Abstract

The entry and growth of Tesla Motors has produced enormous change in the
automotive industry. What lessons can alternative energy start-ups learn
when considering entry into an established industry? Reviewing the innovation
management literature, we examine the emergence of Tesla Motors and
analyse its commercialization of electric vehicles through an in-depth case-
study. Drawing on both primary and secondary data we construct a
performance trajectory depicting Tesla's entry into the automotive market and
demonstrate that Tesla Motors has not followed a disruptive innovation
strategy. Instead, Tesla's commercialization strategy is explained through the
lens of Architectural Innovation and the Attacker's Advantage. Implications are
provided for new entrants.
Introduction
Climate change is widely recognised as a serious and growing challenge
facing society (Li et al., 2019). A major contributor to climate change is
automotive vehicle emissions (Batur et al., 2019). Existing automotive
technologies generate several noxious emissions which can lead to changes
in the environment around us. A solution to this problem can be the rapid
adoption of alternative energy technologies such as batteries and fuel cells by
automotive manufacturers (Peters et al., 2017; Ma et al., 2012). However, the
incumbent automotive industry has significant sunk costs in existing
technologies such as internal combustion engines, and has limited incentives
to change. For example, GM who designed and manufactured the EV1
abandoned their commercialization efforts (Baer, 2014; Black, 2009). Neither
is the environment welcoming to technology start-ups who have to challenge
entrenched industry incumbents. If we look at the history of the automotive
industry in North America (the leading market for passenger vehicles), hardly
any start-ups have survived in this highly competitive market place over the
past century (Baer, 2014). Thus, it is very unusual to note the emergence and
growth of Tesla Motors, an alternative energy start-up which has grown into a
significant manufacturer of battery electric vehicles in North America.

Tesla Motors recently became the most valuable automotive manufacturer in

North America by market capitalization (Lambert, 2017). Though this
achievement has been dismissed as an overreaction by the market, investors
and its own CEO, Elon Musk, the fact remains that Tesla Motors has become
a major player in the automotive industry, and is now the pre-eminent battery
electric vehicle manufacturer in the world. In this paper we conduct an in-
depth case study, drawing on company documents, government data, publicly
available interviews and presentations of both the founders and the top
management of Tesla Motors, to identify strategies followed by this
technology start-up to achieve successful market entry into one of the most
competitive automotive markets in the world. Corroborating evidence was
provided during a subsequent intervew with Tesla's founder-CEO Martin
Eberhard. Drawing on relevant innovation management frameworks to
analyze this case study evidence, we develop recommendations for
alternative energy start-ups in the automotive industry.

Worldwide motor vehicle production is over 90 million vehicles per year, with
half of that production stemming from the top 6 incumbent firms (OICA, 2016).
The most recently founded of those top incumbent firms was Nissan, founded
in 1967, whereas GM and Ford have over a century of experience in
automotive manufacturing. Such industry concentration has led the
incumbents to be complacent and resistant to change, despite policymaker
pressure to reduce carbon emissions and the opportunity provided by
alternative energy technologies (Hall and Kerr, 2003; Van den Hoed, 2007;
Dijk and Yarime, 2010; Ahmadi and Kjeang, 2015). Strong barriers to entry
such as design capabilities, manufacturing facilities, and distribution networks,
have deterred new entrants (Porter, 1980; Helfat and Lieberman, 2002).
However, with Tesla Motors demonstrating that battery electric vehicles can
look stylish, provide acceptable range, and boast sports car rates of
acceleration, more and more car buyers are moving towards purchasing their
first electric car. With nearly 400,000 pre-orders for the Tesla Model 3, the
mainstream market is broadly accepting an electric vehicle for the first time
(Lambert, 2016).

Technology management scholars, along with new entrants into the

automotive sector, are keen to learn lessons from the commercialization
strategy of Tesla Motors. Some authors have argued that Tesla Motors has
followed a disruptive strategy (Hardman et al., 2013, 2015), and thus
Christensen's advice on disruptive innovation strategy should be followed by
other prospective entrants. In this paper, we focus on the following research
questions: Is Tesla Motors disruptive? How has Tesla Motors been able to
enter a highly contested market dominated by well-entrenched incumbents?
What market entry and innovation management lessons can new entrants
learn from Tesla Motors' successful foray into the mainstream automotive
market?

This paper is organized as follows: first, the relevant innovation management

literature is reviewed. Next, a case study of the founding, product
development and growth of Tesla Motors is presented. Tesla Motors'
commercialization strategy is then analyzed through the lens of disruptive
innovation and, subsequently through a broader innovation management lens,
drawing on the relevant strategies of architectural innovation and the
attacker's advantage. We discuss our findings in the context of the literature,
and draw implications for new entrants. We recommend that alternative
energy ventures disadvantage well-entrenched incumbents by choosing
product and distribution strategies which confront them with architectural
innovation and by creating a novel value proposition which supports an
attacker's advantage.

Section snippets
Literature review
How should start-ups entering established markets launch products in the
face of competition by well-entrenched incumbents? The innovation
management literature has generally cautioned start-ups to avoid direct
confrontation with incumbents who have design, manufacturing, distribution
and regulatory advantages (Teece, 1986; Porter, 1980; Christensen, 1997;
Gans and Stern, 2003; Maine, 2008). Many management scholars seek to
identify the contingent factors which most greatly impact successful

Research methods
The unusual success of Tesla Motors in commercializing electric vehicles
offers a unique opportunity to examine a technology start-up which has been
able to establish a significant foothold in the highly competitive automotive
industry. Case studies are particularly well-suited to develop an understanding
of such evolving phenomena in emerging industries (Eisenhardt, 1989), and
are particularly appropriate in addressing “how” and “why” questions (Yin,
2016), such as our main research question

Case study evidence

Although Tesla was founded in 2003, the electric vehicles they developed
trace their roots back nearly three decades to the GM Impact concept car
(Fig. 3), and included development from two previous start-ups. Fig. 3
highlights the origins of the technology which formed the basis of the Tesla
Roadster and also shows how Tesla was able to move forward with their own
technology development in the early years. Alan Cocconi, an automotive
engineer prominent in the development of the GM Impact

Analysis
Innovation management frameworks are useful when they guide strategy,
giving firms, regions or nations better chances for value creation and capture.
Disruptive Innovation is a useful framework to do just that, enabling new
entrants to enjoy better odds of survival and success (Christensen et al.,
2015; Hang et al., 2015). However, it is clear that the term is misused and
 vastly overused (Christensen et al., 2015). This is more than a problem of
semantics, as the recommendations of an

Conclusions
Tesla Motors' successful entry into the notoriously entrenched automotive
industry, repeated successful product launches, growth to a market
capitalization of over US$50 billion, and redefinition of the electric vehicle
market is inspiring to many. Management scholars, engineering scholars and
entrepreneurs want to understand how to emulate Tesla Motors'
commercialization strategy. In this paper, we carefully analyse the
commercialization strategy of Tesla Motors in the context of competing

Acknowledgements
The authors would like to thank the editor and the reviewers for their
constructive comments which helped improve the manuscript. This work was
supported by the Simon Fraser University (Canada) Community Trust
Endowment Fund [Grant number 31–788040].

References (69)
 R. Van den Hoed
Sources of radical technological innovation: the emergence of fuel cell
technology in the automotive industry

J. Clean. Prod.
(2007)
 J. Utterback et al.
A dynamic model of process and product innovation

Omega
(1975)
 Yi Ruan et al.
Government's role in disruptive innovation and industry emergence:
the case of the electric bike in China

Technovation
(2014)
 Z. Rezvani et al.
 Advances in consumer electric vehicle adoption research: a review
and research agenda

Transport. Res. Part D

(2015)
 N.S. Pearre et al.
Electric Vehicles: how much range is required for a day's driving?

Transport. Res. Part C

(2011)
 A. Mayyas et al.
Using quality function deployment and analytical hierarchy process
for material selection of body-in-white

Mater. Des.
(2011)
 M. Marx et al.
Strategic switchbacks: dynamic commercialization strategies for
technology entrepreneurs

Res. Pol.
(2015)
 H. Ma et al.
A new comparison between the life cycle greenhouse gas emissions of
battery electric vehicles and internal combustion vehicles

Energy Policy
(2012)
 L. Li et al.
Adapting climate change challenge: a new vulnerability assessment
framework from the global perspective

J. Clean. Prod.
(2019)
 M.G. Jacobides et al.
Benefiting from innovation: value creation, value appropriation and
the role of industry architectures

Res. Pol.
(2006)