Tesla: Analysis of Smart, Connected Products
Tesla is in the forefront of information technology applied to motor vehicles. From traditional mechanical parts that run the machine to the latest microprocessors that enable Internet of Things, Tesla has it all. IoT enabled products pushes the boundaries of traditional products and create a new market segment, and Tesla has achieved the same. Tesla is heavily involved in the third wave of IT driven competition. Features like Autopilot, vehicle summon, remote access and control and the latest feature to integrate with home products has differentiated the company. With new entrants in the market, rising costs and changing consumer preference, many problems have arisen for the industry. This article looks into the works of Tesla in leading the industry in the era of smart connected products, the problems faced by the firm, alternatives available and recommendations to overcome some of the problems.
Analysis of Smart, Connected Products
Tesla Motors, now known as Tesla, was founded by two Americans, Martin Eberhard and Marc Tarpenning in 2003. Production of electric sports cars are their primary purpose; this can be still seen today as they have recorded 0-60 miles per hour in less than 3 seconds. In 2003-2004 Elon Musk invested in the company and joined the company as its chairman. Since then, Tesla has become a leading company in the electric vehicle market and currently holds a 2.08% share in the US automobile market. When it is generally considered as a leader in the electronic automobiles, Tesla has launched the Model S sedan and the Model X crossover from Tesla are definitely the most successful ones. (“Tesla Motors”, 2018)
Problem 1: Competition from Traditional Automakers
While more affordable than the Roadster, which mainly targeted the majority market, the Model S was still priced at the mid- to high-end of the luxury market. Tesla had a newly developed and highly differentiated business model. (“Tesla Motors”, 2018)They focused on electric vehicles and developed most of its parts internally, as opposed to most competitors who outsourced the parts. Also, while traditional automakers achieved on benefit from much greater scales, and benefited from brand recognition, larger distribution networks and access to financial resources, they were also overburdened with colossal costs associated with pensions and other post-employment benefits. Tesla is not facing much competition from competing with traditional automakers. At the current state. For now, the share of Tesla is not going to be a threat with larger vehicles industry because electric sales account for only 1% in total industry. But there may be a rat race in the future.
Problem 2: Starting Revolute “Smart Component”
According to the Boudette’s article published in the New York Times, this September, Tesla’s Autopilot driver-assistance system had been out of control on a Model 3. This accident killed the driver who were driving the Model 3 in Florida. (Boudette, 2019) Tesla specifically created Autopilot for its electric vehicles as its internal operation system. It cannot be controlled by driver itself but can activate the brakes system.
This accident shows that there is an immature product design and disconnected system integration within the whole vehicles. According to Porter and Heppelmann (2014), a successful “smart, connected product” should include smart components: physical components, “smart” components, and connectivity components. “smart” components contain their own embedded operating system, here is Autopilot. So Tesla needs to reevaluate its remote monitoring system, the smart components, that connects with each Autopilot ensembled in the vehicle.
Problem 3: Expensive Battery Technology
One of Tesla’s the challenges of Tesla is the electric vehicle market was "range anxiety," or a fear that an electric vehicle had limited drivable miles and would confuse its customers. The high prices of batteries also contributed to why the electric vehicles were initially limited being initially introduced to be offered as premium vehicles with sport and technology sophistication or as small city cars. (“Tesla Motors”, 2019)Tesla company needs to develop the breakthrough battery technology and extensive public charging networks to help solve this concern. Thus, Tesla’s strategy responds in tried to address these requirements in two aspects: first, management explored to develop a vehicle with extraordinary performance; second, Tesla built a network of fast charging along key routes in North America.
Many other evidences and corresponding symptoms show that Tesla is losing its leading position dramatically increased pressure of competition in the electric vehicle industry in 2019.
Why Strategic Alternatives
According to Porter and Heppelmann (2014), Companies would face 10 possible strategic alternatives if they are likely to survive in the competition of smart, connected products. Tesla is an integration of a technology company, a hardware provider as well as an automobile producer. Our choices are uniquely selected based on the company’s situation and problem statement. The list of strategic alternatives is able to specify its industry positioning.
List of Choices
Reinforce network security and sensor security. In the process of building systems and utilizing data, Smart, connected products are in need of strong network security and sensor security (Porter Heppelmann, 2014). The company is required to focus on its monitoring system sensitivity, reliability and stability.
Authorize product data access and handle data rights. The company should make plans about how to secure and manage data access (Porter Heppelmann, 2014). Also, the company should decide the features of data that it intends to use and analyze.
Select enabling technologies carefully for embeddability. When designing its product, the company will define the scope of functionality. The enabling software of each functionality is embedded in the product. There are two delivery methods: product itself or product cloud. The embeddability can decrease the risk by minimizing the dependent relationship between network and data (Porter Heppelmann, 2014).
Incorporate infotainment system and latest streaming technology. The company can upgrade its smart, connect products by integrating new technology that has already been developed in other platforms (Tesla, 2019).
Improve the physical network. The company can launch a software to control and manage its product autonomously in physical network. With neural network learning, the autonomous feature is improved through layers and iterations (Tesla, 2019).
Enter new businesses. The company is able to fully utilize extensive data that is gathered from its smart, connected products (Porter Heppelmann, 2014). Also, it may detect extra data beyond its own demand for smart, connected product. Consequently, the data will help generate new or associated businesses.
Integrate product design from beginning to end. The company should develop the friendly platform that fully links the products and data. The design of products needs to be coherent. The company could enhance the development of internal functionalities (Porter Heppelmann, 2014).
Evaluation of Each Alternatives
Let’s take a deeper look into the alternatives provided so as to get a better understanding of the functionality of the industry.
Reinforce network security and sensor security. As and as smart connected products grow, connectivity between the software grow. With each application creating sets of valuable data which is shared internally among other applications and externally with the manufacturers. These enormous amount of performance and evaluation data holds tons of information hidden in them just waiting to be tapped and is a big source for new entrants and other rivals to make their product better. Also it contains sensitive data about the customer, like where they go, what they do etc. So, it is extremely valuable that they deploy proper security measures so that they don't lose it to hackers or other third party manufacturers.
Authorize product data access and handle data rights. When it comes to data it is a very slippery slope. Data produced by the car on its performance and other metric essentially belongs to the customer rather than the manufacturer, but it’s important for them to get those data in order to learn and then improve from it. But people don’t feel safe sharing their personal information with a third person party. But there are several ways in which they generally use in order to get the access to ownership. Example, NDA agreements or specially tailored agreements between the customers and the manufacturer are some of the basic ways to pivot getting access to data. Another example would be a feature through which customers could share their data but not their location, thus limiting the amount of information shared.
Select enabling technologies carefully for embeddability. While considering embeddability in softwares and among software a few points should be specially taken care of response time, automation, network availability, reliability and security, location of use. these key factors basically define whether a technology should be embedded into the software or the cloud. Example, Tesla is working on automated vehicles and one of the main jobs of it will be to successfully prevent accidents, thus software like braking mechanism and other features which require a quick response time should be embedded into the software, while services like GPS which require regular updates should be embedded into the clouds.
Enter new business. With smart connected devices and cutting edge technology, companies find that the data that they gathered can be applied to entities beside traditional customers. Companies may also discover that they can capture additional data, beyond what they need to optimize product value, that is valuable to other entities. In either case, this may lead to new services or even new businesses.
Data about the performance of a product’s components, for example, could be valuable to suppliers of those components. Data about driving conditions or delays gathered by a fleet of vehicles could be valu- able to other drivers, to the operators of logistical systems, or to road repair crews. Data about driving characteristics could be valuable to fleet operators or insurance companies. Thus giving them viable alternatives to make profit from the data that they have gathered.
Integrate product design from beginning to end. Different softwares and components should be internally connected so that they are performing at the optimum level. connected devices share data and information with each other which helps in making better decision internally and gives room for new viable options that weren’t possible in the past. Tesla’s interconnectivity of different applications boosts performance and help improve the overall metrics.
Also, when it comes to designing things which give TESLA a cutting edge over its rivals shouldn’t be outsourced as these are the key success factors, while things which are generic and are gonna be public in the near future should only be outsourced so that they can maintain that strategic position that they have.
Improve the physical network. With each component collecting and storing its own data its important that we utilise the full potential of it. data which are collected should be put to train itself using different techniques so that they can improve their performance or at the very minimum find the root cause of the problem and be able to suggest a corrective course of action. For example, the engine inside a Tesla gathers its own data, that data can be collected and used to evaluate the performance of the engine in different scenarios and finally improve it.
- Typically, car manufacturing companies obtain the required parts and components from other companies. These companies operate with a supply chain of their own, and this hierarchy of suppliers lead to high costs for parts. Furthermore, assembling of these parts itself amounts to a large cost as it requires expert labor. However, Tesla produced these parts internally rather than using suppliers. Almost 85% components are manufactured in Tesla’s facilities itself, which removes the risk and cost associated with the supply chain. However, according to Tesla employees, a lot of these parts turn out to be defective and require high costs to rework and repair. Production of high volume of defective parts leads to inability to hit production targets. One Tesla engineer said that about 40% of parts at Tesla’s Fremont factory need repair work. (Kolodny Lora, 2018). This led to Model 3 factory crisis which Elon Musk called “production hell” because of part shortages and long delays in repair. Hence it is important to address the matter of supply chain in the advent of the third wave of IT where smart connected devices are bestowed with immense responsibilities that many a times malfunction in absence of human monitoring, in addition bring heavy costs to the company’s financial statements.
- Tesla’s direct sales method and eliminates third-party dealerships for the sales of their vehicles (Trefis Team, Forbes 2016). Having their own chain of showrooms can help Tesla gain a competitive advantage over other brands. And rather than relying on standard EV Charging Stations for recharging car batteries, Tesla has expanded their own Supercharger stations across the US which are more compatible with their car batteries. Superchargers can charge a Tesla to 50% in about 20 minutes (Tesla, 2018), whereas a standard charging station would take around 7 hours to reach the same level. However, Constructing Superchargers around a country which can accommodate all vehicles in the vicinity can be very challenging for Tesla. This would require heavy infrastructure investments and extensive strategic location planning. Further, this is followed by a Catch-22 situation where the sales of cars are dependent on the presence of supercharging stations, and the construction of supercharging station only makes sense when sales of cars are substantial. For this matter, Tesla must reevaluate their charging station business model
- Another problem is that even though Tesla makes 80% of the 5300 parts of the car internally, Tesla doesn’t make their own batteries as it requires costly investment in technology and manufacturing. As a result, they need to acquire batteries from external sources, which sell at a very high price of $200 per kWh. The smallest battery pack of Tesla, 50kwh, costs $10,000. This is 35% of the cost of the entire car priced at $35,000. (Singh Sarwant, Forbes 2018) Thus, the cost of batteries is a big concern for Tesla. To mitigate this, Tesla has designed Gigafactory 1 in Nevada in a partnership with Panasonic to produce lithium-ion batteries, but finding a cheaper technology remains a problem. This situation leads to the question of whether or not Tesla should develop all capabilities internally, or outsource the infrastructure to vendors. The choice will evolve with time, as this is a matter of technology improvement. According to employees, Tesla has built a dedicated lab to address this battery constraint. However, Tesla must focus on investing heavily in research aimed at developing cheaper and better batteries, and creating such research programs within Universities would be a great idea to build a vast knowledge base addressing a common problem that appears to be a divide in the coming wave of technology development.
- Unlike most car manufacturing companies, Tesla has based their production lines in the USA itself, rather than locating them in areas with cheaper labor such as Asia and Africa. This is another additional cost that Tesla has to face as the USA has strong regulations for minimum wages, which are much higher than that in China, India, etc. In 2018, Tesla reached a deal to build an EV factory in China (Kirsten Korosec, 2018), however it has suffered from trade tensions between the USA and China (Eric Rosenbaum, CNBC 2018). Therefore, Tesla must consider building their factories in other countries to cut labor and production costs.
- Security and privacy risks are always a concern when Smart connected device are a matter of discussion. These products create new ways of incorporating data, which need improved network security, encryption of information from sensors and devices, It is crucial to anticipate threats that can breach the security systems and be a risk to the data of thousands of customers. Extensive cybersecurity measures must be put in place to mitigate the risk of unauthorized gateways in the network architecture. Supplier and partner security protocols must be reviewed as well.
Tesla is powered by Internet of things, and is achieved niche in the market to provide customers with tailored services and respond in real time for any unforeseen circumstances. Technologies used have been improving by learning from past mistakes and tesla is making sure to implement them. Sensors placed in the nook and corner of engines have the capacity to identify the alert with precision and in some cases predict the possibility of an error, more and more companies are following suit, including GE in its aviation market. GE has rolled out products with state of the art IoT enabled engines. Armed with data, companies have modified their business model, improved customer satisfaction and product quality.