Tesla Software on Wheels: Digital Transformation of the Automotive Business Model

by: M.S. Krishnan

Publication Date: February 20, 2024
Length: 24 pages
Product ID#: 6-016-728

Core Disciplines: Entrepreneurship & Innovation, Information - Technology & Management, Strategy & Management

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Teaching Note

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Tesla, an extraordinary innovator in the automotive industry and pace-setter for manufacturing electric vehicles (EVs), was founded in 2003 by Martin Eberhard and Marc Tarpenning with the vision of creating a car manufacturer that was also a technology company. Tesla set out to integrate innovative battery technologies, computer software, and a proprietary electric motor system to produce highly attractive, zero-emission vehicles.

The case introduces the history and challenges faced by the early EV industry and how Tesla reshaped it, revolutionary innovations initiated by Tesla, and its sustaining strong performance. The challenges of traditional automotive companies’ transitions to EVs is discussed, especially with regard to driving range and charging, and how Tesla changed the game by introducing its Roadster in 2008. During the next 14+ years Tesla achieved the distinction of producing the first best-selling global vehicle powered by batteries.

Included in the case is how Tesla questioned traditional assumptions in the automotive business model — and how it leveraged digital technology capabilities to introduce the next practices in vehicle design, manufacturing, sales and service, pricing, and customer engagement. The case explores the transformation in customer experience and vehicle management as Tesla made its automobiles “connected” with software and sensors, and introduced new capabilities in remote tracking, vehicle intelligence, remote servicing, and the potential for autonomous driving.

The case concludes by highlighting some of the challenges Tesla faced with wide adoption of EV technology including the market valuation of its stock, and the emergence of several competitors such as new EV manufacturers and traditional automakers switching to EV.

Teaching Objectives

After reading and discussing the material, students should:

  • Understand the challenges faced by Tesla in its initial days, and its approach to counter those challenges.
  • Recognize the limitations of the traditional approach to automotive and EV development, such as balance of driving range and battery improvements.
  • Illustrate how emerging technology (machine learning, autonomous driving) could be strategically developed and complemented by customer-generated assets (data).
  • Compare and contrast the benefits and challenges of adopting revolutionary business models.