Who should be afraid of Tesla?

Espen Andersen

How can technology influence strategy and help create new business models? In this video Associate Professor Espen Andersen uses Tesla Motors P90D and Jaguar XF to make an example.


Hello, my name is Espen Andersen, and I teach technology and strategy at BI Norwegian Business School.

When we are trying to understand technology and technology competition, it's very easy to focus on the technology alone. But you also have to look at how the technology is organised and offered, the business model and the future strategy of the company. These things are connected.

We are going to illustrate this today by showing two kinds of technology and explain how they differ – in how they are put together, in the business models of the companies behind them and the future strategy.

These two technologies are electric cars versus traditional gas-burning cars. We have a Tesla Model S. It's a P90D – a very big and strong car. We have a similar car from Jaguar, an XF. Both are very nice cars and they look quite the same. They're not that different, but when we start to look at the technology, the differences are really dramatic.

If we pop the hood on the Tesla, you'll see that most of what is in there is a luggage compartment. This is a four-wheel drive car, so it has one engine behind the torpedo wall. It has a similar, slightly bigger engine in the back between the rear wheels. It's electric, so there's no gearbox. It's connected to a battery, which is the floor in the car. There are a few physical technologies down here as well. There's the Steering Assist, air conditioner, Brake Assist and there's the control for the air suspension. That's about all - The rest if software.

If we look at the more traditional car, the gas-powered car, you'll see that the situation is rather different. Here it is brimming with technology. It has a large and powerful engine, a cooling system in the front, exhaust pipes that pull the exhaust out. There is a gas tank hidden behind the back seat and lots of other supporting systems for the driveline.

The complexity in the Jaguar is in the product itself and the physicality of the car. In the Tesla, the complexity is mostly in the software. This enables two different business models.

If I'm buying myself a Tesla, I will buy it from Tesla in the United States, in principle. The people servicing it where I live, will be people working for Tesla. It's one, closed business model.

For the Jaguar or most traditional cars, I will buy the car from a local dealer, who has bought it from an importer, who has bought it from the company producing the car.

Very different business models and very different in how they treat their customers, updates, repairs and so on. A traditional car is more of a product and a Tesla (or any electric car), is more of a service.

If you step further back and look at the future strategy of traditional car companies versus Tesla, Tesla is very focused on creating self-driving cars. Tesla is a small company. 50,000 cars were produced last year. Toyota produced 8 million cars last year and Ford produced 2.6 million.

The traditional car producers, like Toyota or Ford, do they have reason to be afraid of Tesla?

Well, if we moved to a situation with only self-driving cars, we can probably reduce the number of cars necessary by about 70 percent.

For a small company like Tesla, a world with 70 percent less cars is a great opportunity. For a traditional car company, a future with 70 percent less cars, even though the cars drive much more, is not a good business opportunity.

Differences in technology architecture begets differences in business models and differences in future strategies. They are interconnected and you cannot see them in isolation.

On that bombshell, thank you very much.

Published 4. July 2016

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