Case Notes/Answers
TESLA MOTORS by Eric Van Den Steen
Discussion Questions:
Tesla Motors attempts to become the first US firm since WWII to successfully enter the car
industry with a mass-produced car. We will explore its strategy.
1. Should BMW expect Tesla to grow into a strong direct competitor like Audi, versus Tesla
being limited to a niche or being just a flash in the pan? Is Tesla at a competitive advantage or
disadvantage? How will that evolve?
2. What do you think of Tesla’s entry strategy? What barriers did it have to overcome? Should
Nissan learn something from Tesla’s approach? Will other firms follow in Tesla’s footsteps?
3. Do you think Tesla’s secret plan (p9) was really a plan or an ex-post rationalization? Would it
matter?
4. How do you expect the industry to evolve?
, 5 - 7 1 4 - 48 3
MARCH 17, 2014
T E AC H I N G N O T E
Tesla Motors
Synopsis
In mid-2013, Tesla Motors – a US start-up car company located in Silicon Valley – was riding a
wave of success. It had launched the model S – its first mass-produced car – to rave reviews, had
raised its first-year production targets to 21,000 units, and had started taking orders for its next car,
the Model X. Tesla’s only car prior to the Model S was the Tesla Roadster, of which it had produced
and sold 2500 units. The Roadster combined an electric powertrain designed and produced by Tesla
with a body by Lotus. The Model S was a high-end electric car that Tesla completely designed and
produced in-house.
Tesla was taking a very different approach than other car companies that were trying to launch
mass-produced electric cars. Its Model S touted its performance and comfort more than its
environmental benefits. Its choice of battery was unusual. And it was developing its own direct sales
model instead of relying on a dealership network like other car producers. Its decision to bring
design and assembly completely in-house, despite having no experience in either, was met with
skepticism. But Tesla seemed to be on its way to defy the skeptics and become the first US company
to enter the car industry with a mass-produced car since WWII and the first US company to
successfully launch a fully electric car.
Teaching Purpose
The main purpose of the case is to explore the dynamics of strategy and of competitive advantage
and the role of an explicitly stated strategy by the CEO. The case can also be used – and has been
used – to explore and illustrate high-end market entry with potential displacement of current players
and industry evolution. While the case was written for an elective course on competitive advantage,
it has been used in introductory strategy courses, both with MBAs and with executives.
The case is, in particular, meant to explore the following topics:
1. The dynamics of competitive advantage due to learning and due to changes in factors such as
scale and dynamic fulfillment of demand, and how that may affect optimal strategy.
, 714-483 Teaching Note—Tesla Motors
2. The dynamic fit (or misfit) between a firm’s strategic choices and its path over time, including
the sequencing of positioning, of activities, and of capabilities.
3. The potential role of an explicitly stated strategy in ensuring dynamic consistency in a firm’s
activities and choices and in the development of competitive advantage.
4. The effect of personal involvement of the CEO in the strategy.
5. The characteristics that make a decision strategic.
6. How a change in a technological characteristic like complexity may have deep impact on a
business and can drive changes in industry structure.
Apart from these focal issues, the case also provides a nice example of high-end entry and has
been used to introduce the learning curve and its implications for strategy. In the course ‘Creating
and Sustaining Competitive Advantage’, Tesla Motors is used as the closing case of both the course
and of a module on the role of strategy and people in creating competitive advantage.
Additional Reading
For some parts of this note, in particular for the analysis of competitive advantage, for the
characteristics that make a decision strategic, and for the role of people in strategy, it is recommended
that the instructor has read “Creating and Sustaining Competitive Advantage: Course Overview
Note for Instructors” (Harvard Business School course note for instructors 714-491).
Suggested Assignment Questions
Tesla Motors attempts to become the first US firm since WWII to successfully enter the car
industry with a mass-produced car. We will explore its strategy.
1. Should BMW expect Tesla to grow into a strong direct competitor like Audi, versus Tesla
being limited to a niche or being just a flash in the pan? Is Tesla at a competitive advantage or
disadvantage? How will that evolve?
2. What do you think of Tesla’s entry strategy? What barriers did it have to overcome? Should
Nissan learn something from Tesla’s approach? Will other firms follow in Tesla’s footsteps?
3. Do you think Tesla’s secret plan (p9) was really a plan or an ex-post rationalization? Would it
matter?
4. How do you expect the industry to evolve?
Summary of Teaching Plan and Conclusions
The following is a short summary of the essential parts of the teaching plan that has been used,
with small variations, for both the CSCA elective and introductory strategy classes. The timing of the
2
TESLA MOTORS by Eric Van Den Steen
Discussion Questions:
Tesla Motors attempts to become the first US firm since WWII to successfully enter the car
industry with a mass-produced car. We will explore its strategy.
1. Should BMW expect Tesla to grow into a strong direct competitor like Audi, versus Tesla
being limited to a niche or being just a flash in the pan? Is Tesla at a competitive advantage or
disadvantage? How will that evolve?
2. What do you think of Tesla’s entry strategy? What barriers did it have to overcome? Should
Nissan learn something from Tesla’s approach? Will other firms follow in Tesla’s footsteps?
3. Do you think Tesla’s secret plan (p9) was really a plan or an ex-post rationalization? Would it
matter?
4. How do you expect the industry to evolve?
, 5 - 7 1 4 - 48 3
MARCH 17, 2014
T E AC H I N G N O T E
Tesla Motors
Synopsis
In mid-2013, Tesla Motors – a US start-up car company located in Silicon Valley – was riding a
wave of success. It had launched the model S – its first mass-produced car – to rave reviews, had
raised its first-year production targets to 21,000 units, and had started taking orders for its next car,
the Model X. Tesla’s only car prior to the Model S was the Tesla Roadster, of which it had produced
and sold 2500 units. The Roadster combined an electric powertrain designed and produced by Tesla
with a body by Lotus. The Model S was a high-end electric car that Tesla completely designed and
produced in-house.
Tesla was taking a very different approach than other car companies that were trying to launch
mass-produced electric cars. Its Model S touted its performance and comfort more than its
environmental benefits. Its choice of battery was unusual. And it was developing its own direct sales
model instead of relying on a dealership network like other car producers. Its decision to bring
design and assembly completely in-house, despite having no experience in either, was met with
skepticism. But Tesla seemed to be on its way to defy the skeptics and become the first US company
to enter the car industry with a mass-produced car since WWII and the first US company to
successfully launch a fully electric car.
Teaching Purpose
The main purpose of the case is to explore the dynamics of strategy and of competitive advantage
and the role of an explicitly stated strategy by the CEO. The case can also be used – and has been
used – to explore and illustrate high-end market entry with potential displacement of current players
and industry evolution. While the case was written for an elective course on competitive advantage,
it has been used in introductory strategy courses, both with MBAs and with executives.
The case is, in particular, meant to explore the following topics:
1. The dynamics of competitive advantage due to learning and due to changes in factors such as
scale and dynamic fulfillment of demand, and how that may affect optimal strategy.
, 714-483 Teaching Note—Tesla Motors
2. The dynamic fit (or misfit) between a firm’s strategic choices and its path over time, including
the sequencing of positioning, of activities, and of capabilities.
3. The potential role of an explicitly stated strategy in ensuring dynamic consistency in a firm’s
activities and choices and in the development of competitive advantage.
4. The effect of personal involvement of the CEO in the strategy.
5. The characteristics that make a decision strategic.
6. How a change in a technological characteristic like complexity may have deep impact on a
business and can drive changes in industry structure.
Apart from these focal issues, the case also provides a nice example of high-end entry and has
been used to introduce the learning curve and its implications for strategy. In the course ‘Creating
and Sustaining Competitive Advantage’, Tesla Motors is used as the closing case of both the course
and of a module on the role of strategy and people in creating competitive advantage.
Additional Reading
For some parts of this note, in particular for the analysis of competitive advantage, for the
characteristics that make a decision strategic, and for the role of people in strategy, it is recommended
that the instructor has read “Creating and Sustaining Competitive Advantage: Course Overview
Note for Instructors” (Harvard Business School course note for instructors 714-491).
Suggested Assignment Questions
Tesla Motors attempts to become the first US firm since WWII to successfully enter the car
industry with a mass-produced car. We will explore its strategy.
1. Should BMW expect Tesla to grow into a strong direct competitor like Audi, versus Tesla
being limited to a niche or being just a flash in the pan? Is Tesla at a competitive advantage or
disadvantage? How will that evolve?
2. What do you think of Tesla’s entry strategy? What barriers did it have to overcome? Should
Nissan learn something from Tesla’s approach? Will other firms follow in Tesla’s footsteps?
3. Do you think Tesla’s secret plan (p9) was really a plan or an ex-post rationalization? Would it
matter?
4. How do you expect the industry to evolve?
Summary of Teaching Plan and Conclusions
The following is a short summary of the essential parts of the teaching plan that has been used,
with small variations, for both the CSCA elective and introductory strategy classes. The timing of the
2
