The automotive industry has slowly evolved from producing mechanical behemoths to offering complex technological systems on wheels. The new cultural environment of transportation software precision has been guided by R&D from Tesla — Tesla has ushered in technological transformations that recreate vehicles into smart devices, deviate from fossil fuel dependency, infuse connectivity, and provide infotainment. Every quarter it seems that Tesla’s distinctions in technology surpass legacy automakers — the all-electric car company continually leads the industry in battery technology, artificial intelligence, and data collection.
In a tweet earlier this month, Tesla CEO Elon Musk stated, “Great differences in technology exist in the world about which even hardcore technologists are unaware.” A corporate emphasis on emerging technologies that deliver the safest, most advanced, and most comfortable vehicles for today’s consumers places Tesla well before other auto manufacturers. So, too, do Tesla’s technology leadership and revenue streams in multiple markets lead to a competitive advantage over its peers.
Technology and innovation in a capitalist society lead to commercialization, right? Yet new technologies require strategic thinking, enduring and often wrenching lessons, and support to move an idea from concept to market.
Fluid standards and regulations and internal policies that perpetuate fossil fuel dependence have made the technology transition painfully slow for much of the automotive industry. However, Tesla’s corporate strategic planning, as described in research published in the Harvard Business Review, is very different and falls along 2 primary pillars:
- headline-grabbing moves like launching the Cybertruck or the Roadster 2.0;
- the big bets it is making on its core vehicles, the Models S, X, 3, and Y.
While these efforts have different objectives — “winning the resources to commercialize vs. actually commercializing the idea” — together, they combine to bring new, lasting innovations to the automotive market.
Tesla’s Distinctions in Technology: First, Attract Attention
The Harvard Business Review authors Furr and Dyer argue that the Cybertruck is an example of Tesla’s ability to win from stakeholders what they call “innovation capital.” Innovation capital, they say, consists of 4 factors:
- Identity, or who you are, aka innovation-specific human capital. Identity includes a personal capacity for forward thinking, creative problem-solving, and persuasion.
- Relationships, or who you know, aka innovation-specific social capital. Relationships describe social connections with people who have valuable resources for innovation.
- Accomplishments, or what you’ve done, aka innovation-specific reputation capital. This is a company’s track record and reputation for innovation.
- Marketing, or ways to generate attention and credibility for a company’s ideas, aka impression amplifiers. Business leaders with innovation capital can attract the resources needed for innovation to flourish.
These techniques win support to pursue new ideas from investors, customers, and employees. Elon Musk, according to Furr and Dyer, is a “master of building and using innovation capital to win support for his ideas.”
Musk’s capacity for technological excellence that surpasses competitors is captured by his brother Kimbal, who describes him here:
“He’s able to see things more clearly in a way that no one else I know of can understand. There’s a thing in chess where you can see 12 moves ahead if you’re a grandmaster. And in any particular situation, Elon can see things 12 moves ahead.”
Musk leverages his past successes at PayPal and SpaceX to win support for future projects. He keeps drawing upon impression amplifiers to bring stakeholders to the table. The Cybertruck reveal event is a good example. He talked to the audience about the new Cybertruck idea and also materialized it: he brought “physical form to convince skeptics” through the big media launch demo, which stimulated 3rd party buzz about the new concept and the company as a whole.
Every time Musk compares or draws a connection between an innovation and some other success on his resume, he demonstrates the technical superiority of Tesla. Take SpaceX. What other automakers can say they’re building rockets for the International Space Station?
Tesla’s Distinctions in Technology: Second, Focus on the Core Catalog
Tesla’s existing vehicles — the Models S, 3, X, and Y — form the company’s core products and require the most investment. Furr and Dyer say that, as mechanisms to transform the auto industry, these vehicles require meticulous company attention not just to the product “but to the entire product ecosystem.”
Musk captures this conscious responsibility in another recent tweet. Here, he succinctly remarks, “What is simple in one arena is often profound in another.”
Tesla’s digital disruption in the automotive industry has transformed the landscape for traditional automotive developers, yet many have joined the race in this sector very late in the game. Declining car ownership rates and the emergence of shared and micromobility solutions have caught many automakers unawares. The convergence of tech ecosystems surrounding the user still seems futuristic to many car manufacturers.
But not Tesla.
Tesla’s “profound” strategy to produce electric vehicles with new hardware and software architecture is distinct.
- Tesla’s extensive software is integrated around a single central software architecture. Sure, gas/diesel vehicles have software, but their total software packages are much more basic and operate on a different architecture. That makes it challenging for many automakers to imitate Tesla’s ability to update software and optimize vehicle performance.
- Tesla’s hardware architecture includes a flat pack of batteries at the base and front and rear electric engines. The Tesla’s lower center of gravity, greater energy density, and more efficient battery management command a much greater advantage over competing electric vehicles built on traditional vehicle architectures.
Building a new architecture is really difficult to imitate, say Furr and Dyer, because “it can take time and effort for incumbents since it often requires abandoning old ways of doing things and developing new capabilities.” Individuals in the car biz who had been great mechanical engineers now find themselves needing to become great software engineers.
Another ecosystem strategy that points to Tesla’s technology distinctions is the level of individual components for its products that it provides. Why? Auto manufacturing has a tendency “to flow to the bottlenecks — the components that limit the performance of the system,” say Furr and Dyer. They outline how, even though EV batteries are made of commodity materials, batteries are a bottleneck to the performance of the whole system. But Tesla has offset that bottleneck by investing in and producing batteries at scale, “and in better ways.” As a result, Tesla works to control the bottleneck and guide profits, both of which are necessities for its viability, stability, and longevity.
Tesla’s strategy also considers the system level by providing the entire set of complements needed for a consumer to use its product. This includes a charging network for its cars across the country so that early buyers had confidence knowing that a Tesla was the only electric car that could drive long distances due to its reliable charging infrastructure.
Yes, other automakers may catch up one day and provide similar charging networks, but Tesla is way ahead right now, so its ease of charging has created a simple consumer equation that looks really “profound” from legacy automakers’ points of view.
Tesla has developed a fascinating multi-pronged strategy for fundamentally changing an industry. As the Harvard Business Review authors indicate, Tesla’s core strategy has “unique elements at each level of the ecosystem: overturning the core product architecture, positioning themselves in key bottleneck components, and resolving system-level limitations that slow the adoption of the technology.”
Moreover, with an applied and effective approach to build innovation capital, Tesla can access the resources and support it needs to execute its corporate vision. Investors are seeing the potential of Tesla’s future as the company’s market value now exceeds the combined market value of GM, Ford, and Fiat Chrysler Automobiles.
Many automakers are barely on the cusp of commitments to move away from internal combustion engines. The attitude of profitability and “it was good enough then” haunts much of the legacy auto industry. A prize-winning essayist in the New York Times captures their self-defeating conundrum, saying,
“Being good enough is not easy… Achieving this will also require us to develop a good enough relation to our natural world, one in which we recognize both the abundance and the limitations of the planet we share with infinite other life forms, each seeking its own path toward good-enoughness.”
Tesla learned that lesson a long time ago.