In February 2018, the whole world watched as the Falcon Heavy test flight launched Elon Musk’s personal cherry-red Tesla Roadster into orbit. Rockets, sports cars, David Bowie: there’s no doubt this was an exciting spectacle.
However, Tesla is about so much more than just cool spectacles. Instead, the company aims to completely transform the way people travel, as well as how the world captures, stores, and utilizes electricity, and so much more.
Founded in 2003 by genius troublemaker Elon Musk, Tesla released its first electric sports car in 2008. By April 2017 the company was regarded as the most valuable automaker in the United States, and later in 2017 attracted a whopping valuation of over $56 billion.
So, how has Tesla managed to set itself apart as a force for innovation?
In this post, we’ll look into eight ways Tesla is shaping the world, from the company’s commitment to open source innovation to its unconventional approach to internal communication.
1. Business Model
Tesla produces unquestionably innovative products, including a range of electric cars that defy consumer expectations, like the Model S, “the safest and quickest car on the road”. Tesla is also committed to world-changing technology, like its line of fast-charging sustainable batteries.
This relentless commitment to product innovation is one of the key reasons why Tesla enjoys such a cult following. It’s also the reason behind Tesla’s inclusion in the Boston Consulting Group’s top ten list of 2019’s most innovative companies.
However, as some commentators have pointed out, Tesla’s greatest innovation isn’t any of its individual inventions - it’s the company’s radically different business model.
In contrast to the rest of the automotive industry, Tesla’s business model:
- Unites fans and customers around the world with its ambitious mission of transforming global transportation and energy production and consumption systems
- Builds core groups of dedicated fans and technology enthusiasts, and markets directly to them without involving dealers or middlemen
- Encourages extensive customer participation in product development and testing
- Invests in infrastructure (for example, its network of supercharger stations) to make it easier for Tesla owners to cover longer distances, boosting uptake of their products
- Diversifies its product range with intuitive and useful consumer products that don’t fit into one single market or industry
This fan-focused innovation strategy has earned Tesla a dedicated following. In fact, when the company announced the launch of the Model 3, over 100,000 customers were willing to pay in advance to reserve one.
Not only did this reservation model secure an active customer base in advance - it also gave Tesla access to interest-free capital to finalize the production process. This gives the company an edge over other car manufacturers.
Another unconventional element in Tesla’s business model is its marketing and product launch strategies. The company spends nothing on marketing, doesn’t rely on major advertisers, and yet still manages to generate feverish interest in its products. That’s incredible.
2. Organizational Structure
Elon Musk is no fan of hierarchy in business.
In a now-famous email to Tesla employees, Musk describes how harmful communication hierarchies can be to effective problem solving. Instead, he argues, the most effective communication happens when anyone can talk to anyone else whenever they need to.
“Anyone at Tesla can and should email or talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company,” he says. “Moreover, you should consider yourself obligated to do so until the right thing happens.”
The reason for this radically open communication practice? Musk knows Tesla needs a way to gain an advantage over the company’s larger competitors.
“We obviously cannot compete with the big car companies in size,” he says, “so we must do so with intelligence and agility.”
There’s a valuable lesson here for any growing company: problem-solving relies on effective communication, and hierarchies can prevent the correct flow of information.
An efficient way to achieve that is to adopt a corporate structure that reduces hierarchy friction and and create organizational culture that encourage flexible and fluid communication to get things done.
Alongside Musk’s embrace of flattened organizational structure is his love for working hands-on in product development and manufacturing.
Musk embraces the idea that a CEO must be intimately familiar with a company’s operations, and places himself physically in the middle of things to drive innovation.
“I move my desk around to wherever the most important place is for the company,” says Musk. “Then, I maintain a desk there over time to come and check in on things.”
This isn’t just a case of micromanagement. Musk is constantly pushing for better results from all parts of the business, and puts himself right in the trenches to motivate people and drive progress forward.
Musk has even been reported to sleep near the production line during product pushes. This kind of borderline fanaticism is a major part of what makes him such an innovative leader: he approaches problem solving with tenacity, vision, and persistence.
Another key part of Tesla’s product development process? Working with hardcore fans and early adopters.
4. Customer Centricity
For too long, the world has been talking about the imminent arrival of the electric car. And yet, despite the availability of affordable models like the Prius and the Tesla Model 3, consumers still don’t seem to be embracing the technology.
For example, in 2016, a record 17.55 million cars were sold in the United States. However, electric cars representing a mere 1% of these sales. This tells us the true appeal of electric vehicle has yet to really take root in mainstream culture.
Tesla is trying to change this. First, by producing exciting and attention-grabbing electric vehicles, and second, by working with fans and early adopters to finesse and fine-tune each of their product releases.
For example, in releasing the Tesla Model S in 2012, Tesla sold 100,000 units to early adopters. This gave the company the ability to gain deep and detailed insights from these 100,000 drivers, allowing Tesla to continue to tweak the innovative design of the car.
What’s more, working with these drivers also gave Tesla a dedicated group of cheerleaders to would speak out in effusive terms to media, helping to drive interest in the car.
This commitment to working alongside early adopters is one of the things that makes Tesla such an innovative company. Taken alongside the company’s release of its patents to the public (discussed below), it’s another sign of Tesla’s radically collaborative business model.
Another way Tesla aims to change the discussion around electric vehicles? Committing time, energy, and resources to thinking about the big problems facing mankind.
5. Clear Vision
As Elon Musk wrote in 2013, “Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.”
However, Tesla has a far broader innovation strategy than just developing and market electric cars. In fact, Tesla’s ‘Master Plan’ even outlines a vision for consumers around the world to gather, manage, and store their own electrical sources.
Instead of simply focusing on the commercial success of its innovative products, Tesla incorporates a strong focus on issues of global importance, including:
- Sustainable transportation
- Climate change mitigation
- Promoting renewable energy capture and storage
- Shifting to autonomous technology
This ambitious strategic focus reflects Tesla’s understanding that true innovative design is never just about one subject. Instead, innovators must think about solutions to complex and interconnected problems.
Tesla’s acquisitions strategy reflects this focus, too. In 2016, Tesla acquired solar energy company SolarCity, and has since embarked on a range of transformative energy projects, including installing battery packs on Kauai, Hawaii, to reduce demand on fossil fuels.
Tesla doesn’t limit their thinking to the product level, either. The company spends a lot of time and effort addressing the issues associated with their products, including the potential effects autonomous technology will have on the lives of workers and consumers around the world.
For example, with Autopilot, Elon Musk has promised that by the end of 2019, all of Tesla’s cars will be capable of autonomous self-driving. However, the company also considers the effects this technology may have on professional drivers, and has outlined a way to transition them to new jobs.
This kind of attention to broader global issues shows how Tesla’s approach to innovation extends beyond simply developing great products. Instead, the company puts in time thinking about the larger problems facing the world.
In growing to be such an innovation powerhouse, Tesla has challenged - and subverted - a lot of conventional wisdom.
This is a core part of innovation - taking something widely considered to be fact, and exploding it with a bold new approach.
For example, conventional wisdom tells us electric cars have to be slower and less responsive than traditional combustion engines, right? Instead, Tesla goes ahead and develops the Model S P100D, the third fastest production car ever released.
This willingness to make bold promises has drawn some criticism for Tesla - and in particular Elon Musk - in the past. However, for every instance the company has over-promised on its new technology, there are a handful of examples of its impressive innovation.
Another way Tesla has subverted conventional wisdom? Committing to the public release of all patents for their electric cars.
Unlike other companies, however, Tesla has really put its money where its mouth is.
In 2014, the company started making their patents open to anyone who might be interested in putting them to use, allowing fans and enthusiasts all over the world a glimpse into their technology and techniques.
This bold move is yet another example of Tesla’s commitment to addressing the issues facing mankind. If we’re going to counter climate change, says Elon Musk, then companies and consumers need to be able to work together without commercial factors getting in the way.
“If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal.”
This commitment to open source innovation shows that Tesla is willing to put some things above its bottom line. This is another reason why the company continues to have such a dedicated following - it’s hard to imagine any of the other big automotive companies taking this step.
The Results? Tesla is much more than an auto maker
As a company, Tesla recognizes one of the most important parts of successful innovation: the value of market adjacencies.
Market adjacencies are areas of products or services just outside the current focus of a particular company. For example, in the 1990s, Nike decided to expand from golf shoes into the market adjacency of clubs, apparel, and other golf equipment, with impressive results.
Tesla has embraced this idea of looking outside the company’s core focus for innovation opportunities. It’s why the company isn’t content to focus just on developing electric cars, and is committed to broadening its market with a diverse range of products.
Now, Tesla is capitalizing on its manufacturing capability to produce batteries, solar panels, and other equipment for the capture, storage, and use of electricity. Given the huge demand for these products around the world, this is a smart move.
Even better, Tesla is approaching this exercise with a focus on sustainability and low carbon emission technology - all part of the Tesla ‘Master Plan’.
In fact, the market for energy storage products is so significant, it has led some business commentators to describe Tesla not as a car company, but as a battery company.
This willingness to explore market adjacencies is part of what makes Tesla such an innovative company. Alongside SpaceX and SolarCity, Tesla is part of a constellation of companies all working in related areas, using smart technology to solve tricky problems.
So, those are Tesla’s eight innovation techniques for shaping the world. But is this company a force for true disruptive innovation?
Sure, Tesla is innovative - but is it truly disruptive?
In some ways, Tesla has been a victim of its own success.
After all, Tesla’s cult-like following has contributed to some claims that the company’s technology is overhyped and overvalued. Others claim Tesla is a long way from reaching profitability, and is struggling to find a broad market beyond its die-hard fans.
These naysayers include Larry Downes and Paul Nunes, authors of a provocative article in the Harvard Business Review in 2017 outlining doubts as to whether Tesla should be considered a true disruptor in the same class as Apple, Netflix, and Amazon.
This article claimed that, while the company does command a dedicated following, Tesla’s actual tech advantages over competitors are slimmer than many fans and observers realize.
The article also notes that Tesla’s capacity to disrupt automotive manufacturing with radical innovation depends on a range of factors beyond the company’s control, including government regulation, the availability of tax incentives, and lobbying on behalf of the petrochemical industry.
For now, all signs point to Tesla having the potential to truly change the face of the automobile industry. However, the company does have a few short-term challenges to overcome first - including the tricky process of scaling up its production capacity.
Take your innovation cue from Tesla
Changing the world with electric cars, exploding conventional wisdom, making sustainability sexy: there’s no other company out there doing what Tesla is trying to do.
By paying close attention to what Tesla is doing, and how it’s doing it, any company can learn a lot about innovation and creativity in modern business.
In this case study, we’ve looked in-depth at how Tesla:
- Adopts an alternative business model to drive innovation
- Flattens organizational structure to improve communication
- Gets in the trenches to develop products
- Works alongside early adopters to finesse design
- Thinks about the big problems facing the world
- Challenges and subverts conventional wisdom
- Commits to open source innovation to solve hard problems
Each of these techniques provide valuable lessons for growing companies in any market, in any part of the world. Why not think about how you could put them to use in your business?