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5/11/2017 How Tesla Utilized Strategic Alliances – Kogod Now

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Kogod Now / Faculty Research  / How Tesla Utilized Strategic Alliances

September 24, 2012 0 1  FACULTY RESEARCH, FALL 2012

How Tesla Utilized Strategic Alliances

A new paradigm that is changing the nature of business competition calls to mind two kids prepping for a street •
Suddenly, “me against you” becomes “me and all my friends against you and all your friends.”

A rough analogy, perhaps, but not so di€erent from an emerging model in which companies are competing less •
network-to-network basis.

Alliances are key to entrepreneurial success, potentially playing a role in every stage of startup evolution, accordin

Innovative •rms use alliances to overcome weaknesses ranging from insu›cient funds to gaps in distribution cha
reputation, if it partners with a well-known brand whose participation yields a stamp of approval.­tesla­used­strategic­alliances­to­power­green­products/ 1/6
5/11/2017 How Tesla Utilized Strategic Alliances – Kogod Now

Holmberg analyzed the alliances used by Tesla Motors, an entrepreneurial company well outside the automobile
launch its electric vehicle (EV) Roadster in 2008. For his next project, he is working on a comparative study of EVs
which has been a global leader in adopting innovative and clean vehicle technologies.

According to the US Department of Energy’s alternative Fuels and advanced Vehicles Data Center, 15 auto manuf
electric vehicles (HEVs) in 2012, up from two in 1991.

America’s current interest in EVs marks the fourth time in history such cars have been on the market. According t
years ago, electric cars actually outnumbered gas-fueled cars, thanks to Thomas Davenport’s 1834 invention of a
combustion engine and the scarcity of electricity outside cities pushed electrics o€ the road. EVs enjoyed short-liv
1960s and early 1970s, and in the early 1990s.

Now, however, a con…uence of factors is taking shape that may enable EVs to take hold once and for all. Holmber
companies like Tesla, trying to put down a very di€erent kind of root in an entrenched industry, might actually hav

Pulling Ahead

As far as startups go, breaking into the car business is one of the tougher roads to follow. According to Holmberg
•rms with a mature infrastructure, established supply and distribution systems, and strong ties to customers and
and the business is sensitive to economic cycles. Another recession could be the death knell for a …edgling EV or

At the same time, a number of things have happened to make it easier for entrepreneurs to develop green vehicl
perfect storm of “push” and “pull” factors that both drive entrepreneurs toward EV innovations and draw them in.
innovation—a technology push, a regulatory push, and a market pull—but Holmberg expanded that to encompas
entrepreneurs inside and outside the auto establishment.

“Push” factors are technology, the federal government, and state or local governments—the latter through carrot
regulations setting stricter emission and fuel economy standards.

“Pull” factors include entrepreneurs’ demonstrated success (Toyota’s success with the Prius spurred others to foll
infrastructure for EV cars—for example, the battery recharging stations on the American University campus.

These factors are in keeping with those that traditionally have set the stage for entrepreneurial growth, Holmberg
experiencing a technological discontinuity, or a technology so new that it spurs a di€erent way of looking at an ind
gas-powered internal combustion to a car that runs partially or wholly on electricity.

Substantial shifts in public policy and societal attitudes, both on the upswing, also drive green vehicle innovation.
by early adopters of EV technology who …ocked to the Toyota Prius because it was neat, di€erent, cost-e€ective, a
consumers. Cost-conscious government buyers who purchase low-maintenance EVs for car …eets also are a mark

“There’s a growing awareness of the impact of vehicles, both on the cost of individual ones as well as the environm
reinforced by all of the public policy initiatives, and you have that reinforced by the general growing awareness of

Together, these events have catalyzed the growth of EV vehicles.

Figuring out how to take advantage of these events is another story, and Holmberg believes Tesla has a unique st
for innovative entrepreneurial •rms.­tesla­used­strategic­alliances­to­power­green­products/ 2/6
5/11/2017 How Tesla Utilized Strategic Alliances – Kogod Now

One reason Tesla stands out is that its founders by and large came from outside the auto industry. In their own w
Silicon Valley engineers who set out to prove that electric vehicles could be awesome.” Chairman and CEO Elon M
SpaceX and PayPal.

“They don’t have the paradigm that legacy manufacturers have, so they think about a vehicle or a car in a very di€

That includes Tesla’s approach to production and rollout. Its strategy more closely resembles that of the consume
volume model and move to lower prices and higher volume as technology improves and manufacturing e›cienci

Tesla’s Roadster 2.5, an upgrade of the Roadster it launched in 2008, carried a starting price tag of $101,500. The
scheduled for June, can be had for $49,900 after a $7,500 tax credit.

According to Holmberg, that approach has more in common with apple’s strategy in launching the iPad than with
volume and large-scale production.

“The whole product, design, development, manufacturing, and rollout strategy was not an automobile vehicle man
computer tech and consumer electronic strategy, and that’s part of where alliances become a critical strategic fac

Ally-Driven Enhancements

Tesla has served itself well, Holmberg said, by creating a strategic portfolio of alliances that helped it overcome th
entrepreneurs. Faced with insu›cient capital, knowledge gaps, or a need for product components, often a compa
the missing pieces.

“There are all kinds of alliances in the traditional auto industry today, but I think there are more compelling reason
“It’s an amazing opportunity to leverage and get resources that, frankly, are almost impossible to initially develop

As an example, he pointed to Vizio, maker of high-de•nition TVs and other consumer electronics. The company la
with Costco to sell Vizio products; two years later, Vizio signed a similar deal with Sam’s Club. Just three years afte
distribution channels in the country.

“That’s what put them on the map to be successful,” Holmberg said.

The growth didn’t stop there, by the way: in 2006 and 2007, Vizio signed on with Circuit City, Sears, BJ’s, Kmart, an

Tesla’s alliances include suppliers, research and development experts, and original equipment manufacturers, or­tesla­used­strategic­alliances­to­power­green­products/ 3/6
5/11/2017 How Tesla Utilized Strategic Alliances – Kogod Now

Supplier alliances are crucial to entrepreneurs using new technologies, and they can take a variety of forms. Tesla
with the French company Sotira, which manufactures the cars’ carbon •ber bodies, to an equity alliance with Pana
battery pack.

Holmberg pointed out that even as it partnered with other companies, Tesla protected its core technology by ass
in California. Companies that fail to create alliances wisely can put proprietary innovations at risk.

Tesla also has created R&D partnerships. The Dana Holding Corporation, for example, helped it overcome a techn
control heat buildup in the cars’ batteries.

In some cases, Tesla has served as the OEM for other companies, providing battery packs and chargers for Daiml
bene•ts were both •nancial—according to Holmberg, Daimler gave Tesla a reported $50 million for a 10 percent

“The Daimler alliance represented an endorsement by a premier automotive manufacturer that further enhanced
competencies, technologies, and ability to deliver results,” Holmberg wrote.

Although alliances are critical for early-stage entrepreneurs, Holmberg emphasized that they also have a role to p
companies survive the “valley of death” that strikes many middle-stage companies, when they have gained some t
a company survives that phase, alliances can help it grow.

One of Tesla’s most signi•cant alliances is with Toyota. In a series of deals, Tesla agreed to help Toyota create a pl
the electric powertrain for the RaV4. In turn, Toyota has helped Tesla source parts and provided production and e
Toyota alliance also enabled Tesla to secure its manufacturing facility, Holmberg noted.

He described Tesla’s alliance with Toyota as a perfect example of a partnership that can push the company forwa
this stage of Tesla. They couldn’t have done it early on. It wouldn’t have been appropriate, and Tesla didn’t have th
Aim High

Entrepreneurs whose alliances work tend to do two things correctly, Holmberg said. The •rst is to think strategica
alliances. They ask two questions: What are the critical success factors for my entrepreneurial venture? What are
factors? The second is to choose partners carefully, performing due diligence to ensure that con…icts in culture, re
to implode.

“It’s not an uncommon strategy, but it is one that’s fraught with a lot of problems, and a high proportion of allianc
equal, but Holmberg believes that Tesla has •gured them out. When it comes to going head-to-head, or network-
prove itself to be the scrappy new kid on the block who wins the day.

“Emerging Green-Technology Entrepreneurs: Entrepreneurial Pathways to Growth in the Hybrid and Plug-In Hybrid/Elect
International Council for Small Business World Conference in Sweden.

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