tesla, the key to success is to cross the chasm between what appeals to the visionary “early adopters” and what appeals to the pragmatic “early majority”. At the moment, the buyers of Tesla cars are “early adopters” who really like the concept and think that the new idea associated with the innovative technology is a fundamental breakthrough which will deeply revolutionize the transport industry.

Tesla did not cross the chasm yet, because “early majority” has not been reached yet (early majority stands for people who are harder to convince because of their first will to see the others successfully use the technology before buying it on reference). The chasm will probably be overstepped in 2016/2017 when the Tesla cars will become cheaper due to the arrival on the market of the GM Chevrolet Bolt, thus leading to the creation of a mass-market for electric cars.

Therefore, Tesla has a good potential of adoption. But Tesla needs an industry and an environment for electric cars before being able to address the late conservative adopters.

 

Strategy to apply Moore’s model to our technology

Geoffrey Moore (born in 1946) is an American organizational theorist, management consultant and author who created a model to explain how managers can find adjacent market segments related to their initial market segment thanks to a community of target users who interact and talk to each other a lot. Moore’s model thus helps managers to successfully cross the chasm and enter into a mass-market. To do so, the strategy relies on the identification of the different segments and applications of Tesla’s technology on the market.

This graph sums up our work on the application of Moore’s model to our technology :

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How Rogers’ five factors apply to our technology

To analyze Tesla’s innovation adoption and diffusion in a more precise way, one can use Roger’s five factors (Diffusion of innovations, E. M. Rogers, 1962). This product-focused framework relies on five different elements which help us to better predict and manage the consumer adoption of Tesla’s innovative technology :

Relative advantage : Tesla’s relative advantage on the market is its ability to create an innovative technology with electric cars for a relatively affordable price.

Compatibility : Tesla’s cars are perceived as consistent with existing values and experiences of the potential adopters, i.e ecologic and environmental values.

Trialability : Tesla puts in place a lot of stands in several cities in order to give the possibility for the potential clients to test it.

Observability : The design of Tesla cars is sufficiently peculiar to be noticed in the streets. For example, the door handle retracts itself in the car door.

Complexity : Tesla’s car gives huge help to drive with several innovations like automatic driving and parking.

 

News

On April 7th, Tesla started taking reservations for Model 3, and the excitement has been incredible. They have now received more than 325,000 reservations, which corresponds to about $14 billion in implied future sales, making this the biggest one-week launch of any product ever.

 

Sources and references

www.teslamotors.com

www.usinenouvelle.com/article/industrie-tv-retour-sur-le-phenomene-tesla-l-enfant-adoptif- d-elon-musk.N382391

http://www.usinenouvelle.com/article/quand-tesla-vend-le-model-x-comme-renault- presentait-sa-r16-en-1963.N353882

http://www.usine-digitale.fr/article/think-big-act-small-les-cles-du-succes-d-elon- musk.N384359

http://www.usinenouvelle.com/article/comment-general-motors-a-double-tesla-par-la-droite- dans-la-course-a-la-voiture-electrique-grand-public.N380474

http://www.usinenouvelle.com/article/avec-ses-batteries-lithium-ion-tesla-va-devenir-le-plus- gros-consommateur-de-cobalt.N334059

http://www.usinenouvelle.com/article/quand-tesla-reinvente-l-industrie-automobile.N335818

http://www.usine-digitale.fr/article/demain-le-logiciel-sera-le-critere-principal-de-choix-d- une-voiture.N366476

http://www.industrie-techno.com/tesla-donner-ses-brevets-rapporte-plus-que-de-les- defendre.30696?preview=11

http://www.usine-digitale.fr/article/tesla-le-grand-disrupteur.N314297

Inside the Tornado, G. A. Moore, 1995, revised in 2004

Crossing the Chasm : Marketing and Selling High-tech Products to Mainstream Customers, G.A. Moore, 1991, revised in 1999 and 2014

Innovation : The Attacker’s advantage, R. J. Foster, 1986

Diffusion of innovations, E. M. Rogers, 1962

“Profiting from Technological Innovation”, published in Research Policy, D. J. Teece, 1986

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