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Tesla Case Study

Chapter · November 2020

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Mario Glowik
Hochschule für Wirtschaft und Recht Berlin
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 Professor Dr. Mario Glowik February 2020

One-page summary of the case study titled: Disruptive technologies applied

in the automotive industry. The case of Tesla (Inc.)
Forthcoming: Glowik, M. (2020). Market entry strategies. Internationalization theories,
concepts and cases (third edition). Berlin and Munich: De Gruyter Oldenbourg

Electric cars consist of less components than conventional cars, which helps Tesla entering
the automotive industry through advanced vertical integration. Why? The software of the car
is mainly developed in-house at Tesla. The battery, which serves as the most valuable
component in an electric car, is manufactured together with Tesla’s joint venture partner
Panasonic. In parallel, Tesla offers car charging equipment, with or without solar panels, for
private house owners. The client can configure and order its individual car model via Tesla’s
web page. The payment of the new car is possible through credit card. Customers are allowed
to return its individual, newly purchased car for a full refund within seven days or 1,000 miles
of the car usage. Whereas conventional car makers generate considerable part of their profits
through maintenance service, owners of a Tesla electric car do not need to regularly show up
their cars at the garage for maintenance, oil and break changes etc. Software updates of a
Tesla car are made “over the air” (from a distance). Car accidents in the past should not be
ignored but, today Tesla is ahead of the automotive industry in terms of autonomous driving.

Major challenges (as typical because of the “disruptive technology” and “industry newcomer”
status) for Tesla are related to limited experience curve effects, efficient car manufacturing,
and low economies of scale because of the relatively small number of cars manufactured by
Tesla so far (with limited models/ vehicle platforms) compared to market incumbents. Critics
target marginal quality and rather low efficiency and productivity of Tesla’s car
manufacturing activities in recent years. Whereas the lifetime and the maintenance cost of
Tesla electric vehicles (e.g. no exhaust systems, no engine oil, much lesser break wear etc.)
obviously are superior to conventional cars, some customers still complain poorly fitting trim
and car body gap mass as well as glass and paint quality issues. Consequently, Tesla
generated losses at the beginning of its operations, while at the same time, collecting
considerable subsidies (as for example as it was the case for its Giga-factory in Nevada).
However, the more cars are produced by Tesla, the higher the variety of models offered (using
the same vehicle platform) the better prerequisites for generating economies of scale as well
as for improving the quality and, thus, generating profits.

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