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Sigvald

Harryson & Sebastian Keller Case Study on Tesla Motors Part I

TESLA MOTORS CASE STUDY I: Company Creation and


Early Exploration1
Tesla Motors, Inc., incorporated in 2003, designs, develops, manufactures and sells electric
vehicles and advanced electric vehicle powertrain components. The Company owns its sales and
service network, and markets and sells its vehicles directly to consumers through the phone and
Internet, in-person at its corporate events and through its network of Tesla stores. The Company
commercially produces an electric vehicle, the Tesla Roadster. The Tesla Roadster offers
acceleration and performance without producing any tailpipe emissions. In addition, it provides
services for the development of electric powertrain components and sells electric powertrain
components to other automotive manufacturers. On July 1, 2010, it introduced the Roadster 2.5,
with new styling and an upgraded interior.
The Companys vehicle, the Tesla Roadster, can accelerate from zero to 60 miles per hour in 3.9
seconds and has a maximum speed of approximately 120 miles per hour. The Tesla Roadster has
a range of 245 miles on a single charge and a battery pack capable of storing approximately 53
kilowatt-hours of usable energy. This equals the hypothetically a fuel consumption of one gallon
per 135 miles. As of December 31, 2010, over 1,500 Tesla Roadsters had been delivered to
customers in 31 countries, almost all of which in North America and Europe.
The Tesla Battery Pack
Despite the manufacturing challenges, Teslas engineers had successfully designed a durable and
powerful battery pack using lithium-ion laptop cells. It was no easy task. Lithium-ion batteries
can explode if overheated, so the team came up with an innovative cooling system that circulates
water and antifreeze in sealed tubes throughout the battery array. They installed sensors that
would disconnect the battery within milliseconds in the event of a crash or if smoke, humidity, or
water entered the pack. At the same time, it provided 200 kilowatts of powerenough to let the
288-horsepower motor rocket the Roadster from 0 to 60 in less than four seconds.
Each module contains 2,000 cells and weighs 300 pounds. The cells are the same kind youll find
in your laptop -18650-lithium cobalt oxide. Plug the truck into a 220-volt line and its good to go
in six to eight hours.
In 2010 Panasonic, the worlds leading battery cell manufacturer and a diverse supplier to the
global automotive industry, also partnered with Tesla. Tesla currently uses Panasonic battery
cells in its advanced battery packs and has collaborated with Panasonic on the development of
next generation battery cells designed specifically for electric vehicles. While Teslas current
battery strategy incorporates proprietary packaging using cells from multiple battery suppliers,
Tesla has selected Panasonic as its preferred lithium-ion battery cell supplier for its battery
packs.

1

I am grateful to Sebastian Kellner Graduate student at the CBS OIE Program for valuable support in putting
important parts of this case-study together, and to CIEL for funding an important part the time that went into this
case project. Some interviews marked by quotation marks were made by myself at company visits in 2008 and
2011. Please read this as work in progress and in line with case-reflection number 5 let us know how you would
like the case to be developed.

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

What did other car manufacturers do?


In 2007, Daimler unveiled plans to develop an electric version of its Smart car. Also BMW and
Volkswagen intensified their efforts to get a food down in the EV race to mass market. With a
test series of electrified Minis and prototyping with the Golf series both car manufacturers try to
develop models that could be suitable for customer segments with an interest in green awareness
and driving habits profiles that can be served by available battery packs. To get an even more
green perception of their activities and to serve the customers demand of more fuel-efficient cars,
both companies introduced hybrid versions of their models.
In the recent past BMW also intensified the research & development with one of its major
partners in the carbon industry (SGL Carbon) to reduce more weight of the chassis to counter the
increasing weight of the battery backs. Also Toyota, Nissan and General Motors were bringing
vehicles like the Rav4, Leaf and Volt (in Europe know as the Ampera) to the market in 2011.
In the sphere of supercars Fisker, Porsche and Audi recently announced that they are developing
models that have similar characteristics and performance such as the Tesla Roadster, but it will
still take a few months, if not even years until those models will be cruising the highways in a
similar number as the Roadster. With the ability to learn from their current fleet of more than
1300 Tesla Roadsters no competitor has such a knowledge and feedback-base of real customers
like Tesla Motors.
Tesla Motors
On the 9th of July 2007, Tesla went public, netting $238 million and making it the first American
car company to complete an initial public offering since Ford in 1956. As a result, the company
now has access to more than $700 million, a significant portion of which will go toward
retrofitting the manufacturing facility in Freemont and ramp up their production.
Just three years ago, Tesla Motors was in big trouble. The companys inaugural product - the
$109,000 Tesla Roadster - was due to begin production in September 2007, but an internal audit
done over the summer revealed that the cost to actually build the car had climbed to $140,000. It
was a money-loser before a single unit had been delivered. Musk was the lead investor but
wasnt running the company then, and he was taken aback by the state of affairs. Hed been led
to believe that manufacturing the car would cost $65,000 and decided to investigate the
discrepancy himself. He visited the body panel fabricator in England and discovered that the
facility didnt have the right tools to do the job. The car wasnt just too expensive - as things
stood, it couldnt even be built.
At this point, Musk and other investors had invested nearly $100 million in the company and
didnt have a single car to show for it. Martin Eberhard, CEO at the time and one of Teslas
founders, was demoted and in a matter of months left the company.
Michael Marks, an investor and former head of electronics maker Flextronics, stepped in as
interim CEO. Marks immediately drew up a list of roadblocks standing in the way of the car
being built. The transmission didnt work, the air-conditioning didnt work, the quality of the
seats was unreliablethe list kept going. The situation, Marks wrote in an email, was a lot

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

scarier and [more] pressing than I thought.


At the end of 2007, Musk decided to put another $20 million into Tesla. He wasnt ready to
concede defeat, because for him there was more at stake than just creating a viable company.
Musk then tried to accelerate the rollout of the Roadster by hiring Zeev Drori, a no-nonsense
former Israeli paratrooper and microchip executive, to take over as CEO. While Drori focused on
solving the Roadsters problems, Musk started to think about ways to bring in more income.
Other members of the founding team left the companies to pursue their own goals in the new
blue ocean of EVs.
Founding Partner Ian Wright:
Tesla cofounder Ian Wright started his own electric car company Wrightspeed in 2005 and
made the X1 prototype, which beat the Tesla Roadster and also some other European supercars
on a racetrack in 2010. As a serial entrepreneur Wright wanted to create his own venture
utilizing his knowledge in the fields of electric engines and batteries to develop vehicles with
extraordinary drive-train performance. Today Wrightspeed is also developing electric engines for
mid-sized trucks that can be combined with range extenders (fuel combustion engines) to find
their use in delivery trucks in the future. For the development of his company he recently
collected venture capital and moved the company from his garage in Woodside to a larger
facility in San Jose. Distinguishing the Wrightspeed from Tesla is the fact that Wright has a
stronger interest in developing EV technology to sell it to car manufacturers on the globe, rather
than involving its company in the car manufacturing process, which requires a strong capital
base and very diverse knowledge in multiple fields. Interestingly, Wright spoke recently more
critically about the mass market of EV vehicles, trying to explain why he is focusing more on the
combination of combustion and electric engines as well as the niche market of supercars.
Martin Eberhard

From 2003 until August 2007 Martin Eberhard was the CEO of Tesla Motors and also
responsible for research & development. He was one of the driving forces in the early days of
Tesla and created a community around the start-up, making employees, shareholders and
customers equally committed to bringing the company to live. In 2010, Volkswagen hired Martin
Eberhard to head up their battery lab. His major task was the battery lab in Silicon Valley to
support the electrification of some VW models and prototypes from the Volkswagen garage
bringing the Audi E-Tron and the VW E-UP! for intensive testing to the streets of California. At
the time when Eberhards contract expired both sides agreed on parting their ways, offering
Eberhard the opportunity to start a new, yet undisclosed car-related business.
Marc Tarpenning

Trapenning was co-founder and VP-engineering at Tesla. Previously he founded NuvoMedia a


web agency being also involved in the field of e-reader. Furthermore Marc Tarpenning is
entrepreneur in residence at Mayfield; there he pursues the path of VCs approach to the cleantech space.

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

Winning Daimler- a Smart move


One option was to try to ride the electric wave by selling battery packs to the larger
manufacturers. The income could keep Tesla alive long enough to eventually compete head-tohead. After all, electric vehicles were going to need batteries, and Musk was convinced that
Tesla had the best power packs. Of course, most manufacturers werent inclined to make a huge
bet on a struggling start-up. Still, Musk tried.
In September 2007, he flew to Stuttgart, Germany, and met with a group of Daimler executives,
who listened skeptically as Musk told them how great his technology was. They werent sold.
But two months later Musk got an email from Herbert Kohler, Daimlers head of advanced
engineering, saying that he and some other Daimler execs would be in California in six weeks
and would be willing to look at Teslas technology.
It was all Musk needed. He immediately called JB Straubel, Teslas CTO. We need to make an
electric Smart car in six weeks, Musk said. Can you do it? Straubel pointed out that it would
mean hed have to pull engineers off the Roadster at a time when they were still desperately
trying to solve production problems. It was a tough call, but Musk believed that if they could
prove themselves to Daimler, they could win a valuable contract. In addition to the much-needed
cash, it would validate Tesla in the eyes of the world. They had to try. Straubel had another
question: Where was he supposed to get a regular, gas-powered Smart car to retrofit? At the
time, Daimler didnt sell Smarts in the US.
With a bit of research, he discovered that the cars were sold in Mexico. He made a few calls and
located a dealership in Tijuana with stock on hand. He hurriedly decided to send someone to
fetch a car. A Tesla engineer suggested a friend who was fluent in Spanish, and, after a quick
call, the guy agreed to make the trip south.
Straubel walked over to the finance department. I need $20,000 in cash in a bag right now, he
said. Were sending someone to Tijuana to buy a Smart car. The finance person noted that a lot
could go wrong with that scenario but got Straubel the money. Three days later, the engineers
buddy showed up at Tesla headquarters with a brand-new Smart car. Straubel and his team
immediately removed the 83-horsepower gas engine and set to work building a custom battery
pack that would fit in the tiny cars engine compartment. Next, they refashioned a Roadster
motor to power it. When they got too tired, they napped underneath a staircase, but the pounding
of feet overhead made it hard to stay asleep for long.
Finally, at one oclock in the morning, five and a half weeks after setting to work, the
reengineered Smart was fully assembled.
Straubel got in the drivers seat and switched on the power. He goosed the accelerator and
rocketed out of the garage and into the parking lot. When Straubel floored it, the front wheels
lifted off the ground and the back tires left marks on the asphalt. He called Musk and told him
the car was ready for the Germans.
The Daimler executives sat down in Teslas conference room midmorning on January 16th, 2008.
Musk walked them through a PowerPoint presentation that explained the advantages of the

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

Roadsters technology. Kohler wasnt impressed. He wasnt here to talk about a flashy, limitedrun show car. He wanted to know if Tesla could mass-produce battery packs quickly for the
Smart. His frosty demeanour indicated that, in his opinion, it didnt seem likely.
Weve actually got something to show you, Musk said and asked the Daimler execs to follow
him.
Kohler spotted the shiny new Smart sitting in the middle of the garage and didnt smile. It might
have seemed like a gimmick at first. Musk managed to get a Smart into the US. Big deal.
Its electric, Musk said.
What do you mean? Kohler asked.
We put in a Tesla battery and motor.
Kohler examined the car. Straubel had been careful not to alter its shape or interior, so it was
impossible to tell that it had been modified. Kohler got behind the wheel and Musk hopped in the
passenger seat. When the German stepped on the accelerator, the car bolted out of the garage and
disappeared. Straubel waited nervously with the other Daimler executives. After 15 minutes, the
Smart tore back into the garage. Straubel noticed that the normally taciturn Kohler was trying
hard not to smile.
Lets explore a partnership, Kohler told Musk.

The modified Smart EV

As a result of the convincing test-drive, Daimler started the development of a test fleet of 100
smart EVs together with Tesla. The developed EV Smart cars were used to evaluate the EV
concept in London with day-to-day assignments together with fleet operators and private users.

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

Daimler as a partner
In 2009, 18 months later, Daimler decided to acquire a 10 percent stake in Tesla and to create a
corporate partnership to drive the development of their battery technology. During the press
conference, Elon Musk and Dr. Thomas Weber provided a bit more insight on their plans.
"Our strategic partnership is an important step to accelerate the commercialization of electric
drives globally," said Dr. Thomas Weber, Member of the Board of Daimler AG, responsible for
Group Research and Mercedes-Benz Cars Development. "As a young and dynamic company,
Tesla stands for visionary power and pioneering spirit. Together with Daimlers 120 years of
experience in the automotive sector this collaboration is a unique combination of two companies'
strengths. This marks another important milestone in Daimlers strategy for sustainable
mobility."
"Daimler has set the benchmark for engineering excellence and vehicle quality for more than a
century. It is an honor and a powerful endorsement of our technology that Daimler would choose
to invest in and partner with Tesla," said Tesla Chairman, CEO and Product Architect Elon
Musk. "Daimler is also on the leading edge in the field of sustainable mobility. Among others the
lithium-ion pouch-cell battery developed by Daimler and especially designed for automotive
applications is of interest to us. We are looking forward to a strategic cooperation in a number of
areas including leveraging Daimlers engineering, production and supply chain expertise. This
will accelerate bringing our Tesla Model S to production and ensure that it is a superlative
vehicle on all levels. Together on the road to electro-mobility.
The two companies have already been working closely to integrate Teslas lithium-ion battery
packs and charging electronics into the first 1,000 units of Daimlers electric smart car. In order
to benefit from each others know-how, the investment enables the partners to collaborate even
more closely on the development of battery systems, electric drive systems and in individual
vehicle projects.
As part of the collaboration, Prof. Herbert Kohler, Vice President E-Drive and Future Mobility at
Daimler AG, took a seat on Teslas board of directors.
In July 2012, Daimler divested part of its shares to an Abu Dhabi investment fund keeping only a
4,7% stake in Tesla Motors. Still, Elon Musk recently admitted that not only Daimler benefited
strongly from Teslas IP but also secured the survival of the Tesla Motors:
"The credit for saving Tesla should go to Daimler. It was the Daimler investment that saved
Tesla in early 2009. [...] 2007 and 2008 were especially bad for us. [...] There were a couple of
near-death situations" (Autoblog.com).2

http://www.autoblog.com/2012/09/05/elon-musk-the-credit-for-saving-tesla-should-go-to-daimler/
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

Dr. Herbert Kohler, Elon Musk and Dr. Thomas Weber at the press conference in July announcing the partnership
between Daimler and Tesla Motors.

Toyota and new the production facilities


Shortly thereafter, Toyota decided to invest $50 million in Tesla through a private placement of
common stock in Tesla Motors. The auto giant also signed on to develop prototype electric
vehicles with the startup and indicated that it would support Musks $42 million offer for the
billion-dollar Nummi factory in Fremont.
In July 2010, Tesla signed a deal with Toyota to cooperate on the development and
manufacturing of the electronic version of the RAV4 as announced in May of that year by Elon
Musk and Akio Toyoda. With an aim to market the EV in the United States in 2012, 32
prototypes were made combining the Toyota RAV4 model with a Tesla electric powertrain.
The prototypes were developed by two competing teams: one pure Toyota team and one mixed
Tesla and Toyota engineering team working on the best solution to power an RAV4 with Tesla
drive train and battery components. For Toyota, this was one part of creating a more
entrepreneurial culture into Toyota.

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

The Toyota Rav4 electrified by Tesla Motors shown on the Detroit Motor Show

Whats in it for Toyota?


Toyoda said he wanted his company to be more entrepreneurial, learning from Teslas EV
technology, daring spirit, quick decision-making, and flexibility. Thats why he had wanted to
meet Musk and give the Roadster a try in the first place. He liked the fact that Musk had
managed to bring the vehicle to market. Plus, it seemed like a fun car.
During the press conference announcing the deal at Tesla headquarters, Toyoda took the
microphone and talked about getting to drive the Roadster and how it had impressed him. He
decided to work with Tesla, he said, so that Toyota could learn from the small companys
spirit and energy. Tesla on the other hand seeks to learn and benefit from Toyotas
engineering, manufacturing, and production expertise.
When asked by a Reuters reporter why he had chosen to partner with Tesla among all the electric
car start-ups, Toyoda looked over at Musk. Musk-san, he said. I love him.
Other Licensing Deals:
Freightliner, a large Daimler-owned truck manufacturer purchased Teslas battery technology in
2010 for use in a fleet of medium-duty, all-electric walk-in delivery van. Therefore Freightliner,
Enova and Tesla joined their forces.
Enova provided the motor, which produces 120 kilowatts peak power (about 160 horsepower)
and 45 kilowatts (about 60 horsepower) continuous. The controller and charger also came from
Enova. The power comes from batteries made by Tesla Motors.
The pack is comprised of three 18.5 kilowatt-hour modules for a total of 55.5 kilowatt hours.
This capacity should last for more than 100 miles. In the case that a larger range is required,
more modules can be added to the pack. The still tested vehicle can handle as many as five
packs, which would provide 92.5 kilowatts. The battery is essentially the same as the Roadsters
53 kilowatt-hour pack.

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

All of the components fit between the frame rails and what would be the engine compartment in
a conventional truck, so theres no loss in cargo space or capacity. The electric van will have a
2,500-pound payload. Although the battery pack weighs 900 pounds, the electric drive train is
lighter than the engine and transmission it replaced.

Freightliner Custom Chassis & Medium-duty Delivery Truck

Tesla Accelerates
Over the course of 2008, Tesla solved the production problems on the Roadster and, one by one,
the cars started to hit the streets and many reviews were positive. Car and Driver called it a
revelation and Motor Trend gushed, The Roadster is a cool automobile technically, a cooler
automobile to drive, and an historic game-changer in our perception of battery-electric vehicles.
Musk accumulated hundreds of orders for the $109,000 car. It looked like the company might
survive after all. Musk, however, wasnt interested in just surviving. Though he said the
company could reach profitability if it focused just on the Roadster and the battery pack
business, he didnt rein in his ambition. The point, after all, had never been to supply fast cars to
rich people. The point was to transition the world to electric transportation. He obviously didnt
think small. His other main business, a rocket company called SpaceX, aimed to replace the
space shuttle and eventually take people to Mars.
Developing the Model S
With Tesla, the Roadster was simply a proof of concept that set Musk up for the next step in his
business plan: the Model S. The difficulties Musk encountered with the Roadster hadnt made
him wary of innovation. In fact, in the summer of 2008 he got bolder: To rev up the sedan effort,
he hired Mazdas lead North American designer, Franz von Holzhausen, and told him that he
wanted a four-door car that seated seven. Thats an SUV, not a sedan, von Holzhausen
responded.
Musk countered that von Holzhausen had a rare opportunity to design something new. The
Roadster was based on a modified Lotus chassis that was manufactured in England and shipped

Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

to Tesla for final assembly. With the Model S, they were going to build their own chassis from
the ground up. Since this new platform didnt have to accommodate exhaust pipes, thermal
shielding to protect against engine heat, or bulky catalytic converters, there would be a lot of
extra space. That meant it was theoretically possible to put in a third row of seats. Musk didnt
just want to build a functioning electric sedanhe wanted to redefine what a sedan could be.
Given the positive response to the Roadster, Musk was confident that he would be able to raise
another $100 million that summer to send the Model S into production. Goldman Sachs was
arranging the financing and sounded bullish. Then the subprime mortgage crisis began to spiral
out of control. Suddenly major banks were on the verge of collapse and Goldman failed to raise
any capital.
Week after week through the fall of 2008, Musk watched Teslas bank balance drop. His team
had been able to bring down the cost of producing the Roadster to approximately $95,000 by
renegotiating supplier contracts and redesigning parts to be simpler. Still, Tesla had presold the
car in 2007 to hundreds of buyers at a discount price of $92,000. Costs were continuing to
dropthey could make it to profitability if they didnt go out of business firstbut by the end of
the year, Tesla had less than $500,000 in the bank. They were in danger of not making payroll.
Bloggers mounted a Tesla death-watch.
Musk was down to the last $20 million or so of his personal fortune. Tesla and SpaceX had
consumed the rest. If he held on to the $20 million, he could walk away and still be rich. He was
37 years oldhe had plenty of time to try something less risky. He called his younger brother,
Kimbal, who had invested more modestly in Tesla, and told him that the company needed
another cash infusion. The two had made millions together in 1999 when they sold Zip2, an
online media services company, to Compaq.
Kimbal actually found himself believing they could make it and agreed to put in more of his own
money. Musk soon persuaded most of his other investors to pony up emergency funds, raising a
total of $40 million. The emergency funds kept Tesla afloat, and almost immediately things
started to unfold just as Musk had predicted. With partners like Daimler and Toyota, Tesla
slowly but steadily came into a stage where the product- and technology development could be
taken as the highest priority again.
The Model S
In March 2009, von Holzhausen had finished a prototype. It was certainly no ordinary sedan. The
car had the sexy, sloping lines of a Porsche and the muscular stance of a BMW. The company
unveiled it in front of hundreds of people at Musks rocket factory near Los Angeles. When von
Holzhausen dramatically pulled a silver sheet off the car, it sparkled under white spotlights.
Youll see that this isnt some show car that doesnt do what it says itll do, Musk told the
crowd. Itll go fast with a lot of people in it.
I wanted to make something that would stand out completely from the crowd. It needs to be
completely new and unique. I got a unique opportunity from Elon and I did not want to screw it

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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

up. It is all internal work. There was no competition or any stream of external input. The sport
version of Model S will come with some surprises, said Franz von Holzhausen the chief
designer.
To set up a team for the Model S many key player had to combine their knowledge and
sometimes during the process even new employees had to be recruited.
Manufacturing Managers: Patrick Wetherell and Michael Anderson -both Senior Technicians
Plant Engineering- described the process as challenging:
Tesla has a very rigorous recruitment process for manufacturing engineers. Each candidate has to
write an essay on specific topics given at the interview. It is claimed that Elon Musk reads each
file before making a recruitment decision. We are 180 people in the Fremont plant, which used to
have 5000 employees.
Patrick used to be part of logistics, vehicle performance testing and dealt with installations. Mike
has a background in specific tooling and production control processes. Tesla has a vast pool of
experienced experts to choose from. During the recruiting they ask quite challenging questions in
the recruitment process. There is a strong focus on what can you do for us?
Mike: The main-difference is the mindset and the organizational culture that have totally
changed. Now we are much more open to change. During the old days often reached the point,
were we said: we cant do it that way - now at Tesla we will find a way to make it work. In the
old days, we just brought the problems but no solutions. Now we never bring problems without
also bring solutions. I was more tired in the NUMMI days I really was.
Tesla is trying to change the way in which the automotive industry thinks. People are hungry;
they are ready to give a 110%, they are ready for change! New Years eve was my last day with
NUMMI then I started with Tesla on January 3rd. My wife used to work here before and she did
not believe her eyes when I showed her how we have put this facility into shape. Two months
ago, this place looked completely different. Now we will put in skylights and solar cells. There
are also rumors that we will get windmills to offset some of the electricity costs.
Patrick: Whats going to make manufacturing work this time is the product itself. People are
motivated to make a product that will make a difference and actually work. When you see the
product and get to drive it, it moves you. Tesla will keep developing its technology and stay one
step ahead of competitors.
Also the operational structure changed for the production facility of the Model S. When taken
over the NUMMI from Toyota the TPS was in place (Toyota Production System) but we did not
use it. Rather than stopping the line if there was a quality problem, the line would just continue
to run. Now we work much more organized and try to address challenges in a new way.
George Blankenship the former chief strategist of apple overseeing now the retail activities at
Tesla described the relationship of Tesla to its stakeholders at the unveiling of the Model S as
something extraordinary:

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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

With Tesla you will never be a number in a spreadsheet we will always see you as family. We
will give you access to things that no one else will do! We are not BMW or Daimler! We will let
you discover our plant, show you our ideas and let you take pictures and videos of what you see.
We will take our time and introduce you to the world of Tesla and with you help, we will bring
you the Model S, the Model X and all other things that will follow up in the future.
The approx. 1735 kg light sedan has a sports car performance, accelerating in 5,6 seconds from 0
to 60 MPH (98 km/h) and accommodates five seats in the passenger room as well as adding two
extra seats in the trunk. This allows seven persons to travel in this high-speed electric vehicle
with a maximum speed of 200 kilometers per hour and a range of more than 480 km with the
high end 85 kw/h batteries. Additionally to the high-end version of the Model S costing around
US$100.000, Tesla is planning to provide models with shorter range and fewer accessories in a
lower price spectrum, which will come down to US$50.000 in the base model.

The Tesla Model S Prototype Signature Edition

Three months after the Model S unveiling, the federal government announced that it would loan
Tesla $465 million to bring the sedan to market as part of the Advanced Technology Vehicles
Manufacturing Loan Program. Established manufacturers received substantially more to develop
their electric vehicle programs. Ford, for instance, was awarded $5.9 billion.
Elon Musk- Entrepreneur and CEO
He is an excellent leader with good communication; perseverance and constant feedback loop,
allowing him constantly evaluate the own behavior and listen to what people are telling him.
Running SpaceX and Tesla Motors at the same time requires good time management, flexibility
and a lot of power to keep the spirit up. But probably it is also the management style that gives
him the ability to handle all this challenges at a time.
Major Management Principles of Elon Musk
As a serial entrepreneur Elon Musk discovered multiple challenges in the activities that are
undertaken by his companies. In general he defined four principles that help him to overcome the
challenges an entrepreneur and a uprising company has to face and to handle.

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1. Be Ready to Work
If you are motivated enough to start a company, you better be motivated enough to work hard to
keep it going because helming any business is no small task, Musk explained.
"It's a super huge amount of work. I think sometimes people sort of have this idea that if they
were the CEO of a company that they would just give themselves a whole lot of vacations and
not work very hard," he said. But actually the reverse is true.
"If you're the CEO of a company, you have to work your bloody ass off. And if you're the CEO
of two companies you have to work two bloody asses off and you dont have two asses."
And some factors beyond your control can make the job even harder. The dismal economy in
recent years has made for gruelling runs at both SpaceX and Tesla Motors, as well as for Musk.
He's thankful the economy is improving.
"It really took a lot out of me," he said. "I have a lot of mental scar tissue."

2. Be Ready to Learn
One of the biggest lessons Musk learned after founding SpaceX (Space Exploration
Technologies) was how much more there was still yet to learn.
Despite a background steeped in physics, Musk ended up with a tough self-teaching job in order
to design SpaceX's first rocket (the Falcon 1) and the larger Falcon 9 booster that made its
successful launch debut in June.
"It was a huge learning curve for me because I had never designed anything physical apart from
building rockets as a kid or something," Musk said.
"Initially I didn't intend to be the chief designer of the rocket; I kept trying to hire someone to be
chief designer of the rockets. But the people who were willing to join early on weren't up to the
task and the people that were weren't willing to join. So I ended up by default becoming the chief
rocket designer, which obviously has its plusses and minuses."

3. Pick the Right Team


One man or woman does not a company make and Musk firmly believes that choosing the right
employees is a core ingredient for success. He looks for employees with a track record of work
excellence in general, not necessarily business acumen.

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"I think it's incredibly important to pick the right people. The right team can accomplish
miracles. The wrong team, well.or if a team isn't working together well that can be a huge
problem as well," Musk said. "It's just really like any sports game. Running a companyit's like
if you're running a major league baseball or football team, or something like that. It's just how
good are your players? How good are they working together? And that will define success. "

4. Know When to Grow


SpaceX has grown by leaps and bounds since 2002, but it didn't happen overnight. Musk
founded the company with around 120 employees and now oversees a staff of 1,100. In 2007,
SpaceX moved from its El Segundo, Calif., headquarters into a new, huge space in Hawthorne in
order to build a new rocket factory that could handle its larger Falcon 9 rockets. Choosing then
the time is right to grow has been key, because most companies don't have the ability to sustain
ill-timed growth, he said.
"It's difficult to prepare too far in advance because we just don't have the capital to go ahead and
spend a ton of money on just sort of hoping that something will happen," Musk said. "So we kind
of just have to grow really fast when it happens. And there's always the danger of being too
wieldy. Musk believes in keeping it lean. A company, he said, should not be any bigger than it
needs to be to accomplish its goal.

Main Challenges for Tesla


Internal Challenges:

Tesla is a new company pitted against established auto companies.


Tesla has only one production facility supplying a global market (NUMMI in Fremont).
Has a high debt liability, in relation to low earnings.
Teslas stock price is based on future expectations.
Possible supplier problems if demand increases drastically and at the same time requiring
a scaled production to be more cost efficient.
Boutique showrooms with small inventory lots, which may be ill equipped to handle
Model S rollout.
Tesla Rangers mobile service crews may be bad suited to serve the high demand
market of mid-sized autos that Tesla intends to expand into.
800 employees vs. Toyotas 300,000 employees (Race for the best employees)
New technology: product recalls & release delays because of tech issues.

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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

External Threats:

If the economy does not improve, may have trouble generating revenue to pay back their
debt.
Competition! Automakers already have production and distribution systems, and may
have more ability to absorb losses.
The end of subsidies and tax credits.
Bad consumer reviews.
A new company is vulnerable to the effects of criticism.
The EV market is still small, worldwide due to expense.
Challenge of achieving market penetration in an already saturated auto market.
Partnered firms may reverse engineer Teslas intellectual property. Tesla lost a suit
against a partner, Fisker Auto, claiming patent infringement.
Disruptive technologies from competing firms.

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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I

Reflection Points to be addressed in Class


1. Partnering across industry is an important ingredient both for Open Innovation and New
Business Creation.
a. What cross-industry partners do you see as most relevant for Tesla and why (cleanenergy, premium brands, etc)?
2. At times when many automotive experts started to doubt how much longer Tesla Motors
would survive Tesla acquired investments by Mercedes and Toyota, which boosted
credibility and dedication to survive. It also raises an important point related to another
management concept: Co-Opetition
a. What benefits can Tesla gain from the co-opetition with Daimler-Benz and Toyota?
b. How can Tesla manage to collaborate with partners and co-owners, who could also be
seen as competitors?
c. What other co-opetition partners do you think could be relevant for Tesla?
3. For the Tesla Roadster Tesla applied a market-skimming strategy aiming for extreme
celebrities as early adopters, and may consider a similar strategy for the Model S
a. What European markets do you see as most relevant and why?
b. What celebrities do you think of in your home region who have a green mind that
they may want to show off in ways that would promote the Tesla brand?
c. What are the benefits of focusing on celebrities?
d. What are the downsides of focusing on celebrities?
e. What would you do if you were Elon Musk?
4. Born Local versus Born Global
a. What is the best way for Tesla to Grow sales locally in California, all over the US,
selectively across several countries, or all over the World?
b. What are the pros and cons of a Born Global strategy?
5. Case reflection
a. What aspects in the case did you find most interesting?
b. What aspects in the case did you find least interesting?
c. What aspects are missing in the case to make it fully suit your learning objectives?

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