Teslas Approach to Innovation Few companies have attracted as much scorn and adoration as Tesla. When Tesla launches a product like the Cybertruck, the reception tends to be divisive: critics see it as further evidence that founder Elon Musk is out of touch and doomed to fail, while supporters buy in within a month Tesla received 200,000 preorders for the new vehicle. Compare that to the Ford-150, the worlds best-selling car in 2018, which sold just over 1 million vehicles that year. Disagreements aside, there is no question that the company has shifted the auto industry toward electric vehicles and achieved consistently growing revenues (passing $20 billion in 2019). At the start of 2020, Tesla was the highest performing automaker in terms of total return, sales growth and longterm shareholder value. Surely, there is a method to what seems like madness to so many.As technology and innovation scholars, weve studied how innovators commercialize new technologies and weve interviewed Elon Musk, his co-founder J.B. Straubel, and other important members of the team. What weve found is that beneath the turbulent surface, Teslas innovation strategy which focuses on transforming the auto industry as a whole offers enduring lessons for any innovator, especially in terms of how to win support for an idea and how to bring new technologies to market. To understand Teslas strategy, one must first separate its two primary pillars: headline-grabbing moves like launching the Cybertruck or the Roadster 2.0 (which the company claims will accelerate faster than any production car ever made) and the big bets it is making on its core vehicles, the models S, X, 3, and Y. These efforts aim to achieve different things winning the resources to commercialize vs. actually commercializing the idea but they come together to achieve a central goal: bring a new innovation to market. Lets start with the first part of the strategy. In our view, efforts like the Cybertruck arent really about making money; they are about getting attention and proving that Tesla is one of the worlds most innovative companies, specifically for the purpose of building Teslas ability to win support from stakeholders what we call innovation capital. In our work reviewingacademic research, interviewing over 100 innovators, and conducting both quantitative and qualitative analysis of innovative companies, weve explored how innovators build up their innovation capital. Innovation capital consists of four factors: Who you are (innovation-specific human capital) your capacity for forward thinking, creative problem-solving, and persuasion Who you know (innovation-specific social capital) your social connections with people who have valuable resources for innovation What youve done (innovation-specific reputation capital) your track record and reputation for innovation The things you do to generate attention and credibility for yourself and your ideas (what we call impression amplifiers). Politicians with political capital can get others to join them inpursuing their objectives; in a similar fashion, business leaders with innovation capital can attract the resources needed for innovation to flourish. Based on our case study of Tesla, weve observed that Elon Musk is a master of building and using innovation capital to win support for his ideas. Not only does he leverage his past success at Paypal and Space X to win support for future projects, he also uses what we call impression amplifiers to get stakeholders on board. For example, when Musk stands on stage and reveals the Cybertruck, he doesnt just talk about the new idea, he materializes it, putting it into physical form to convince skeptics (he also did this when he parked a Space X rocket in front of the National Air and Space Museum). He also broadcasts the idea through big media launches like the demo for the Cybertruck, which gets third parties talking about the company and generating buzz. Similarly, when Musk tweets to his 29 million followers that a Roadster will include ~10 small rocket thrusters, he probably isnt serious when he says that Maybe they will even allow a Tesla to fly. But he is creating a positive impression for Tesla by leveraging another impression amplifier: comparing, or drawing a connection between his innovation and some other successful one. This comparison creates an impression between the technical superiority of a Tesla and rocket science, literally. These techniques aim to build Musk and Teslas innovation capital so they can continue to win support from investors, customers, and employees to keep Tesla operating. What about the other part of Teslas strategy: the existing vehicles the model S, 3, X and Y which form the core products and require the most investment? These big bets aim to transform an industry, and they require paying attention not just to the product, but to the entire product ecosystem. What makes this part of the strategy truly unique is not just that Tesla produces electric vehicles, but that it introduced a new hardware and software architecture (the way you put the car together). For example, a Tesla has more software than the average vehicle and it is integrated around a single central software architecture. Although most gas-powered cars have software too, they typically have less software and operate on a different architecture making it more challenging to imitate Teslas ability to update software and optimize vehicle performance.Teslas hardware architecture a flat pack of batteries at the base, two electric engines (front and rear), no transmission, etc. also gives it an advantage over competing electric vehicles built on traditional vehicle architectures, such as a lower center of gravity, greater energy density, and more efficient battery management. This means that pound-for-pound, Tesla tends to beat out competitors who try to leverage parts of the old internal combustion vehicle architecture, for example, by putting batteries in the trunk rather than in a flat pack at the bottom. On the surface, building a new architecture may seem an easy strategy to imitate, but prior research shows it can be very difficult: it can take time and effort for incumbents since it often requires abandoning old ways of doing things and developing new capabilities. In the words of a senior auto executive I interviewed, Its just hard for us because historically we have been great mechanical engineers, not great software engineers. But we need to become software engineers.

Question 1 (10 Marks) Explain your views on Teslas Future strategy?

Question 2 (10 Marks) What is innovation capital, explain four factors necessary in innovation capital?