Saturday, September 7, 2019
Tesla in Automotive industry Strategy project Essay Example for Free
Tesla in Automotive industry Strategy project Essay 1. Introduction The Encyclopaedia Brittanica defined the automotive industry as all the companies and activities involved in the manufacturing of motor vehicles, including most components, such as bodies and engines; but excluding tires, batteries and fuel1. The automotive industry started with the production of what is widely considered to be the first ever automobile, the Benz Patent-Motorwagen in 1886. Although the first car was originally manufactured in Germany, in the many decades to come, the United States led the world in total automobile production until the start of the 21st century, when China took the top position. Today, China produces nearly 20 million units per year, almost double the amount of the United States. It is one of the worldÃ¢â¬â¢s most important sectors when measured by revenue and it is a business that is still growing significantly. Last year for example, over 87 million automobiles were produced worldwide, a 3. 6% increase compared to the year before and a 43. 82% increase compared to 20032. Needless to say, the automotive industry is big business and it is very probable there are business opportunities that are yet to be exploited. Tesla Motors is an American car manufacturer that tried to exploit such a business opportunity. ItÃ¢â¬â¢s an American company that designs and manufactures electric vehicles and electric car components3. Founded in 2003, TeslaÃ¢â¬â¢s goal was to lessen the worldÃ¢â¬â¢s dependence on petroleum-based transportation and drive down the cost of electric vehicles. Moreover, TeslaÃ¢â¬â¢s aim is to prove that electric vehicles can be awesome as well4. This might not sound particularly unique, but Tesla Motors does have a very distinct strategy in the sense that it wants to enter the automotive market by first focusing on high-end luxury cars and sports cars. Later, when TeslaÃ¢â¬â¢s products and consumers acceptance have matured, they would move into the market for the middle-class consumer, which is larger but also significantly more competitive5. The idea is to establish a strong brand name at first, which will aid the company in a later stage when the decision is made to start producing lower-priced automobiles. TeslaÃ¢â¬â¢s first 1 http://global. britannica. com/EBchecked/topic/45050/automotive-industry 2 http://www. oic a. net/category/production-statistics/ 3 http://www. te slamotors. com/ 4 http://www. teslamotors. com/about 5 http://www. greenc arreports. com/news/1022275_msnbc-calls-ev-drivers-lunatic-fringe 3 model, the Roadster, had a base price of approximately $100. 0006. Their second car, Model S, is priced at $63. 750 including a $7. 500 tax credit. The company now has plans to launch a $30,000 small SUV the Tesla Model X 7. Eventually, Tesla wants to become a mass producer of electric vehicles and service both upper- and middle-class customers8 This discussion aims to analyze TeslaÃ¢â¬â¢s strategy. It is clear that Tesla has a very differentiated strategy and we will want to determine whether or not Tesla is likely to succeed in achieving its goals and become a successful enterprise. Firstly, we will take closer look at the Ã¢â¬ËenvironmentalÃ¢â¬â¢ automotive industry using PorterÃ¢â¬â¢s theory. Secondly, we need to closely look at TeslaÃ¢â¬â¢s strategy. How will Tesla try to win a respectable share of the market? As mentioned before, Tesla is a very young company and it will inevitably face fierce competition from incumbent firms. A clear plan to establish a foothold in such a market will be essential for the firmÃ¢â¬â¢s survival. The next step is to see if Tesla identified all relevant factors and industry forces, and if it has defined a strategy that takes all of these elements into account. It will surely need to attain a unique strategy if it wants to position itself in a key position in the market. What is it exactly that differentiates Tesla from other car manufacturers and in what way could this be beneficial for the firm? Does their strategy have a high chance of success? How can Tesla create a network of electric chargers? Before evaluating TeslaÃ¢â¬â¢s strategy, we must first clearly take a closer look at the company Tesla Motors itself and define the market in which the company is active. Even though they are currently operating in a smaller niche market (mid to high-end luxury cars), the plan is to eventually address the middle-class consumer and enter the Ã¢â¬ËstandardÃ¢â¬â¢ automobile market. This will inevitably complicate our discussion but it is essential for determining the chance of success. The paper includes a discussion on the high entry barriers that are typically associated in the automotive industry and the possible presence of strategic entry barriers raised by incumbent firms to reduce the likelihood of new entrants. We will also mention any other strategies adopted by firms in the automotive industry who want to improve their competitive position. Furthermore, the extent to which the industry is concentrated will be discussed, as well as the possible presence of strategic complements and substitutes. Moreover, Tesla will also need to take the non-market environment into consideration. Typical for the automotive sector is that it is an industry with very strict safety regulations. Tesla of course will also 6 http://jalopnik. com/5135290/tesla-increases-prices-on-already-ordered-roadsters 7 http://onpoint. wbur. org/2009/09/25/teslas-elon-musk-on-a-sub-30000-electric-car 8 http://www. marketwatch. com/ story/strategic-corporate-profile-of-tesla-motors-global-operations-2014-01-13 4 have to face the challenge of producing vehicles that respect these requirements. On top of that, the relatively recent discovery of global warming, partially caused by car emission (CO2), has led to the implementation of a series of emission standards that aim to reduce the greenhouse gasses emitted by petroleum-powered vehicles. This may not seem relevant for Tesla Motors at first since its goal is to produce electric vehicles. These regulations are however accompanied with a credit system, which means that car manufacturers that do not meet the standard are penalized and have to buy credits from other manufacturers that have a surplus of credits9. Since Tesla Motors only produces emissions-free vehicles, it has a major surplus of credits which it can sell to other car manufacturers. General Motors for example has to buy additional credits from Tesla in order to respect the regulation. This implies large transfers of wealth across car manufacturers. As a result, companies selling cars with a (too) high emission must raise prices to pay for the credits. On the other hand, the beneficiaries of these wealth transfers such as Tesla can now use the extra revenue to lower prices and take on a more competitive position in the market. All of this will of course be discussed more thoroughly in our discussion below. The paper concludes with a summary of the discussion and our prognosis regarding the future success of Tesla Motors in the automotive industry. 2. Market definition This paper only looks at models available in the US because itÃ¢â¬â¢s the largest electric car market, the EU is the second largest market but is much more complex because EU-countries have different legislation for electric cars. Some countries have large subsidies for electric cars and thus large market shares such as Norway, on the other hand some countries have almost no market share. The Model S is the only available model at the moment targeting the middle to high-end luxury car market. This model costs between 63. 750$(base model, 7500$ tax credit) and 125. 220 $(full option, 7500$ tax credit). 10 Because the model S is all electric, we can compare the car to slighter cheaper models because of lower long term ownership cost thanks to lower cost for electricity compared to fuel. The base model is a full-size 5 adult seat sedan powered by a fully electric 60 kW-h motor achieving 302hp. Top speed is relatively low at around 200km/h but acceleration is very good at 5. 9 seconds to 100 km/h, this is typical for an electric engine. More expensive models offer better range and performance and a warranty with unlimited kilometers on the battery for 8 years compared to 200. 000km for 8 years on the base model. 9 http://mitsloanexperts. mit. edu/californias-auto-emissions-policy-hits-a-tesla-pothole/ 10 Teslamotors. com 5 We will consider the mid to high-end luxury market containing one electric the Tesla, a couple of hybrids and a lot of traditional cars. Mid-end starts at prices of approximately 50. 000 $ with cars such as the BMW 5-serie, Audi A6 and Mercedes E-class. 11 High end stops at prices above 130. 000$. For the following analyses we will sometimes look at broader markets containing cheaper alternatives because even though these cars arenÃ¢â¬â¢t substitutes they are still relevant. Research show that tesla owners were most likely to previously own a Toyota prius hybrid or secondly luxury BMW and Mercedes. 12 3. Industry attractiveness and profitability In this section the overall attractiveness of the Ã¢â¬ËenvironmentalÃ¢â¬â¢ automotive industry is assessed using PorterÃ¢â¬â¢s influential five forces model. The term environmental indicates those vehicles that do not solely rely on the combustion of fossil fuels to power their engine. Examples are electric vehicles, hybrid vehicles or plug-in hybrid electric vehicles (PHEVs). Both the pure electric automotive industry as well as the overarching environmental automotive industry is presented, as these cannot always be seen separately. In his model, Michael Porter identifies five key competitive forces that determine the structure and profitability of a certain industry. The five forces are the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, the threat of entry and the rivalry among existing competitors. PorterÃ¢â¬â¢s model enables managers, in an easy and straightforward way, to understand their industry environment and to shape their firmÃ¢â¬â¢s strategy accordingly. As a rule of thumb, the stronger the five forces, the lower the industryÃ¢â¬â¢s profit potential and hence the industryÃ¢â¬â¢s attractiveness to competitors. The most influential forces that have shaped and continue to shape the environmental automotive industry are discussed in the following paragraphs. A first restraint on the overall profitability of a firm is the bargaining power of its suppliers. For the environmental automotive industry the bargaining power varies among the suppliers of different components. An important component in the construction of hybrid and electric vehicles is the battery. The bargaining power of the battery companies is low as there are a lot of manufacturers present on the market. Tesla Motors, for instance, buys Li-ion cells from different manufacturers. Consequently, in the case any problems occur with a particular battery supplier, Tesla can easily switch or threaten to switch to other suppliers at low costs. Among others, Tesla works together with Daimler AG and Panasonic to develop battery packs and chargers (Boyke, Cheng, Clevers, Schroeder, Strupp, 2010). Another important component of any vehicle is the chassis. For the construction of the chassis 11 http://buyersguide. caranddriver. com 12 h%p://www. wired. com/2014/03/tesla-model-s-toyota-prius/ 6 specialized engineering skills are required. These skills can often be obtained through strategic partnerships with other car manufacturing companies. In the case of such strategic interdependence the bargaining power of the suppliers is higher than in the Ã¢â¬Ëtake-it-or-leave-itÃ¢â¬â¢ battery case. In the past Tesla had an exclusive partnership with Lotus for the physical construction of the Roadster13. As of recently Tesla and Toyota Motor Corporation also agreed to cooperate on the development of electric vehicles, parts, the production system and engineering support14. In conclusion, however, the overall bargaining power of suppliers in the automotive industry is low. The supplier firms must contend with substitute products for sale to the industry. Tesla has more than 150 suppliers around the world, which provide over 2000 parts to Tesla. For the production of the Model S, Tesla uses a highly integrated manufacturing approach, even negotiating with suppliers to manufacture products on site to use the excess capacity. In this way, the integrated approach enables Tesla to alleviate its dependence on supplier performance (Boyke, Cheng, Clevers, Schroeder, Strupp, 2010). A second force that determines the profitability in an industry is the bargaining power of buyers. The bargaining power of buyers concerns the pressure buyers can put on the margins of producers by demanding a lower price or a higher product quality. In the environmental automotive industry the bargaining power of buyers is rather low. For Tesla in particular this is even more so. For starters, Tesla does not sell products in bulk. This means that for the consumers that purchase the finished products no real scale effects are present. Moreover, Tesla has a quite unique position on the market. Tesla is the only manufacturer on the US market that produces high-end, full electric cars that can drive autonomously for over 400 km. By employing a highly skilled, technocratic labour force and management team, Tesla has branded itself as a cutting-edge, innovative firm. They manufacture high quality electric vehicles that are very performing while being environmental-friendly and fun at the same time. The buyers of the Model S also have the possibility to entirely customize the vehicle to their taste. This creates a sense of exclusivity among the clients. Besides the B2C applications Tesla has also established a strong position in the B2B environment 15. Tesla for example licenses its patented processes and technologies to other companies. Especially in the area of battery technology 13 http://www. teslamotors. com/blog/lotus-position 14 http://www.teslamotors. com/about/press/releases/tesla-motors-and-toyota-motor-corporation- intend-work-jointly-ev-development-tm 15 http://www. slideshare. net/joseangeldf/darden-school-of-business-tesla-strategic-analysis 7 and the construction of Ã¢â¬ËsuperchargingÃ¢â¬â¢ stations Tesla has a lot of expertise16. The proper licensing of these assets will benefit the entire environmental automotive industry as a whole. An especially important force in the electric automotive industry is the threat of substitutes from outside the given industry. Hybrid vehicles and more specifically PHEV provide a similar functionality as the full electric vehicles. Those manufacturers within these strongly related industries, which produce vehicles and services with an attractive price and performance, pose a serious threat to the established electric car manufacturers. For the Model S the most important substitutes are those mid to high-end hybrids. These vehicles offer low emissions and a good fuel economy at a similar price as the Model S. The most successful alternatives within the US automotive industry are discussed in the next chapter. In the specific price range of the Model S the threat of substitutes is still limited as Tesla is gradually positioning itself as a high-value, exclusive and environmental brand with a growing number of enthusiasts17. Nonetheless, a possible future expansion into the mid-end and low- end market segment will significantly increase the threat of substitutes. There are, however, some complementing factors that might reduce the threat of substitutes both for Tesla as well as the electric automotive industry in a whole. The scope for future development in battery technology, the presence of several tax and parking incentives for electric vehicles and the expected rise in oil prices in comparison to electricity prices might spur the attractiveness of the electric automotive industry. These market dynamics both play on the level of customers as well as producers. One possible negative factor in the realisation of potential sales is the low availability of charging and home charging facilities. However, Tesla Motors is addressing this issue by investing heavily in strategically located charging facilities and by expanding the power and endurance of the battery pack 18. TeslaÃ¢â¬â¢ s battery pack technology is critical to the companyÃ¢â¬â¢ s positioning and competitive differentiation. The low cost of the battery pack allows Tesla to not only design cars with battery ranges greater than the competition but also place equal emphasis on design, performance, and energy efficiency. On the short term, the threat of new entrants in the electric US market is rather limited because of several entry barriers. The industry is characterised by high capital requirements and high sunk costs. 16 http://www. sl ate. com/articles/technolog y/technolog y/2013/05/tesla_model_s_the_electric_car_compa ny_is_a_little_bit_apple_a_little_bit. html 17 http://www. wikiwealth. com/five-forces:tesla-motors, http://www. teslamotors.com/blog-and-press- releases. 18 http://www. slideshare. net/joseangeldf/darden-school-of-business-tesla-strategic-analysis, http://www. reuters. com/article/2014/02/26/us-tesla-battery-panasonic-idUSBREA1O1MF20140226, http://www. t eslamotors. com/supercharger 8 Moreover, advanced, often patented, technologies and processes as well as a highly skilled workforce are required to successfully manufacture an electric car. The success of a firm in the industry is also largely determined by its brand image and the realisation of economies of scale19. Therefore, it is not easy for a potential new entrant to establish a foothold. This is even enhanced by the fact that the incumbent firms have a large and flexible production capacity that can be used as a retaliation device in case of entry (Boyke, Cheng, Clevers, Schroeder, Strupp, 2010). However, established vehicle manufacturers with deep pockets that have currently missed the Ã¢â¬Ëenvironmental trainÃ¢â¬â¢ or disruptive innovators like Tesla Motors might overcome these entry barriers in the long run. The current competition in the US environmental automotive industry is moderate. Only a few major brands are competing. Because of the high entry barriers and the threat of substitutes not a lot of brands risk burning cash in an innovative and insecure business. However, as the sector matures and more people consider switching to an electric car this will change. In a recent report of the Electric Vehicles Initiative (EVI) a global goal of 20 million electric passenger cars, including plug-in hybrid vehicles, battery electric vehicles (BEVs) and fuel cell electric vehicles, in stock by 2020 is set forward. This is still a long way to go as the total worldwide electric vehicle stock at the end of 2012 only amounted to a large 180. 000 units. In 2012, 38. 585 PHEVs and 14. 592 BEVs were sold in the US. The cumulative stock in the US in 2012 was 71. 174 units (Clean Energy Ministerial, Electric Vehicles Initiative, International Energy Agency, 2013). In 2013 roughly 96. 000 electric vehicles were sold in the US environmental automotive industry(including hybrids)20. The three top selling brands are the Chevrolet Volt, the Nissan Leaf and the Tesla Model S. It is clear that the popularity of electric vehicles has significantly increased over the last few years. It is expected that this trend will only continue in the future as the number of models on the market increases. The share of electric cars is still only about 3,5% of the total number of cars that are sold annually in the US market21. Hence, the growth potential of the environmental automotive industry is huge, this both on a domestic as well as an international level. In conclusion of this section an assessment is made of the overall profitability of the environmental automotive industry. As previously argued, the bargaining power of suppliers and buyers is rather limited in the industry. Therefore, the vehicle manufacturers can attract more profits than their up- and downstream partners. The industry is also characterised by several entry barriers, especially on the 19 http://www. wikiwealth. com/five-forces:tesla-motors 20 http://www. greencarreports. com/news/1089443_plug-in-electric-car-sales-for-2013-almost-double- last-years 21 http://electricdrive. org/index. php? ht=d/sp/i/20952/pid/20952 9 short term. The effective prevention of possible entrants reduces the pressure on prices and allows incumbent firms to attract a significant share of the profits. The threat of substitutes is one of the most important restrictors on the profitability within the industry. Because of the similarity in functions between electric brands and hybrid brands it is important for the incumbent firms to create a positive consumer image towards their products. The growth potential of EVs is the most important driver of future profitability of the industry. Until now incumbent firms have undertaken a lot of RD initiatives in the area of battery and charging technologies. The sales numbers in the US market show that these investments are finally starting to pay-off. In the long run, with a growing global popularity of EVs, it is to be expected that also other companies will consider entering the environmental automotive industry. 4. Tesla in the market Tesla differentiates itself by producing environmental responsible cars that have all the benefits of a luxury vehicle. By equally emphasizing on speed, handling, design, comfort, and zero-emissions, Tesla creates a unique balance between performance, efficiency and aesthetics. Through the offering of this first fully electric luxury sedan car, Tesla attained a first mover advantage. Together with its Ã¢â¬ËSilicon ValleyÃ¢â¬â¢ culture, an approach that is innovative, competitive, and effective, Tesla achieved a solid brand name in the automotive market. (Mangram, 2012) TeslaÃ¢â¬â¢s battery technology is also critical to the companyÃ¢â¬â¢s competitive advantage. With its cutting-edge battery technology, combined with essential technology research, Tesla is able to design and produce electric cars with a far greater range than its competitors. Its lithium-ion based battery, for instance, is 250 kilograms lighter compared and has a range of up to 500 kilometers. Bron ? vergeleken met wat ? But even with a supercharger a full charge is approximately one hour. Moreover the company produces many of its key parts in-house, thus making it harder for competitors to replicate. With the expansion of its own retail shops and the establishment of a network of free recharging points for its customers, Tesla keeps challenging the traditional car companies (The Economist, 2013). TeslaÃ¢â¬â¢s main strategy can be seen as a reflection of the innovative marketing approach Apple used for its ingenious technology. It holds that any new technology is often very expensive and wealthy customers are regularly the first to accept it. Consequently, Tesla produced its first vehicle, the Roadster, for the premium sports car consumer segment. Nowadays, with the production of the Model S Sedan, the middle to upper- middle class consumers are being targeted. Finally, by 2015 Tesla plans to produce and market an electric car available at a mass-market consumer price range (Tesla Motors, 10 2014). Although this Ã¢â¬ËApple ComputerÃ¢â¬â¢s business modelÃ¢â¬â¢ is considered to be rather exceptional in the automobile industry it helped the company to position itself as groundbreaking, self-determining, and cool. Tesla BMW Daimler AG General Motors Toyota Revenue 2 billion 60 billion 117 billion 155 billion 22 trillion Net Income -74 000 2 billion 6,4 billion 5,35 billion 962 billion Sales Growth 387% 7,2 % 3,22 % 2,08 % 18,73 % The luxury car market is highly competitive, with several incumbent companies with loyal customers. TeslaÃ¢â¬â¢s main competitors in the luxury car segment are BMW, General Motors, Toyota and Mercedes. While the number of any competitive electric car is still low, an increase can be expected. General MotorÃ¢â¬â¢s Chevrolet Volt is one of the main competing vehicles in the market. It covers a wide target market and comes at a notable lower price than TeslaÃ¢â¬â¢s Model S. Toyota remains the global leader when it comes to selling hybrids. Although Toyota has 4 electric cars (the Prius, the RAV4 EV, the FCHV fuel cell car, and the Scio IQ-EV), it strategically collaborates with Tesla to improve the electric car development. This alliance has been one of the main factors of TeslaÃ¢â¬â¢s growth as Tesla consumers can get customer service in Toyota sites (Toyota Motor Corporation, 2014). The chart compares TeslaÃ¢â¬â¢s main competitors on the basis of revenue, net income and sales growth. As we can see, its sales growth is overwhelming. Given that is a rather new company, it indicates its rapid expansion on the electric car market. However, TeslaÃ¢â¬â¢s net income remains negative. Nonetheless, the companyÃ¢â¬â¢s share is currently being traded at 20 times its earning, and as the company continues to grow these numbers are expected to rise. According to an article by Wall Street, 43 new hybrid, electric, and fuel-cell vehicles will be produced in the US market by 2015. Moreover, the market share of alternative fuel cars will increase from 3% in 2012 to almost 5% in 2014 (Wall Street, 2013). New electric vehicle entrants and existing plug-in hybrids manufactures will continue to compete with Tesla in the near future. While the traditional car manufactures are firmly entrenched, TeslaÃ¢â¬â¢s competitive advantages could develop to the securing of a significant market share in the electric car market. 5. Sustainability of the competitive advantage. This chapter analyses the degree of sustainability of TeslaÃ¢â¬â¢s competitive advantage. First the relevant trends and developments in the automotive industry are briefly reviewed. Furthermore, the 11 predominant isolating mechanisms in force given the market position of Tesla are discussed. We argue Tesla is a textbook example of a disruptive technology. To conclude, strategy recommendations hereupon are formulated. The primordial focus of our analysis shifts in this chapter from the luxury car market to the overarching automotive industry. The rational hereof is clear-cut. On the one hand, the trend analysis for the automotive industry applies to and sufficiently covers the luxury car segment. On the other hand, Tesla continuously voices the strategy to level down through the segments. Furthermore, the majority of car manufacturers produce for multiple segments of the industry. The sustainability of TeslaÃ¢â¬â¢s competitive advantage thus strongly depends on the industry rather than the Model S market segment. 1. 1 Trends in the automotive industry The automotive industry is, may be argued, rather conservative. The market structure is little dynamic, without change in market leading firms for long. Furthermore, the industry evolved the past century merely through optimising the traditional Ã¢â¬ËautomobileÃ¢â¬â¢, with limited major breakthroughs. To illustrate, though fuel efficiency and exhaust of the combustion engine has greatly improved, working principles remain unchanged. The emergence of (electrical) alternatives that are sold commercially is only a recent phenomenon. We review three developments that will impact the automotive industry. First, the society-wide surge of environmentalism a fortiori impacts the automotive industry. A thickening body of government actions forces car manufacturers to produce cleaner cars. This both directly, through legislation (e.g. CO2 output limits for new cars), or indirectly by altering consumer behaviour through excises or tax incentives. Furthermore, consumers are increasingly environmentally conscious. Bottom-line, car sales undeniably grow more eco-friendly. Furthermore, the panoply of driver assisting technology that brakes automatically for obstacles or parks the car will be further developed. Self-driving cars may be short-term everyday reality, with Google pulling the cart. Lastly, Gen Y is argued to focus on services rather than ownership. The emergence and success of car sharing by Zipcar or Cambio illustrates this shift in mentality for the automotive industry. 1. 2 The isolating mechanisms The electric car is strongly based on the century old inventions of Serbian engineer Nikola Tesla. We nevertheless argue that the electric car is a text book disruptive technology. This technology, spearheaded by Tesla, will herewith potentially overturn the automotive industry, challenging the 12 incumbents. The early-mover advantage in this creative destruction may enable Tesla to sustain its competitive advantage. The disruptive technology concept is extensively reviewed in the of literature. We apply the framework to the Tesla case. First, the environmental movement and increasing fuel prices created momentum for alternatives of the traditional combustion engine. Both incumbent car manufacturers and many start-ups invested in research. The hydrogen car made the press as a promising technology, but proved little feasible. Eventually the electric car showed market-viable. Many innovators inter alia Fisker, failed. However, as statistics dictate tech start-up Tesla got ahead in the race at the expense of dominant car manufacturers. The 2400 Tesla Roadsters produced, sales manifestly unattractive Ã toincumbents, were a great success and learning opportunity for the start-up. The Tesla Model S unprecedented battery range no longer forces consumers to trade off fuel efficiency for convenience. Herewith it can shift from niche product for wealthy eco-hipsters to head on competition for the traditional luxury sedan. The Model S proves superior to its competition threefold. First, the position of the battery pack lowers the gravity centre of the car for superior handling (and creates a spacious trunk in the back and front). The electric engine also delivers instant torque, further allowing sporty driving. Furthermore, the Model S was granted a record safety score of 5,4 out of 5. Lastly, electric engines are maintenance free. Note that the electric car still offers greater potential for technological progress than the more tried and tested combustion engine. The incumbent firms are wary of this potential shift to electric for the automotive industry, note the growing number of electric cars offered. However, extensively studied, the difference in investment dynamics with nimble start-ups impedes them to appropriately and successfully commit to the disruptive technology. The sunk cost and replacement effect are strong in this case. Therefore, it is Tesla that has a head start, with Daimler and Toyota asking the new kid on the block for help. The early-mover advantage of Tesla will sustain its competitive advantage threefold. First, we consider the economies of the learning curve. The first car manufacturer to fully grasp the paradigm shift Tesla benefits hereby manifold. The design-from-scratch approach is inevitable to exploit the electric car technology to the full. The Model S is a thus a step ahead of the build-on competitors, quickly adding to TeslaÃ¢â¬â¢s experience with every unit sold. Furthermore, the superior battery packs are en route to continue to offer greater range and faster charging at a lower unit cost. Note that Tesla supplies its electric powertrain to Toyota and Daimler, further adding to its cumulative experience. Moreover, the strong experience gained is further protected from imitation through multiple patents. The literature further arguments the reputation for quality to be an important source of early-mover advantage for experience goods. Thus, the brand image of an electric car brand may be considered important, notwithstanding the ubiquitous possibilities for test drives. Tesla has a rock solid reputation 13 for quality, though much like Apple it has irrational haters22. To illustrate, the Tesla recall threat due to 3 car fires was resolved by an overnight software update that would slightly raise the Model S when driving on the highway. The Tesla stock price had a field day23. Furthermore, the Model S production cannot keep up with sales. Herewith, Tesla doesnÃ¢â¬â¢t spend a dollar on marketing. Thirdly, Tesla benefits from network effects to sustain its competitive advantage. Tesla heavily invests in the supercharger network, that quickly expanding adds to the convenience of driving an electric car station by station. For competitors it is meanwhile.