Tesla's Innovation Approach Lessons

We all know Tesla as a company that invents, creates and develops products that have innovative qualities.

The company forced the entire automotive industry to begin the intensive development of electric vehicles and, in parallel, began to profit stably. In early 2020, Tesla was the most efficient automaker in terms of total revenue, sales growth, and long-term shareholder value.

Nathan Furr and Jeff Dyer are technology and innovation experts. They studied how innovators commercialize new technologies, and for this they interviewed Elon Musk, J.B. Straubel and other important team members. Their data and thoughts were published in Harvard Business Review. They found that Tesla’s innovative strategy, which aims to transform the automotive industry as a whole, offers long lessons for any innovator, especially in terms of how to get support for the idea and how to bring new technology to the market.

In order to understand the strategy of Tesla, Dyer and Furr first separate two of company's main areas: exciting headlines, such as the launch of Cybertruck or Roadster 2.0 and the big bets that it makes on its main vehicles, models S, X, 3 and Y. These efforts are aimed at achieving different goals - obtaining resources for the commercialization and actual commercialization of ideas - but they are combined to achieve the main goal: to bring new innovation to the market, the authors write.

According to the authors, Elon Musk is a master at creating and using innovative capital to enlist the support of his ideas. If he talks about an idea, then he materializes it, and later he gives it a physical form.

Tesla's products, such as Models S, X, 3 and Y, are aimed at transforming the industry, and they require attention not only to the product, but to the entire ecosystem of products.

What makes this part of the strategy truly unique is not only that Tesla produces electric cars, but also that it has introduced a new hardware and software architecture. Its Hardware 3 makes specialists and engineers admit that this is a breakthrough and none of the existing companies in the world possess such technologies. The software of their cars is able to give them unique characteristics, and OTA updates constantly optimize, expand and improve them.

Tesla's hardware architecture - a flat battery pack at the base, two electric motors (front and rear), without a transmission, etc. - also gives it an advantage over competing electric cars built on traditional vehicle architectures, such as a lower center of gravity, greater energy density and more efficient battery management. This means that Tesla tends to defeat competitors who are trying to use parts of the old architecture of internal combustion vehicles, for example, putting batteries in the trunk, rather than in the flat packaging below.

Tesla's ecosystem strategy also considers the level of individual components for its products. Profit in the industry, as a rule, is directed to bottlenecks - components that limit system performance. In the case of electric vehicles, these are batteries; they are the bottleneck for the performance of the entire system. By investing in batteries Tesla is betting that they will control the bottleneck and, therefore, the profit center, for the future of the industry.

Tesla's strategy also takes into account the system level, that is, the entire set of add-ons that a consumer needs to use their product. That is why Tesla has built a network of branded Superchargers for its cars around the world. Tesla is the only electric car that can travel long distances thanks to its battery and charging station infrastructure.

Whatever your perspective on Tesla's future success, the company has developed an exciting multi-faceted strategy to fundamentally change the industry. The core strategy has unique elements at every ecosystem level. At the same time, they took an effective approach to creating their innovative capital so that they could receive resources and support to realize their vision.