Tesla Motors: An Analysis of Design and Innovation

Introduction

This paper will present an analysis of the design and innovation approach of Tesla Motors with a particular emphasis on the Roadster. The Roadster is the signature Tesla vehicle of the firm and presents an excellent case study example to investigate various issues concerning the firm's product choice, design, innovation, and marketing approaches.

This paper will be divided into six sections. The next section will present a brief background to both Tesla Motors and its product, the Roadster. Section three will discuss key issues in the innovation concept and the innovation approach adopted by the firm. This section will also examine what influences affected this approach. Section four will discuss the new product development (NPD) process, with a particular focus on the Roadster. This section will also examine what perspective the firm takes on NPD and if there is any collaboration between functions. Section five will discuss what designers were involved in product development. This section will also examine the role of designers in the NPD process. Section six will discuss the impact of the Roadster on the firm's financial performance and provide an evaluation of the reception the Roadster has received.

Background

Tesla Motors is a US based firm that designs, produces and markets electric vehicles and electric car powertrain components. The firm is named after Serbian physicist and electrical engineer, Nikola Tesla . Its current CEO is South African born entrepreneur Elon Musk. The firm posted its first profit in a decade during the first quarter of 2013 . The firm has been garnering increased attention in recent years due to the debut of the Roadster. The vehicle is notable as the first completely electric sports vehicle. As such, it has come under considerable scrutiny as to its performance relative to traditional gasoline based sports cars . Tesla's long term goal is to mass produce completely electric vehicles at a price the average car buyer could afford. Unlike many automobile firms, Tesla does not use a network of dealerships to sell its vehicles. Instead it provides its vehicles for sale at a small number of showrooms, by phone and online . Therefore, it uses a rather non-traditional approach to marketing and distributing its vehicles.

Roadster. It's notable that the Roadster's alternating current motor design is based on Nikola Tesla's 1882 AC motor design. The vehicle is the first of its type with a range greater than 200 miles before a recharge is needed. Many electric vehicles need a recharge after as little as 50 miles . The Roadster sport model can accelerate from 0 to 60 mph in under 4.0 seconds. There is also literature that indicates it has double the energy efficiency of the Toyota Prius. By March 2012, the firm has sold an estimated 2200 Roadsters to consumers in 31 countries for a sticker price of over $100,000 per vehicle.

Innovation and The Company's Approach

Innovation is crucial to the development of new technologies and services. Innovation can be defined as managing all activities associated with the process of generating ideas, developing technology, manufacturing, and the marketing or distribution of new or improved products, services, processes, or equipment . It can be described as a management process that begins with the formulation of a new idea. Once this formulation has been fully developed, a new device or service can be invented. This is followed by the widespread commercial development and distribution of the good or service.

Innovation can take both an internal and an external view. Thus with an internal view, innovation involves the implementation of newly formed ideas within a particular organizational context or possibly between organizations or a group of stakeholders. This is contrasted with the external view in which customer value is created. This is made possible by the development of new solutions that fulfill demands for new needs, needs that haven't been articulated, or by way reimagining existing customer and market requirements in new, more efficient or exciting ways. Innovation shouldn't be confused with improvement. This is because innovation refers to the idea of taking an existing product or service and providing it in a different way. Indeed, one example of an innovative approach is the use of Amazon.com to sell books online. Amazon, of course, didn't invent books it simply provided a new and more convenient distribution mechanism. In the process it has virtually demolished the existing brick and mortar paradigm of book distribution.

There are several different types of innovation. A brief overview of these is presented below:

1. Product innovation: the development of a new or improved product

2. Process innovation: the development of a new manufacturing process

3. Organizational innovation: a new venture division, a new internal communication system

4. Management innovation: TQM (total quality management) systems, BPR (business process reengineering).

5. Production innovations: quality circles, JIT manufacturing system, new production planning software, such as MRP II and new inspection systems.

6. Marketing innovations: New financing arrangements, new sales approach, such as direct marketing.

7. Service innovations: Such as eBay, Internet banking, bitcoin, Netflix, and Amazon.

8. Business models: a business model describes the logic and principles that a firm uses to generate revenues and it also outlines the architecture of revenues, costs and profits. Examples include airlines and pharmaceutical companies.

In addition, there are different ways one can conceive of innovation. Two examples of these are open innovation and disruptive innovation. In brief, open innovation involves employing purposive distribution flows of information to speed up the pace of innovation. These flows are bidirectional, that is to say, they can flow both into and out from an organization. Once the relevant information is distributed broadly, firms will no longer be able to rely entirely on their research. Instead, they acquire other firms' intellectual property when it fits the needs of progressing a particular business model.

In contrast, disruptive innovation involves how an innovation exerts a transformative influence. This influence affects an extant market or industry sector where the status quo consists of complexity and high cost. This transformative effect can take the form of introducing such new elements as simplicity, affordability, and accessibility into an existing consumer market system or structure. These transformations take the form of major market breakthroughs. It should be noted that closed innovation involves innovation that occurs in closed systems and without an external input or influence.

It's worth mentioning that disruptive innovation can take one of two specific types. These types are business-model innovations and radical transformative innovations. In business model innovations new products are not discovered. However, in radical product innovations, new products are discovered that can change the existing marketplace in important ways. In order for a business model or product to be truly innovative, it must increase the size of the existing marketplace. This is accomplished either by bringing in new customers or through incentivizing existing customers to buy more goods and services.

With these issues on innovation having been considered in some depth, it's possible to say that Tesla Motors involves multiple types of innovation. First, it's an example of a potentially radical product innovation. It may as yet be too early to proclaim the Roadster as a transformative good, but if the firm's goal of mass market penetration is achieved, it certainly has that level of disruptive potential. In addition, Tesla Motors also presents examples of product innovation, in the use of its fully electric vehicle and marketing innovation, in that, as noted above, its vehicles are being distributed in non-traditional ways.

Tesla's marketing approach is mainly affected by a need to find alternatives to the existing gasoline-powered technology prevalent in motor vehicles. As Singh and Singh point out, increased consumption of fossil fuels is depleting existing petroleum reserves. At the same time, there is growing recognition that motor vehicles are responsible for as much as 70 percent of the greenhouse gas emissions implicated in global climate change. Thus the electric vehicle is a recommended alternative that will reduce such emissions, which could be considerable with widespread use.

From a business standpoint, Tesla Motors clearly saw a nascent, but potentially tremendous, marketing opportunity and deemed it pertinent to capitalize on it as early as possible. Finally, Tesla Motors, based on information presented in the next section, incorporated some elements of open innovation in its design process. That is to say, it used technology of non-firm provenance in the production and development of the Roadster.

Design and Development

In brief, design involves the production of a preliminary plan or sketch for the production of a manufactured good, a distribution process, or the delivery of a service. Design can take the form of either a process or an outcome . When considered as a process, as in industrial design, it requires that various activities perform in proper coordination to create a final product that is both appealing and functional. When considered as an outcome, it's considered as a product design when the final result is a manufacturing process. As such, design ideally is a deliberately and carefully planned process of deciding which information is used to produce either a good or a service .

The Roadster was developed by Tesla Motors with the object of mass producing the firm's AC propulsion T-zero concept vehicle. Two of the firm's engineers, Martin Eberhard and Marc Tarpenning, conceived of the idea. They were provided with financing from Elon Musk, who was at the time a financier. Musk wanted the Roadster to incorporate elements from his two favorite vehicles, the Porsche and the McLaren. It should be noted that, in addition to being the current CEO, Musk is also the firm's chief Product Architect.

Lotus, a sports car maker based in Britain, assisted with the development of the Roadster's chassis. As such, the Roadster's parts overlap with Lotus's Elise by about 6 percent. Tesla's designers constructed the vehicle's body panels using carbon fiber composite in a resin transfer mold. This was done to reduce the vehicle's weight . As a result, the Roadster is one of the cheapest vehicles covered with a skin of carbon fiber.

The firm licensed its charging patent, the AC Propulsion's EV Power System design and Reductive. This license covers integrating of the charging device with the inverter. This helps to decrease the vehicle's mass, cost, and complexity . Then, used the AC Propulsion licensed technology to incorporate its motor, electronics, and additional drivetrain components into the vehicle's design and construction. It should be noted that AC Propulsion is a US based firm that manufactures batteries and propulsion systems for deployment into electric cars. However, since its inception, the Roadster has been extensively redeveloped. As a result Tesla Motors has stopped licensing AC Propulsion's proprietary technology . The powertrain the Roadster currently uses is uniquely Tesla Motor's.

The firm produced several Roadster prototypes between 2004-2007. The first studies were performed using 'test mule' cars. These vehicles were based on Lotus's Elise vehicles, which were equipped with electric drive only systems . Between late 2006 and early 2007, Ten Engineering Prototypes were built (coded as EP1 - EP10). This led to a number of minor adjustments, which were subsequently incorporated into the later prototypes. In March 2007 Tesla Motors began delivery of 26 Validation Prototypes (coded VP1- VP26) . These final versions of the Roadster were then revised for endurance and crash tests. They were then prepared for final assembly. Also the Roadster included standard air bags.

There is clear evidence of some collaboration between Tesla Motors and other firms in the automotive industry in the production of the Roadster. The above discussion notes the contributions of such firms as Lotus and AC Propulsion. A specific sequence of activities was followed in the production of the Roadster. This process began with an idea, partially modeled on existing vehicles of a gasoline-powered type. Then prototypes were developed and tested in a long process that extended over three years. The use of prototypes enabled further testing and refinements of the vehicle to be undertaken. Once this process was completed, a final version was prepared based on the existence of advanced prototypes, known as validation prototypes. This process suggests that the firm had a clear perspective and experience on new product development. This plan was followed in stages until a satisfactory final version was created. However, based on the literature consulted for this paper, there isn't much reported on collaboration between different functions.

Designers appeared to have a clearly defined role throughout the development process. Indeed, it was designers who conceived the features that were incorporated into each prototype. There are specific designers involved, include the firm's now CEO and product architect, Elon Musk, and Tesla Motors co-founders, Marc Tarpenning and Martin Eberhard, were both high level internal designers . However, not much was reported in the literature regarding the input of other designers, whether internal or external, for the Roadster project

Roadster and Firm Performance

As noted above, Tesla Motors has sold over 2000 of the Roadster vehicles, each at a price tag of $100,000. It's also worth repeating the firm saw its first profit in the first quarter of 2013. This is clear evidence that the Roadster is having a positive impact on the firm's financial performance. The firm has received extensive media coverage for the Roadster, with most of the reviews being positive and even glowing . Although there was a controversy with the British Publication Top Gear. The publication reported that the Roadster had to be pushed off a track during an exhibition. In addition, the publication reported other serious problems with the Roadster. However, these claims have not all been substantiated and continue to be disputed by the firm's representatives. Finally, Tesla Motors' Roadster has won the following awards :

1) BusinessWeek: Best Product Design of 2007, Ecodesign

2) Forbes: Best Cars 2006: New car that best lived up to the Hype

3) Time: Best Inventions 2008—Transportation Invention

4) Time: Best Inventions 2006—Transportation Invention

5) Popular Mechanics: Breakthrough Awards 2006

6) Global Green USA: Product/Industrial Design

7) CarDomain: People's Choice: Most Exciting 2007 Car Launch

8) 2009 Best Green Exotic, duPont REGISTRY

References

Brooks, Alec N. & Thesen, Sven H. PG&E and Tesla Motors: Vehicle to grid demonstration and evaluation program. EVS23, 2007.

Disruptive innovation. Christenseninstitute.org. http://www.christenseninstitute.org/key-concepts/disruptive-innovation-2. 2012

Eberhard, Martin & Marc Tarpenning. The 21st Century Electric Car. Fcinfo.jp. http://www.fcinfo.jp/whitepaper/687.pdf, 2006.

Markides, Constantinos. Disruptive innovation: In need of better theory. Journal of Product Innovation Management, vol. 23, no. 1 (2006): 19–25.

Michaels, Daniel. Long-dead inventor Nikola Tesla is electrifying hip techies. WSJ.com. http://online.wsj.com/news/articles/SB10001424052748704362004575000841720318942 Jan. 14, 2010.

Singh, Bharat Raj & Singh, Onkar. A study on sustainable energy sources & its conversion systems towards development of an efficient zero pollution novel air turbine to use as prime- mover to the light vehicle. Proceedings of IMECE2008-66803 Conference Paper, 2008 ASME International Mechanical Engineering Congress and Exposition October 31- November 6, 2008, Boston, MA. http://www.brsinghindia.webs.com/seminar/imece2008-66803.pdf. 2008.

Talke et al. 2009.

Tesla Motors. Tesla Motors, Inc.: First quarter 2013 shareholder letter. Shareholder.com. http://files.shareholder.com/downloads/ABEA-4CW8X0/2468043081x0x661989/ee71d11b-3563-489c-9471-9319fd963626/Q1%2013%20Shareholder%20Letter.pdf. May 8, 2013.

Tesla Roadster. Hs-augsburg.de. http://www.hs-augsburg.de/~chschnei/Auslandsprojekt%20Horsens/Projekt%20final/Project%20brennen/Dimensioning%20and%20re-design/technical%20data%20%28motor,batteries,construction%29/Wikipedia.en%20%20--%20%20Tesla%20Roadster.pdf. 2011.

Trott. (2012).

Von Stramm. (2004).

What is open innovation? Berkeley.edu. http://openinnovation.berkeley.edu/what_is_oi.html, N.d.