{"id":34948,"date":"2018-11-13T23:16:12","date_gmt":"2018-11-14T04:16:12","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/open-innovation-at-tesla-time-for-a-change\/"},"modified":"2018-11-13T23:16:12","modified_gmt":"2018-11-14T04:16:12","slug":"open-innovation-at-tesla-time-for-a-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/open-innovation-at-tesla-time-for-a-change\/","title":{"rendered":"Open Innovation at Tesla \u2013 Time for a Change?"},"content":{"rendered":"

At the turn of the 20th<\/sup> Century, electric vehicles dominated the automobile market. In 1900, they outsold all other automobile types and accounted for approximately 28% of automobiles production [1].\u00a0 However, by 1925 Henry Ford\u2019s mass production of the Model T, which run internal combustible engines fueled by hydrocarbons, made gas-powered automobiles cheaper than their electric counterparts.\u00a0 Consequently, automobile innovation and production in the 20th<\/sup> Century was heavily geared towards gas powered vehicles while electric vehicles were left trailing behind.\u00a0 Recent concerns about greenhouse gas emissions and climate change have brought electric vehicles out of the shadows and back into the public eye.\u00a0 In addition, international agreements such as the Paris Agreement and Kyoto Protocol have solidified attempts at driving environmentally friendly innovation globally.<\/p>\n

Tesla is an example of a company that is attempting to create alternative technologies that reduce the impact of greenhouse gas emissions.\u00a0 The electric automaker\u2019s mission is to \u201caccelerate the world\u2019s transition to sustainable energy\u201d [2] and become \u201cbest manufacturer in the automotive industry\u201d [3].\u00a0 \u00a0Despite these ambitions, cost-effective innovation for electric vehicles has yet to keep up with increased demand.\u00a0 Some of the key challenges include high battery costs and uncompetitive performance [4].\u00a0 If these and other challenges are not met, the electrical vehicle industry may be considered unlucrative from an investment perspective.<\/p>\n

Tesla\u2019s Open Innovation Policy<\/em> [3] addresses the need for accelerated innovation among electric vehicle producers.\u00a0 In 2014, Tesla informed its competitors and the general public that Tesla would not be issuing any patent lawsuits against any competitors who shared in Tesla\u2019s innovative technology as long as the competitors acted in \u201cgood faith\u201d [3].\u00a0 Tesla believed this initiative would not inhibit their innovative progress because they couldn\u2019t build enough electric cars to solve the carbon crisis by themselves, and alternative fuel vehicle sales formed less than 1% of total vehicle sales at top automobile manufacturers [3]. Thus, the company did not consider competition in electrical vehicle segment to be intense.<\/p>\n

Tesla\u2019s Open Innovation Policy<\/em> could be crucial in addressing industry wide and company specific challenges with electric vehicle development. \u00a0A 2017 性视界 Business Review article stated that electrical vehicle battery performance may not match the performance of gas-powered options for another 50 years [5].\u00a0 The article also highlighted some challenges specific to Tesla, including the fact that their current battery technologies are not better or cheaper than existing internal combustion options [5].\u00a0 Knowledge sharing (i.e. open innovation) may help accelerate progress and overcome general industry challenges which would allow auto manufacturers like Tesla to focus more on forming their individual competitive advantages.<\/p>\n

As stated earlier, limited competition and sales in the electric vehicle segment drove Tesla\u2019s decision to adopt an open innovation strategy in 2014.\u00a0 The former dynamic still persists with electric vehicles sales forming approximately 1% of all vehicles sold in 2017 [6].\u00a0 However, in Tesla\u2019s 2017 annual report, the company noted how competition in the electric vehicle segment had increased [7]. \u00a0Although this shift in the competitive landscape may only be slight, it may signal a need for tweaks in Tesla\u2019s approach.\u00a0 A focus of deriving value via disruptive technology is one option the company should explore. It is not clear whether Tesla is considered disruptive player at the moment [5]. However, given the increased competition from more established auto manufacturers, Tesla may decide to focus on establishing a unique competitive advantage with disruptive technology.\u00a0 Indeed, prior to announcing their open innovation policy, it was widely considered that a significant portion of Tesla\u2019s value would be driven by its intellectual property rights and technological advancements [8].<\/p>\n

Tesla\u2019s brand name is arguably the strongest in the electric vehicle segment [9].\u00a0 <\/strong>However, Tesla\u2019s competitors could easily establish a comparable reputation given their expertise and success in the auto industry. \u00a0Toyota, Volkswagen, and the BMW Group have already announced plans to aggressively pursue the electric vehicle market [6]. These competitors could easily leverage Tesla\u2019s technological advances via open innovation and use their greater resources to develop higher quality electric vehicles and squeeze Tesla\u2019s current and future market share.<\/p>\n

Recently, Tesla have had lot of troubles with declining stock prices, strenuous production targets, and pressures to be cash flow positive [10].\u00a0 <\/strong>Going forward, should Tesla reconsider their open innovation strategy and move towards \u201cclosed innovation\u201d if they stumble across disruptive technology? Even without disruptive technology, should a \u201cclosed innovation\u201d policy still be pursued especially since protected patents could help drive up Tesla\u2019s valuation?<\/p>\n

Word Count: 738<\/p>\n

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

[1] Thompson, C. (2017).\u00a0How the electric car became the future of transportation<\/em>. [online] Business Insider. Available at: https:\/\/www.businessinsider.com\/electric-car-history-2017-5#the-electric-car-burst-onto-the-scene-in-the-late-1800s-and-early-1900s-1 [Accessed 13 Nov. 2018].<\/p>\n

[2] Tesla.com. (2018).\u00a0About Tesla | Tesla<\/em>. [online] Available at: https:\/\/www.tesla.com\/about [Accessed 13 Nov. 2018].<\/p>\n

[3] Tesla.com. (2018).\u00a0All Our Patent Are Belong To You<\/em>. [online] Available at: https:\/\/www.tesla.com\/blog\/all-our-patent-are-belong-you [Accessed 13 Nov. 2018].<\/p>\n

[4] Bcg.com. (2010). [online] Available at: https:\/\/www.bcg.com\/documents\/file36615.pdf [Accessed 13 Nov. 2018].<\/p>\n

[5] Downes, L. and Nunes, P. (2017).\u00a0Is Tesla Really a Disruptor? (And Why the Answer Matters)<\/em>. [online] 性视界 Business Review. Available at: https:\/\/hbr.org\/2017\/08\/is-tesla-really-a-disruptor-and-why-the-answer-matters [Accessed 13 Nov. 2018].<\/p>\n

[6] Totty, M. (2017).\u00a0Will Electric Vehicles Replace Gas-Powered Ones?<\/em>. [online] WSJ. Available at: https:\/\/www.wsj.com\/articles\/will-electric-vehicles-replace-gas-powered-ones-1510628461 [Accessed 13 Nov. 2018].<\/p>\n

[7] Ir.tesla.com. (2018).\u00a0SEC Filing | Tesla, Inc.<\/em>. [online] Available at: http:\/\/ir.tesla.com\/node\/18501\/html [Accessed 13 Nov. 2018].<\/p>\n

[8] Abrams, A. (2014).\u00a0http:\/\/time.com<\/em>. [online] Time. Available at: http:\/\/time.com\/2865496\/tesla-opens-patents\/ [Accessed 13 Nov. 2018].<\/p>\n

[9] Energysage.com. (2018).\u00a02018 Best Electric Car Companies and Manufacturers | EnergySage<\/em>. [online] Available at: https:\/\/www.energysage.com\/electric-vehicles\/buyers-guide\/top-ev-companies\/ [Accessed 13 Nov. 2018].<\/p>\n

[10] Assis, C. (2018).\u00a0Tesla meets Model 3 production goals and sales targets, but shares still fall<\/em>. [online] MarketWatch. Available at: https:\/\/www.marketwatch.com\/story\/tesla-meets-model-3-production-goals-and-sales-targets-but-shares-still-fall-2018-10-02 [Accessed 13 Nov. 2018].<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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