Tesla’s Strategy Is Risky and Aggressive, but It Has Worked
Elon Musk has made a bold bet that the car industry can move faster than anybody believed possible.
Is Tesla Motors moving too fast?
Investigations by the National Highway Traffic Safety Administration and the National Transportation Safety Board into accidents involving the company’s Autopilot technology might suggest as much. In an industry that can seem ridiculously old-fashioned and slow-moving, it may be hard to know just how far to push. And Tesla has forged a remarkable success story by taking risks and breaking the conventions of carmaking with new technologies.
With all the excitement over electric vehicles, self-driving technologies, and Uber-like apps, it can be easy to forget that the car industry is more than 100 years old, and nearly impossible for a startup to break into. It is fiercely competitive and is built on razor-thin margins. Missteps can be punished brutally.
Tesla’s improbable success has been built on exploiting technology trends more aggressively than other carmakers are willing or able to do. Eric Van den Steen, a professor at Harvard Business School who teaches a case study on Tesla, says the company saw an opportunity to build appealing electric cars, and realized that the maturity of electric motors and commodity batteries would give it a jump-start in developing its cars. This lowered the barrier to entry and created a natural differentiation of the product.
The company has also blazed a trail with computerization and connectivity, novel design and manufacturing, and most recently with automation. This has helped it stand out in an industry that is already incredibly crowded.
“It’s an extraordinarily difficult industry to be a startup in,” says David Keith, an assistant professor at MIT Sloan School of Management who studies the way technologies spread through the automotive industry. “It takes billions of dollars to make a single vehicle platform. So it’s pretty remarkable what Tesla’s doing. And I think disrupting the status quo is an important part of that.”
As a startup, Tesla has been able to be more aggressive and innovative than the big beasts of the auto world. “They have a lot of organization inertia, they have their existing customer base that they’re making a lot of money off,” Keith says. “They have their technological architectures that they’re familiar with and they’ve got the skills to develop and exploit.”
Even so, Tesla has been aggressive in its use of technologies that are just emerging. The company’s use of software to control more features of its cars, over-the-air updates, and a giant touch-screen dashboard interface show how it is taking more risks than incumbents.
Normally a car’s features are set three years before it hits the market. And vehicles tend to have idiosyncratic, and not very intuitive, interfaces. The use of software and connectivity has made it possible for Tesla to repair issues remotely, and to update its cars with new features every few months. And while “beta” software updates sometimes include bugs, Tesla’s customers are apparently comfortable with this more cavalier approach.
Brook Porter, a partner at the venture capital firm Kleiner Perkins Caufield & Byers who specializes in transportation, says Tesla’s product development approach, borrowed from the tech world, has been a key to its success. “I would say the most important driver behind Tesla’s disruption is its fundamental commitment to rapid iteration—thinking like software developers instead of commodity manufacturers,” Porter says.
Porter adds that Tesla’s innovation extends to its retail strategy and to the way it interacts with its customers. “Tesla decided that the customer is the most important thing and ditched a 100-year-old broken model of automotive dealerships,” he says. Tesla sells its own cars online and in its own stores.
While Tesla is often seen as a technology pioneer, Van den Steen notes that most of the technologies the company has pushed are already well established. “Tesla did push the envelope,” says Van den Steen, “but not by the use of some cutting-edge technology. In that way, Tesla is a lot like Apple: not cutting-edge in terms of new technology but very careful and creative in how to use that technology.”
Tesla’s efforts have no doubt helped push incumbents to move more quickly, and encouraged others outside the car industry, such as Google and Apple, to believe that they, too, may be able to disrupt it (see “Rebooting the Automobile”). Still, it may not always be clear how much risk the auto industry, and its customers, will readily accept.
It may also become hard to be seen as a risk-taking pioneer. Van de Steen says one of the biggest threats facing Tesla now is that incumbents will up their game, or that other outsiders, especially tech companies like Google or Apple, enter the car market, too. “One key observation is that electric cars are much simpler and more reliable than conventional cars. That means a lower design cost, smaller manufacturing plants, less need for a service network, etc.,” he says.
But the investigations are also a threat. Porter of Kleiner Perkins Caufield & Byers says they could present problems for Tesla and the whole industry even if, as Tesla’s CEO Elon Musk claims, the data shows that Autopilot is relatively safe.
“Over time, the data will undoubtedly be on the side of autonomous driving saving lives," Porter says. "It’s important that regulators keep that goal in mind as they react to short-term technology rollout challenges.”