16

Increasing Value, Creativity, and Innovation in Tesla Motors

Anthony Bahlman

OLCU/632

UMG

04/24/2022

Introduction

Tesla Motors is an automotive company that is considered a pioneer in innovation through its excellent roll-out of electric vehicles. The company was founded in 2003 and it has been experiencing constant growth over the years. However, with the increased use of technology competition has increased in the automotive industries and other companies are innovating new EVs and selling them at cheaper prices. Tesla is at the risk of losing its competitive advantage. This paper analyzes the risks facing Tesla and three of its main competitors in the automotive industry. The paper further examines how Tesla has utilized collaboration to sharpen its competitive advantage. Lastly, the paper will provide an action plan for Tesla to increase collaboration between stakeholders to promote creativity and innovation.

Analysis

Risks

Tesla is facing the risk of losing its competitive advantage. The motor vehicle industry is experiencing stiff competition and companies are using technology to innovate new and unique products. The competitors of Tesla are automating their systems to achieve flawless operations that will increase customer satisfaction. This implies that any company operating in the automotive industry must innovate constantly to maintain its competitive advantage. Different organizations producing cars are giving a roll-out of exclusive vehicles that are keeping customers glued to their brands. Therefore, Tesla is at the risk of losing its competitive advantage if it does not effectively utilize technology to innovate. It must develop the ability to design electric vehicles that are more superior compared to those of its competitors. In the modern business environment, a competitive advantage is an essential tool for any company that aims at success. Ibrahim and Mahmood (2016) assert that a competitive advantage is the driver of performance and for Tesla to stay at the top, it must sharpen its competitive edge.

Bashir and Verma (2017) believe that innovation is the new competitive advantage without which companies face the risk of failure. Tesla is facing competition from giants such as BMW and Volkswagen. There is also the threat of new entrants who have been motivated by the growth in technology and flexibility in innovating. Clausen and Olteanu (2020) assert that the demand for electric vehicles is high and Tesla has to remain competitive to maintain its customer base. It is also the only tool that will help the company succeed and increase its profits. Tesla needs to be creative and innovate to stay highly competitive in the market, increase its sales, and achieve superior margins compared to its rivals. Every organization is after becoming a giant in the industry and without a strong competitive advantage, this cannot be achieved.

Sozzi (2021) conducted an analysis which indicated that Tesla should not be too comfortable because it is at the risk of losing its market dominance. According to the analyst, their view is based on “increasing competition, from both legacy players and new EV-only entrants, and as a result, we see risk of moderating global EV share for Tesla from current lofty levels (especially post 2023 as competitors scale capacity)”. Tesla has been leading in the manufacture of Electric Vehicles but research indicates that there are numerous new entrants into the industry. These new entrants are producing and selling EVs at very cheaper prices. This is a high risk for Tesla as it may lose its market share. Customers are always out for superior and unique products sold at fair prices. If Tesla has to maintain its premium prices, then it has to produce high-quality vehicles that outdo those of its competitors.

Currently, Tesla is experiencing a high demand for Electric Vehicles but it cannot meet the demands because of numerous challenges such as shortage of resources. The costs of maintaining its competitive advantage are high and Tesla has to increase its factories to ensure they can manufacture as many electric vehicles as possible. The company has to make its vehicles’ model and structures align with the traditional fuel models by effectively using technology to innovate. Tesla’s products and services have to be adjacencies to expand their portfolio. The expanded portfolio will solidify Tesla’s technological advantage over its competitors. The technological advantage of an organization shapes its competitive advantage. Companies are using technology as the main tool to avoid the risk of failure.

The risk of Tesla losing its competitive advantage is even increasing with the ever growing and expanding Chinese automotive industry. In the past, Tesla has dominated in the Chinese market because its automotive industry was weak with cheap ventures and limitations. Currently, Chinese companies are producing high-class and top notch vehicles and the only western automotive company that still dominates their market is Tesla. “Today, if you read the list of top ten selling vehicles in China, the only western company is Tesla (and it is not number one)” (Waterworth,2021). This implies that if Tesla does not fight to increase its competitive advantage, it also risks losing its market share in China. In 2021, a Chinese electric vehicle company introduced a computer on wheels car (“the XPeng P5 electric sedan”). This car can transform to a bedroom and a lounge with all the tech of a computer and it is expected to take over the electric vehicle market. This is a car that has not yet been produced in the United States and Elon Musk the CEO of Tesla only promised that he is going to produce such a vehicle but is like to happen some years away. As the Chinese automotive industry slowly grows, we are going to see a decrease in the demand of Tesla’s cars. The competition is no longer local but international. However, Tesla has the opportunity of mitigating these risks through effective creativity and innovation strategies.

Competition

The main competitors of Tesla are Volkswagen, BMW and Ford Motors. However, these are not the only car manufacturers threatening the success of Tesla. The company is also facing stiff competition from other existing car manufacturers and new entrants in the automotive industry. Tesla has been leading in the manufacturer of electric vehicles with BMW posing as the greatest threat to its dominance in the industry. Tesla has the ability to utilize technology and produce high quality vehicles compared to its competitors. According to the Harvard Business Review report written by Furry and Dyer (2020), Tesla is making a big bet on its cars especially the models Y, X, S, and 3. “These efforts aim to achieve different things; winning the resources to commercialize vs. actually commercializing the idea, but they come together to achieve a central goal: bring a new innovation to market” (Harvard Business Review, 2020). Tesla has always been ranked number one on the Forbes list of the most innovative companies in the world every year. This year, Tesla ranked number 2 in the innovation of electric cars and Luxury Hybrid. Its model 3 is rated 8.8 out of 10. The creativity of Tesla’s CEO Elon Musk is appreciated in all areas of business with the most current being the Space X. This is an entity that is going to focus on deigning and launching of space craft and advanced rockets.

However, BMW, Volkswagen and Ford Motors have realized that there is a high demand for electric vehicles and they are implementing necessary strategies to beat Tesla. They are producing unique models and offering at lower prices. BMW is a big giant that Tesla has to be weary of after topping the 2021 list of luxury car producers. These competitors produce cars that meet customer demands and they are now focusing on the international market. They are utilizing technology, studying customer trends, and innovating vehicles that satisfy consumers. Automotive companies are attracting client globally thanks to their positive attitude towards innovation. With technology, things in the automotive industry are moving at a high rate. Tesla has to utilize technology to its advantage because all its competitors and new entrants are using technology as the main tool.

Volkswagen

After Tesla was growing at a high rate and its CEO opened a factory in Berlin, attention was turned to Germany and the question was why its auto-industry was not developing and producing innovative models like the American companies such as Tesla. That is when Volkswagen woke up in the production of Electric Vehicles with the main aim of changing the Germany Automotive industry for the better. Through its ID Range, Volkswagen has been making strong footprints in the automotive industry. According to Volkswagen.com (2022), the ID.4 range and the Atlas have contributed to an increase in its sales by 12% in 2021. It now ranks among top car manufacturers at 85.97% with an increased overall industry resilience and a strong competitive advantage. The company is also planning its future and it is investing a lot in innovation. “Volkswagen predicts 50% of its U.S. sales by 2030 will be EVs and the firm is spending tens of billions to push this target. It also is aiming to produce 1.5 million electric vehicles by 2025, in anticipation of the EU’s new emission targets” (O’Donoghue, 2022). Its ability to survive booms and bursts has enabled Volkswagen to remain among the world’s largest automakers and it remains a strong threat for Tesla.

BMW

BMW beat Tesla in 2021 and emerged at the top with an increase in sales percentage of 8.2% (HD Autodesk, 2022). The victory of BMW in 2021 indicates that competition is getting stiff in the EVs market. BMW recorded a total of 354,453 vehicle sales while Tesla recoded 342,412 vehicle sales in 2021. This implies that among all its competitors, Tesla has to watch BMW closely. BMW has been fighting hard to take the top position in the industry and Tesla has to mobilize its resources to ensure it sharpens its competitive advantage or risk losing its top position to BMW. The X4 model, mid-size X5, and the three-row X7 have contributed to the success BMW is enjoying currently. For the past 10 years, BMW has remained a strong force in the automotive.

Ford Motors

Tesla has been enjoying the sale of EVs until Ford Motors came in as a strong competitor to stimulate competition in the ever-busy automotive environment. The company is getting a pay-off from its venture into electrified cars, trucks, and SUVs. Its models such as the Mustang Mach E increased the sales of Ford and it ranked number 3 in sales in 2021. “Ford stated that its F-150 Lightning has generated 200,000 reservations since its unveiling in May and explained that around three-quarters of these buyers are new to the brand” (O’Donoghue, 2022). Ford has been working hard and innovating and as a result, it has double its production target from around 80,000 per year to over 150,000 cars per year. This ensures the automaker is able to meet the demands of its customers worldwide. Its anticipated F-150 lightning, the Mustang model, and its electric vans have grown its EV portfolio and its sales are now at 13,169 units. O’Donoghue (2022) reports a survey where a large percentage of the participants indicated that they would prefer Ford’s F-150 over the Cyber truck of Tesla. The main reason for this is that the participants cited were prices. Ford Motors is offering high-quality cars at low prices and it has what it takes to give Tesla a run for its money.

Collaboration

According to Karamitsios (2018) Tesla practices open innovation whereby it is always ready for new ideas and technologies tested by other companies. With the growth in technology, Technological alliances are essential for the required innovations to be effective in increasing a company’s competitive advantage. Companies adopt collaborative framework to develop strategies of identifying their opportunities, improving, and building a strong competitive advantage. “In addition, partnerships can be effectively used as a tool for firm learning; more particularly when radical technologies with uncertainty are taking place and when a lot of different systems and subsystems have to be aligned with each other” (Karamitsios, 2018). The collaborations are a kind of exploratory partnerships that will help enhance the generation of joint knowledge where the partners make it easy to understand certain technological processes easily. In the United States, collaborations are playing an important role in shaping competition in different industries. There are networks of partnerships that operate in a firm-to-firm environment through strategic partnerships.

The electric vehicle market is a perfect example of a competitive industry build on collaboration, alliance-based competition, and common innovation goals. Collaborative-based competitions have changed the value propositions of the customers in the automotive industry. This makes it easy for the disruptive technological innovations to significantly influence the competitive advantage of one automotive company. According to Kamiosios (2018), the EVs corporate entrepreneurs can increase their competitive advantage by participating strategically in these collaborations and follow all the designed portfolios in the partnerships which are dynamic and can change with time.

Tesla’s Partnerships

Aside from producing and marketing its own electric vehicles, Tesla is also an original equipment manufacturer which produces components that other automotive companies can buy, use in their manufacture of vehicles, or sell under their brand names. The success of Tesla in its industry has been aided by its participation in supplier collaborations, R&D collaborations, and collaborations with other car manufacturers (OEM). Tesla collaborates with many companies some of which are its suppliers such as Lotus and Panasonic. The Research and Development departments of Tesla and Panasonic collaborate to develop car batteries that are more efficient and effective. Its OEM collaborations include its partnerships with Toyota and Daimler.

Collaboration with Toyota

One of the important alliances Tesla has is its collaboration with Toyota which started in 2010. The companies entered into a partnership to work together in providing engineering support to each other and developing electric vehicles and production systems. “Initially, in May 2010, Toyota acquired a 3% equity stake of Tesla Motors by investing $50 million” (Kamitsios, 2018). The collaboration also required Tesla to assist Toyota in creating a plug-in electric vehicle that was supposed to be an electric model of the RaV4 by Toyota. In return, Toyota ensured Tesla has enough expertise on engineering and production for its model S. from this collaboration, Tesla also aimed at developing a manufacturing facility to increase its production. According to Ingram (2018), the partnership between Tesla and Toyota was the best competitive collaboration that led to the increased competitive advantage of Tesla. During this age of rapid advancement and use of technology in the automotive industry, Tesla needed such a collaboration greatly. It could not have done it earlier because it had not empowered itself enough. It happened after Tesla had realized the importance of innovation and it was ready to shift to open innovation to ensure it increases its competitive advantage.

Tesla’s model S was produced in California where it had purchased a large manufacturing plant following the success of its partnership with Toyota. Its collaboration with Toyota cost Tesla around $42 million but the company has benefited greatly from the investment. Toyota also benefitted from the collaboration as it learnt the innovation spirit of Tesla, effective decision making, and flexibility in operations which are the key skills that Tesla employs to increase its sales in the market. Tesla has always been focused on innovation and it knew that Toyota is founded on quality, commitment, and innovation, and this made it the best candidate for a collaboration. Tesla achieved its goal of obtaining manufacturing and engineering expertise which are the legendary skills of Toyota

Collaboration with Daimler

In 2009, Daimler invested $50millin in Tesla and acquired a 10% equity stake that strengthened the relationship between the two corporations. Following the partnership, Tesla and Daimler cooperated in the development of electric vehicles and car batteries and other vehicle projects. This was meant to ensure both companies will benefit from the collaboration. Kamitsios (2018) indicates that both giants started working on “the integration of lithium-ion battery packs and charging electronics from Tesla Motors into the first 1.000 units of the electric version of Daimler’s Smart two-seater city car”. The partnership extended to the executives of Daimler becoming board members in Tesla. Later, Tesla entered into another collaborative agreement with Freightliner which is an affiliate of Daimler. This strengthened their relationship even more. Working with the two entities saw Tesla increase its innovation capabilities and roll-out new models into the market that strengthened its position in the automotive industry.

Action Plan

Being a leader in the automotive industry, Tesla needs to devise effective strategies of maintaining its competitive advantage to avoid risks of failure. Tesla is facing threats from giants such as BMW, Ford Motors, and Volkswagen. Therefore, it has to remain highly creative, innovative, and constantly introduce new and unique models that will maintain customer loyalty. The company has to allow all its stakeholders such as customers, suppliers, and partners such as Toyota to participate in the process of innovation to ensure they have as much support as possible. The more the innovative ideas the easier it will be for Tesla to innovate. It needs to cultivate a culture of innovation and ensure all its stakeholders possess a mind of creativity for long-term performance and sustainability. This will be achieved through the following steps;

Step 1: Collaboration

Innovation in an organization requires collaboration between different stakeholders. Globalization and the growing use of digital technologies have increased challenges and complexities in the business environment and Tesla is not an exception. Collaboration involves more than being a team. It includes thinking together and acting on different projects as a team to achieve effectiveness. Tesla has to bring the customers, suppliers, and partners together and develop a framework of achieving results through common thinking and open innovation. They must set tangible goals of collaboration such as investing in affordable technologies and supporting individual ideas and innovations.

Step 2: Ideation

Innovation cannot take place without ideas. Each stakeholder in the company must be given the chance and a conducive environment of developing ideas that can boost the company’s creativity and innovation. Fresh and new ideas will help Tesla stand-out. Tesla is facing intense competition and it has to differentiate to maintain its competitive sharpness. Ensuring an environment where stakeholders have the autonomy to generate their ideas and test them is essential for building a culture and mindset of innovation and creativity. Partnering with more automotive companies such as Volkswagen will help Tesla borrow effective ideas that will enhance its processes. It must recognize the contribution of all stakeholders and ensure they learn from one another. This will promote collaborative innovation.

Step 3: Implementation

Ideas will never be useful if they are not implemented. Tesla has to deploy and engage the best minds in championing their ideas and turning them into useful innovations. The different stakeholders in the organization will work together to ensure technology is the fundamental underpinning of innovation. Tesla will use the ideas from its people to gear its growth towards innovation and introduction of new electric vehicles that will meet the increasing demand in the market.

Step 4: Value Creation

This is the last step in the action plan and it involves ensuring the new ideas and innovations are creating value. Tesla must ensure that it implements those ideas that are viable enough to deliver value to stakeholders especially customers. It has to deliver car models that are valued by is clients. The reason for innovating is to ensure there is business vale. It can create value by providing new products, improving their quality, and reducing prices. Tis will increase its competitive advantage.

Visual Representation

Ideation

Collaboration

Others

Daimler

Toyota

Suppliers

Tesla

Customers

Employees

Value Creation

Implementation

References

Bashir, M., & Verma, R. (2017). Why business model innovation is the new competitive advantage. IUP Journal of Business Strategy, 14(1), 7.

Clausen, J., & Olteanu, Y. (2020). Tesla als Start-up in der Automobilbranche: Vom Pleitekandidat zum Gamechanger (No. 199). Working Paper Forschungsförderung.

HD Auto Desk (2022). Tesla Takes Lead Position in Race Top Luxury Car Brand in US. Retrieved from https://auto.hindustantimes.com/auto/news/tesla-takes-lead-position-in-race-to-become-top-luxury-car-brand-in-us-41646910983978.html

Furr, N., Dyer, J., (2020). Lessons from Tesla’s Approach to Innovation. Harvard Business Review.

Ibrahim, N. M. N., & Mahmood, R. (2016). Mediating role of competitive advantage on the relationship between entrepreneurial orientation and the performance of small and medium enterprises. International business management, 10(12), 2444-2452.

Ingram, N. (2018). Tesla Motors: A Potentially Disruptive Force in a Mature Industry. International journal of management and applied research, 5(1), 8-21.

Karamitsios, A. (2018). Open innovation in EVs: A case study of Tesla Motors.

O’Donoghue, J. (2022). Tesla’s Competitors: The Other Players in the Electric Vehicle Industry. Retrieved from https://mywallst.com/blog/teslas-competitors/

Sozzi, B (2021). Tesla is at risk of losing its market dominance: analyst. Retrieved from https://finance.yahoo.com/news/tesla-is-at-risk-of-losing-its-market-dominance-analyst-185721382.html

Volkswagen.com (2022). Volkswagen Group achieves solid results in 2021 and drives forward its transformation to NEW AUTO. Retrieved from https://www.volkswagenag.com/en/news/2022/03/volkswagen-group-achieves-solid-results-in-2021-and-drives-forwa.html

Waterworth, D (2021). Is Tesla in danger of losing its first mover advantage? https://thedriven.io/2021/09/21/is-tesla-in-danger-of-losing-its-first-mover-advantage/

OLCU 632

Individual Assignment # 4 & Rubric

Presentation for information learned in completing the Signature Assignment

Due Wednesday of Week 8

Description: This presentation is to be from seven to 10 slides long. The presentations are to be a compilation of the key points that were learned in the completion of the Signature Assignment (from Week 7) for this class.

Directions:

Due Week 8:

The presentation will be from seven to 10 slides and will include a Voice Over (for the online students). Below is a list of a possible order for the slides, however each presentation will show the creativity and analysis that best fits the topic to be covered. Each topic below must be covered, but the order may be changed or added to depending upon student preference.

Slide 1 - Title of the work with student name and date

Slide 2 - Describe personal creativity skills and three ways that you are more prepared to engage in creativity from what you have learned in this class

Slide 3 - Describe the industry from your chosen organization

Slide 4 - Information and research of a risk within the industry and the company

Slide 5 - Analysis of competition

Slide 6 - Synopsis of Action Plan

Slide 7 - Specific recommendations to increase creativity and collaboration

Slide 8 - Reference section

Review each of the following Course Learning Outcomes and include something from each of these in your presentation.