{"id":24811,"date":"2017-11-15T18:32:25","date_gmt":"2017-11-15T23:32:25","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/will-tesla-build-the-autonomous-vehicle-ride-sharing-network-of-the-future\/"},"modified":"2017-11-15T18:32:25","modified_gmt":"2017-11-15T23:32:25","slug":"will-tesla-build-the-autonomous-ride-sharing-network-of-the-future","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/will-tesla-build-the-autonomous-ride-sharing-network-of-the-future\/","title":{"rendered":"Will Tesla build the autonomous ride-sharing network of the future?"},"content":{"rendered":"

In the near-term, Tesla Motors plans to scale from a low-volume, high-end carmaker with negative cash flow into a profitable, high-volume carmaker producing vehicles at multiple price points. [1]<\/span> In the long-term, Tesla envisions that its cars will be driven fully autonomously and operate on ridesharing networks. <\/span><\/p>\n

The application of software throughout its supply chain–from car design and manufacturing all the way to post-car service–poses significant challenges and opportunities for Tesla as it attempts to meet these short-term and long-term goals. <\/span><\/p>\n

Boosting production in the near term: supply chain shocks<\/strong><\/p>\n

Having sold 50,580 units in 2015, Tesla\u2019s internal goal is to sell 500,000 units in 2022. [2]<\/span>\u00a0Some analysts are skeptical of this goal and of its ability to produce at the economies of scale that established OEMs are able to, given its history of being unable to meet stated production deadlines.<\/span>\u00a0[3] The firm largely builds its cars after the specific customer order has been placed, minimizing the amount of inventory they have on hand.<\/span>\u00a0[4] This practice has put Tesla at a substantial risk of production bottlenecks since it doesn\u2019t maintain a high degree of safety stock. <\/span><\/p>\n

In the near-term, Tesla seeks to address these production risks by vertically integrating its supply chain. The biggest cost component of electric vehicles are batteries (HBS case Tesla). Recognizing that international supply chain risks to its Asian-produced batteries could dramatically affect the profitability of its vehicles, Tesla built the Gigafactory 1 battery manufacturing plant in Nevada and expects the factory to lower battery costs by 30% over the next few years. [5]<\/span><\/p>\n

It\u2019s unclear what techniques Tesla is currently using to control for supply chain risk, but new tools can facilitate supply and demand planning with large, real-time data sets to help allocating inventory based on probabilistic distributions. New technology can also allow it to forecast projected demand to component manufacturers.<\/span><\/p>\n

With software updates and its service team, the Tesla product supply chain extends past the purchase of the car. Because its cars operate on software, Tesla is able to deliver new functionality like temperature controls over the internet. Its service team is frequently able to diagnose and fix issues remotely.<\/span>\u00a0[6] By operating its own distribution and repair teams, the firm is able to capture the value that otherwise would be lost to third parties. <\/span><\/p>\n

A fully autonomous ride-sharing future?<\/strong><\/p>\n

With its hardware strategy, Tesla\u2019s betting on an autonomous-first future. The firm controls the refueling supply chain for electric vehicles by building internet-networked home power and electrification services through Powerwall, a battery product. This step is key to its vision of creating ridesharing networks of autonomous electric vehicles, and creates a substantial barrier to entry for other players hoping to enter that space. [7]<\/span><\/p>\n

While no consumer-owned Tesla cars currently have fully autonomous driving capability, all of its new cars are shipped with all the hardware necessary for that capability–sensors, cameras, and onboard computer.<\/span>\u00a0[8] While the car is operating, the sensors collect data which then Tesla uses to improve its automatic crash prevention and limited autonomous driving features.<\/span>\u00a0[9] This proprietary data creates another powerful barrier to entry. <\/span><\/p>\n

But the digital nature of Tesla\u2019s products also gives rise to substantial threats. As its cars gain autonomous and ride-sharing capability, the firm will need more processing power and data storage in both the cloud and the car. Google and Amazon are capturing more and more of the cloud services market. As it requires increasingly more cloud storage, computational, and connectivity, Tesla needs to beware of its digital suppliers gaining pricing power. It\u2019s uncertain how Tesla is working to address this risk.<\/span><\/p>\n

Additionally, a wide consortium of automakers–Audi, Chrysler, Ford, Volkswagon, among many others–that have committed to using the open-source Google-maintained Android operating system in their cars. Tier one component manufacturers might all begin producing their products to be compatible with Android, and Google would then have a lot of indirect power in determining product development in the auto industry. Tesla has recognized this competitive threat, and open-sourced its patents in 2014. [10]<\/span><\/p>\n

There are huge opportunities and challenges for Tesla on the horizon. How can Tesla dramatically ramp up production? Is there a way to maintain its high quality while outsourcing a greater portion of component manufacturing?<\/span><\/p>\n

Lastly, how can Tesla broaden its small footprint in the Chinese luxury car market? With the Chinese mandate of a joint-venture, and significant cybersecurity and intellectual property concerns, how can Tesla win in China? <\/span><\/p>\n

(733 words)<\/span><\/p>\n

Sources<\/strong><\/p>\n

[1]\u00a0Lynda M. Applegate and Arnold B. Peinado, \u201cTesla in 2015,\u201d HBS No. 9-817-081 (Boston: 性视界 Business School Publishing, 2017), p. 6<\/span><\/p>\n

[2]\u00a0Global Automotive & Transportation Research Team at Frost and Sullivan, \u201cTesla Motors\u2019 Mobility Strategy–Executive Update,\u201d April 2016, p. 8.<\/span><\/p>\n

[3]\u00a0Lynda M. Applegate and Arnold B. Peinado, \u201cTesla in 2015,\u201d HBS No. 9-817-081 (Boston: 性视界 Business School Publishing, 2017), p. 6<\/span><\/p>\n

[4]\u00a0Automotive Logistics, \u201cTesla\u2019s supply chain set for a surge\u201d, July-September 2016, p. 10-11.<\/span><\/p>\n

[5]\u00a0Automotive Logistics, \u201cTesla\u2019s supply chain set for a surge\u201d, July-September 2016, p. 10-11.<\/p>\n

[6]\u00a0Lynda M. Applegate and Arnold B. Peinado, \u201cTesla in 2015,\u201d HBS No. 9-817-081 (Boston: 性视界 Business School Publishing, 2017), p. 4<\/span><\/p>\n

[7]\u00a0Global Automotive & Transportation Research Team at Frost and Sullivan, \u201cTesla Motors\u2019 Mobility Strategy–Executive Update,\u201d April 2016, p. 6. <\/span><\/p>\n

[8]\u00a0Autopilot,<\/span><\/i> from Tesla website, <\/span>https:\/\/www.tesla.com\/autopilot<\/span><\/a>, accessed Nov 2017.<\/span><\/p>\n

[9]\u00a0Lynda M. Applegate and Arnold B. Peinado, \u201cTesla in 2015,\u201d HBS No. 9-817-081 (Boston: 性视界 Business School Publishing, 2017), p. 4<\/span><\/p>\n

[10]\u00a0Tesla Motors, \u201cAll our patent are belong to you,\u201d <\/span>https:\/\/www.tesla.com\/blog\/all-our-patent-are-belong-you<\/span><\/a>, accessed Nov 2017. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Tesla Motors has been an auto industry leader when it comes to capturing value from its digital supply chain. 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