Session 6: Innovation

london.edu
 Choice is a pearl of great price
Inspiration from existential philosophy

“A choice! Do you, my listener, know how to express in a

single word anything more magnificent? Do you realize,
even if you were to discuss year in and year out how you
could mention nothing more awesome than a choice,
what it is to have choice!
A choice! Yes, this is the pearl of great price, yet it is not
intended to be buried and hidden away. It is a good thing
that you can never be rid of it. It remains with you, and if
you do not use it, it becomes a curse.”

Soren Kierkegaard
(extracted from “Either/Or”)

london.edu 2
 Today’s agenda

• Course recap

• Management practices

• Tesla Case

• Innovation framework

• Takeaways

london.edu 3
 Today’s agenda

• Course recap

• Management practices

• Tesla Case

• Innovation framework

• Takeaways

london.edu 4
 How this course can help YOU

Strategy as choice under uncertainty

Choices in business?

Hard if unaided

No shortcuts
A conceptual map to structure and guide
strategic choices

london.edu 5
 A map for the course
Concepts for
Objectives Sources Frameworks / Tools
diagnosis and choice
Industry
attractiveness
Industry structure S2 5 Forces

8% yes
Focus on Strategic S3 - Generic strategies
Uniqueness? Positioning - Value curves
no

Profits Origin? Focus on no Business S4

new tech? Who-What-How
S1 model

no Management
yes
Productivity S6 practices
Competitive Focus on
Objective
advantage interactions? Innovation S6 Innovation map
of the firm
36% yes
Nash S7 Classic game
Focus on no equilibirium theory tools
changing
the game? yes - PARTS
Co-opetition S7
- Value-net

- Governance Corporate
Corporate
- Resources
S8 scope S8 - Discriminating
parent advantage alignment
14% - Expansion
Corporate structure S9 criterion
Luck and other
42% Social dilemma S10 Collective action
Social Externalities no
impact internalized? Materiality maps
london.edu Materiality S10
yes
Seek profit 6
 Concepts and strategic choices
Source of Concept Strategic choice
profitability
Industry Industry structure How to protect against the profit eroding forces of the industry?
attractiveness How to change the industry structure?
Which industry to enter/exit?
Competitive Strategic positioning Which position to adopt in the market? Low cost or high benefit?
advantage Is it possible to generate a dual advantage?
Business model Who is our customer?
What is our value proposition?
How are we going to deliver the value proposition? Which activities are we going to carry out?
How are we going to execute and organize them?
Productivity Are we excellent in our management practices?
Innovation Which type of innovation(s) are we going to pursue?
How can we make innovation consistent with the firm strategy?
Competitive How can we outmanoeuvre our competitors?
interactions How can we strategize to capture more value?
Co-opetition How can we change the game the industry is playing?
How can we cooperate with other players (suppliers, customers, competitors, complementors)
in order to create more value?
Corporate parent Corporate scope Which business portfolio?
advantage How horizontally diversified should be corporation be?
How vertically integrated should the corporation be?
Corporate structure How to organize the corporation?
How to allocate decision rights and responsibility?
How to foster collaboration?
Resources What are the resources that we are going to leverage across businesses?
Which resources are leveraged using a synergy logic and which a redeployment logic?
How can we realize the potential synergies?
Governance How are we going to govern specific expansion of the scope?
Using “integration”, “M&As”, “alliances & JVs”, or “Contracts/Market”?
london.edu 7
 A map for the course
Concepts for
Objectives Sources Frameworks / Tools
diagnosis and choice
Industry
attractiveness
Industry structure S2 5 Forces

8% yes
Focus on Strategic S3 - Generic strategies
Uniqueness? Positioning - Value curves
no

Profits Origin? Focus on no Business S4

new tech? Who-What-How
S1 model

no Management
yes
Productivity S6 practices
Competitive Focus on
Objective
advantage interactions? Innovation S6 Innovation map
of the firm
36% yes
Nash S7 Classic game
Focus on no equilibirium theory tools
changing
the game? yes - PARTS
Co-opetition S7
- Value-net

- Governance Corporate
Corporate
- Resources
S8 scope S8 - Discriminating
parent advantage alignment
14% - Expansion
Corporate structure S9 criterion
Luck and other
42% Social dilemma S10 Collective action
Social Externalities no
impact internalized? Materiality S10 Materiality maps
london.edu
yes
Seek profit 8
 A map for the course

Focus on yes Strategic

Uniqueness? Positioning
no
Business
model
Focus on no
new tech?
no
Productivity
yes

Competitive Focus on
advantage interactions?
Innovation

yes

no Competitive
interactions
Focus on
changing
the game?
Co-opetition
yes

london.edu
9
 Today’s agenda

• Course recap

• Management practices

• Tesla Case

• Innovation framework

• Takeaways

london.edu 10
 Management matters
Measuring management practices

• A group of researchers at LSE, HBS and Stanford, in collaboration

Mckinsey, set out to systematically measure the quality of
management practices.1
• Sophisticated open-ended survey conducted by MBA students (~30 m)
• Challenge: Practices that are thought to be “universally good”
• 18 practices in 4 areas were measured using a 1 to 5 scale:
• Performance management (4)
• Tracking, Review, Dialogue, Consequence
• Target setting (5)
• Breadth, Alignment, Horizon, Stretch, Clarity/Communication
• Talent management (6)
• Emphasis, Systematic assessment and reward, Dealing with under/high
performers, Attracting top talent, Retaining top talent
• Modern manufacturing techniques (3)
• Lean, Process documentation, Continuous improvement
• More than ~40,000 manufacturing plants across the globe
• Also, schools, universities and hospitals have been surveyed.

london.edu 1 The research can be accessed at: https://worldmanagementsurvey.org

11
 Management matters
Try the survey yourself

• Self-reflection exercise
• Take 5 minutes to fill out a survey about the management practices
of you last firm/organization in which you worked
• The file can be accessed here:
https://learning.london.edu/files/2125496/download?download_frd=1

• Then, go to mentimeter, type 29 49 396 and enter the average

score you got

london.edu 12
 Management matters
Try the survey yourself
Stream A Stream B

Stream C Stream C
(Not available)

Stream E
Stream F

london.edu 13
 Management matters
Results of the survey around the world

Australia Brazil Canada China

1
.5
0

France Germany Great Britain Greece

1
.5
Density
0

India Ireland Italy Japan

1
.5
0

Poland Portugal Sweden US

1
.5
0

london.edu 14
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
14
management
 Management matters
Results of the survey around the world

london.edu 15
 Management matters
The differences in management practices are persistent
TE plant = Diagnosis + implementation intervention CE plant = No intervention., sister plant of TE
CE plant = Diagnosis intervention CN plant = No intervention, sister plant of CE

london.edu Source: Bloom, N., Mahajan, A., McKenzie, D., & Roberts, J. (2020). Do management interventions last? 16
evidence from India. American Economic Journal: Applied Economics, 12(2), 198-219
 Management matters
Impact on performance

• How much does it matter?

• ~25% of variance in performance within industries

is explained by management practices
• % of total variance = 25% x 36% = 9% (similar to industry)

• ~20% of cross-country TFP is explained by

management practices
• More than IT, education, R&D and other classical drivers
of TFP

london.edu 17
 Drivers of management practices
Discussion

What drives these persistent differences in

the quality of management practices?

How can firms change / implement / adopt

these management practices?

london.edu 18
 Drivers of management practices
Impact on performance

What determines these persistent differences in the quality of

management practices?
Some determinants identified by the research:
• Environment
• Pro-business environment
• Competition
• Education
• Spillovers
• Firm characteristic
• Ownership: Family v/s non-Family firms
• Multinational status
• Size
• Awareness (“Don’t know better”)
• Relationships and culture (“Know better, but hard to implement”)
london.edu 19
 Today’s agenda

• Course recap

• Management practices

• Tesla Case
Entry Competitive advantage Today & Future

• Innovation framework

• Takeaways

london.edu 20
 Today’s agenda

• Course recap

• Management practices

• Tesla Case
Entry Competitive advantage Today & Future

• Innovation framework

• Takeaways

london.edu 21
 Elon Musk

Free to pursue his

dreams!

Elon Musk, born 1971

Sold 1999: $300m

Sold 2002: $1.5bn

london.edu 22
 The U.S. car industry

Bringing the dream down to earth?

Is this a good place to try to enter and make money?

london.edu 23
 Your discussion questions

• What is your assessment of Tesla’s entry strategy?

What barriers had to be overcome?

• At the time of the case, and compared to major luxury

car makers such as BMW, is Tesla at a competitive
advantage or disadvantage? How might that change
over time?

london.edu 24
 Tesla’s entry strategy
From barriers to business model innovation

• Barriers to entry, Tesla’s solution, and resulting BM

london.edu 25
 Tesla’s entry strategy
From barriers to business model innovation

• Barriers to entry, Tesla’s solution, and resulting BM

Barriers Tesla’s solution Who-What-How
Range anxiety.** High-end customers WHO

Acceptance / resale.** High-end customers WHO

(Musk’s guarantee)
Brand / Marketing. 4 billions in marketing. High-end customers WHO
Brand value of incumbents huge. High end sports car WHAT
Speed/comfort, no emissions
Design. 4 to 5 years, 1 to 6 billions, hundreds Cheaper and faster (0.5 B / 3 y) HOW
of engineers. Know-how. In house, Talent from SV and ind.
Plant, equipment. 1 to 2 billion Opportunistic buy HOW

Distribution. Access to exclusive dealers. In house (sell direct, no P4P) HOW

Service network. (tied to dealers) In house & Indep. of sales. Remote HOW
(software updates)
Supplier network. Thousands of suppliers In house HOW

Manufacturing.** IC: Manufacturing not Assembly: Lotus  In-house y HOW

easy. Know-how. Many interacting parts. Multiple In-house production of parts
versions. EV: Battery tech, IC (but less) Existing battery tech (In-House)
Charging stations.** Supercharger stations, swaps HOW

london.edu ** barriers specific to EV 26

 Technology and business model

• Puzzle: Model S, first car for Tesla but HUGE success

(cheaper/faster design, awards)… how can this be?
• A big part is the relative SIMPLICITY of the technology
• What is the impact of EV being a simpler technology?
• For Tesla? At the root of many of its BM choices
• For the industry? More entry/imitation and competition

london.edu 27
 What about Nissan Leaf?
They seem to be a formidable threat to the master plan

• What about the Nissan Leaf?

• They can benefit from simplicity and adapt their BM…
• Can they? Yes/no? Why?

london.edu 28
 What about Nissan Leaf?
From barriers to business model innovation

• Barriers to entry, Tesla’s solution, and resulting BM

Barriers Tesla’s solution Who-What-How Leaf?
Range anxiety.** High-end customers WHO
Mid priced car
Acceptance / resale.** High-end customers WHO
(Musk’s guarantee) Mass market
Could have they done
Brand / Marketing. 4 billions in marketing. High-end customers WHO differently?
Brand value of incumbents huge. High end sports car WHAT
Speed/comfort, no emissions
Design. 4 to 5 years, 1 to 6 billions, hundreds Cheaper and faster (0.5 B / 3 y) HOW Constrained by
of engineers. Know-how. In house, Talent from SV and ind. current BM
Plant, equipment. 1 to 2 billion Opportunistic buy HOW
For example:
Distribution. Access to exclusive dealers. In house (sell direct, no P4P) HOW
- Only in 2013 in a
Service network. (tied to dealers) In house & Indep. of sales. Remote HOW modified plant (but
(software updates) shared)
Supplier network. Thousands of suppliers In house HOW - Outside talent
- Trad. Dealers
Manufacturing.** IC: Manufacturing not Assembly: Lotus  In-house y HOW - Battery
easy. Know-how. Many interacting parts. Multiple In-house production of parts - Dashboard
versions. EV: Battery tech, IC (but less) Existing battery tech (In-House)
Charging stations.** Supercharger stations, swaps HOW

london.edu ** barriers specific to EV 29

 What about Nissan Leaf?

• Comparison with LEAF

Number of cars sold per year
600,000

500,000

400,000

300,000

200,000

100,000

-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tesla Tesla - Model 3 Nissan Leaf

london.edu 30
 Car industry analysis

• Tata nano example

london.edu 31
 Lessons from the case

Technological innovation needs strategy to succeed!

 Technological innovation requires careful

attention to business model choices Learning
Scale
Patenting
Disruption dynamics
Top-down v/s bottom-up

london.edu 32
 Today’s agenda

• Course recap

• Management practices

• Tesla Case
Entry Competitive advantage Today & Future

• Innovation framework

• Takeaways

london.edu 33
 Your discussion questions

• What is your assessment of Tesla’s entry strategy?

What barriers had to be overcome?

• At the time of the case, and compared to major

luxury car makers such as BMW, is Tesla at a
competitive advantage or disadvantage? How
might that change over time?

london.edu 34
 Competitive (dis)advantage of Tesla
What you think after reading the case

• Preparation quiz:
“At the time of the case (2013), Tesla had a strong
competitive advantage against major luxury car makers
such as BMW”

Strongly Agree 6%
Agree 47 %
Neither Agree or Disagree 17 %
Disagree 26 %
Strongly Disagree 2%

london.edu 35
 Competitive (dis)advantage of Tesla
Analysis of financial statements of Tesla and BMW

Tesla H1 2013 BMW 2012 Tesla BMW

Revenues 966,931 57,293 100% 100%

Car sales and powertrains 847,531 88%
Regulatory/ZEV credits 119,400 12%

Cost of revenues (770,128) (40,377) -80% -70%

Gross profit 196,803 16,916 20% 30%

R&D (107,171) (3,993) -11% -7%

SG&A (107,008) (6,369) -11% -11%
(214,179) (10,362) -22% -18%

Operating profit/(loss) (17,376) 6,554 -2% 12%

Do these numbers tell the full story?

london.edu Note: Tesla US $ ‘000; BMW Euros m 36

Source: Case exhibits 12 and 14
 Competitive (dis)advantage of Tesla
The role of subsidies

london.edu 37
 Competitive (dis)advantage of Tesla
Financial results without subsidies

Tesla H1 2013 BMW 2012 Tesla BMW

Revenues 847,531 57,293 100% 100%

Car sales and powertrains 847,531 100%
Regulatory/ZEV credits - 0%

Cost of revenues (770,128) (40,377) -91% -70%

Gross profit 77,403 16,916 9% 30%

R&D (107,171) (3,993) -13% -7%

SG&A (107,008) (6,369) -13% -11%
(214,179) (10,362) -25% -18%

Operating profit/(loss) (136,776) 6,554 -16% 12%

london.edu Note: Tesla US $ ‘000; BMW Euros m 38

Source: Case exhibits 12 and 14
 Competitive (dis)advantage of Tesla
Not looking very well in H1 2013…

Tesla appears to be at a significant

cost disadvantage to BMW

Is that the end of the story?

london.edu 39
 Competitive (dis)advantage of Tesla
What do you think could happen in 2014, 2015…?

• Preparation quiz:
“In the short run (after 2013), the competitive advantage
(disadvantage) of Tesla will improve (will be reduced)”

Strongly Agree 5%
Agree 62 %
Neither Agree or Disagree 16 %
Disagree 16 %
Strongly Disagree 0%

london.edu 40
 Competitive (dis)advantage of Tesla
There are two important dynamics at play

$/unit

Cumulative experience
Scale
london.edu 41
 Competitive (dis)advantage of Tesla
Tesla probably is not at capacity

What would happen if Tesla doubles its size in terms of

economies of scale?

Tesla H1-13 BMW 12

• Using these numbers, discuss
Revenues 100 100
Car sales and powertrains 100
with your neighbour (or in the
Regulatory/ZEV credits 0 breakout room, if zoomie) how
would you incorporate into
Cost of revenues -91 -70 Tesla P&L:
Gross profit 9 30
i) economies of scale (for 2X
R&D -13 -7 – doubling in size)
SG&A -13 -11 Hint: look at exhibit 1
-25 -18
ii) learning curves (2X and
Operating profit/(loss) -16 12
4X)
Hint: use a learning curve

london.edu 42
 Competitive (dis)advantage of Tesla
Tesla probably is not at capacity

What would happen if Tesla doubles its size in terms of

economies of scale?
Exhibit 1. Cost structure IC
Tesla H1-13 BMW 12
Production
Material and parts 50
Revenues 100 100
Mfg & assembly cost 10
Car sales and powertrains 100
Regulatory/ZEV credits 0 Production overhead
Maintenance & ops 8
Cost of revenues -91 -70 R&D 7
Depreciation & amort 5
Gross profit 9 30 Warranty 2
General and admin 2
R&D -13 -7 Transport 2
SG&A -13 -11 Mktg & sales 5
-25 -18 Net profit & tax 4
Dealer gross margin 5
Operating profit/(loss) -16 12
Price 100

london.edu 43
 Competitive (dis)advantage of Tesla
Tesla probably is not at capacity

What would happen if Tesla doubles its size in terms of

economies of scale?

Tesla H1-13 BMW 12 Tesla 2X

Revenues 100 100 200 / 200 x 100

Car sales and powertrains 100
Regulatory/ZEV credits 0

(-91 x 0.25 + -91 x 0.75 x 2) / 200 x 100 =

Cost of revenues -91 -70
-159/200 x 100 = -80 11

Gross profit 9 30 20

(-13 x 0.80 + -13 x 0.20 x 2) / 200 x 100 =

R&D -13 -7
-15.6/200 x 100 = -8 5
SG&A -13 -11 Same as R&D 5
-25 -18 -16

Operating profit/(loss) -16 12 4 21

london.edu 44
 Competitive (dis)advantage of Tesla
The impact of experience

What would be the impact of 2X and 4X volume in terms of learning

and other benefits of experience?

Tesla H1-13 BMW 12

Revenues 100 100

Car sales and powertrains 100
Regulatory/ZEV credits 0

Cost of revenues -91 -70

Gross profit 9 30

R&D -13 -7
SG&A -13 -11
-25 -18

Operating profit/(loss) -16 12

london.edu 45
 Competitive (dis)advantage of Tesla
The impact of experience

What would be the impact of 2X and 4X volume in terms of learning

and other benefits of experience?

Tesla H1-13 BMW 12 Tesla 2X Tesla 4X

Revenues 100 100 100 100

Car sales and powertrains 100 100 100
Regulatory/ZEV credits 0 0 0

Cost of revenues -91 -70 -91 X 0.95 = -86 5 -86 X 0.95 = -82 9

Gross profit 9 30 14 18

R&D -13 -7 -13 X 0.95 = -12.3 1 -12.3 X 0.95 = -11.7 1

SG&A -13 -11 -13 X 0.95 = -12.3 1 -12.3 X 0.95 = -11.7 1
-25 -18 -24 -23

Operating profit/(loss) -16 12 -10 6 -5 11

london.edu 46
 Competitive (dis)advantage of Tesla
Putting it all together

Let’s add both effects…

Tesla H1-13 BMW 12 Tesla 2X Tesla 4X

Revenues 100 100 100

Car sales and powertrains 100 100
Regulatory/ZEV credits 0 0

Cost of revenues -91 -70 -75

Gross profit 9 30 25

R&D -13 -7 -8
SG&A -13 -11 -8
Subtotal -25 -18 -16

Operating profit/(loss) -16 12 11

london.edu 47
 Competitive (dis)advantage of Tesla
Putting it all together

Let’s add both effects…

Tesla H1-13 BMW 12 Tesla 2X Tesla 4X

Revenues 100 100 100 100

Car sales and powertrains 100 100 100
Regulatory/ZEV credits 0 0 0

Cost of revenues -91 -70 -75 -71

Gross profit 9 30 25 29

R&D -13 -7 -8 -7
SG&A -13 -11 -8 -7
Subtotal -25 -18 -16 -14

Operating profit/(loss) -16 12 11 15

london.edu 48
 Lessons from the case

Technological innovation needs strategy to succeed!

 Technological innovation requires careful

attention to business model choices
 Dynamics of competitive advantage are crucial in
innovation
Learning & scale can solidify position
Patenting
Disruption dynamics
Top-down v/s bottom-up

london.edu 49
 Disruption

The secret Tesla master plan: (in 2006!)

“Build sports car, use that money to build an affordable
car, use that money to build an even more affordable car”
Number of cars sold per year
600,000
Model 3
500,000

400,000

300,000 Model S
Roadster
200,000

100,000
Hatchback car priced
-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
at ~$25,000 to be
released in 2023
Tesla Tesla - Model 3 Nissan Leaf

london.edu 50
 Disruption

london.edu
 Disruption

Integrated Steel Mills Steel Mini-Mills

10 USD Billion
Blast furnace
Small and cheap
Smelt scrap in electric furnaces
20% lower cost
london.edu London Business School 52
 53

Disruption

% of tons Margin
STEEL
QUALITY 55% 30%

22% 18%

8% 12%

4% 7%

2015:
65% of market
share by MM
(No incumbent
1975 1980 1985 1990 TIME
implemented a
mini-mill)
london.edu 53
 Lessons from the case

Technological innovation needs strategy to succeed!

 Technological innovation requires careful

attention to business model choices
 Dynamics of competitive advantage are crucial in
innovation
Learning & scale can solidify position
Disruption dynamics: top-down v/s bottom-up

london.edu 54
 Today’s agenda

• Course recap

• Management practices

• Tesla Case
Entry Competitive advantage Today & Future

• Innovation framework

• Takeaways

london.edu 55
 Car industry analysis

• Preparation quiz:
“In the long run, it will be very hard for Tesla to develop
and maintain a competitive advantage”

Strongly Agree 5%
Agree 32 %
Neither Agree or Disagree 16 %
Disagree 44 %
Strongly Disagree 2%

london.edu 56
 Tesla sales volume

london.edu 57
 Volumes/shares of electric vehicles (EV)
Results of the survey around the world

london.edu 58
 Tesla’s developments and financials
It took a bit longer, but Tesla is now matching the leader Toyota
Year Main events
2016 5 Billion Giga-factory opens in Nevada
2017 Negotiates with China for 1st solely own plant
2018 123,000 model S recall and repair; Musk tweet and SEC fine
2019 Production problems of model 3; cash problems
2020 Model Y; Factory for cyber-truck; Strong China demand
2021 Plans to enter India; Announcement of 25,000 USD hatchback
2016 2017 2018 2019 2020 2021H1

ZEV credits (%) 4.3% 3.1% 2.0% 2.4% 5.0% 3.9%

EBITDA margin (%) 11.9% 5.5% 11.2% 12.1% 18.4% 22.5%

Operating margin (%) -9.5% -13.9% -1.8% -0.3% 6.3% 8.5%

Net income (millions) -675 -1,962 -976 -862 721 1,580

EBITDA margin (%) 14.9% 13.0% 14.3% 14.1% 12.9% 15.1%

Operating margin (%) 9.2% 7.1% 8.4% 8.3% 7.1% 9.4%

Net income (millions) 17,202 21,581 17,344 22,534 14,541 15,324

london.edu 59
 Tesla Stock Price
15x increase: from ~70 to ~1000

london.edu 60
 Tesla total market cap
Tesla’s valuation is equal to that of the next 8 car manufacturers

Valuation of the
firms on the right
bar have remained
relatively stable in
the last 5 years (+-
50%).

(Nothing close to
the ride Tesla’s
stock have had.)

london.edu 61
 Share by brand, all vehicles, global market, 2020
The share of Tesla is <1% of the global market in 2020

Total volume of
global market
~ 75 MM vehicles
sold per year

london.edu 62
 Activity

We are sharing the previous slides:

Link: https://learning.london.edu/files/2203057/download?download_frd=1

With your neighbour, discuss the following:

1. What needs to be true in order to justify these

valuations?
2. Can you provide a rough calculation that would make
sense of this valuation?

london.edu 63
 Discussion

1. What needs to be true in order to justify these

valuations?

london.edu 64
 Discussion

1. What needs to be true in order to justify these

valuations?

EV grows to dominate the market

 Competitive advantage of Tesla in EV is expanded and

defended, and it is hard to imitate

 Industry remains as attractive as before

- Simplicity doesn’t produce entry and price pressure

london.edu 65
 Discussion

2. Can you provide a rough/basic assumption that would

make sense of this valuation? Do you think it is
reasonable?

london.edu 66
 Discussion

2. Can you provide a rough/basic assumption that would

make sense of this valuation? Do you think it is
reasonable?
Tesla valuation = 669,000 million = FCF / 0.1
FCF = 66,900 million / per year
Assume margin equal to 10% (see BMW in case) and an
average price of 35,000 per car.
Vehicles sold by Tesla = 66,900 / 3,500 = 19 million
Assuming 85 million vehicles per year,
 expected market share of Tesla is around 22% (=19/85)
(this does not consider a ramp-up period!)
(Variations: i) lower share but higher margin, ii) higher market but lower
share)
london.edu 67
 EV are flying, but still a long way out
3.2 million EV sold out of 75 million worldwide, only 4% share

2020 Sales = 3.2

2019 sales = 2.2

2018 Sales = 2.1

2017 Sales = 1.5

london.edu 68
 Battery prices are dropping everywhere

london.edu 69
 Competition has been heating up
In 2021 around 300+ EV models are expected

PHEV: Plug-in hybrid EV

london.edu 70
BEV: Battery EV
 Major automakers big shift to EV
By 2030, on average 30% to 50% in EV

london.edu 71
 Let’s do a quick vote

Go to menti.com and type:

8248 2806
Do a stock recommendation:

“Buy Tesla”
“Hold Tesla”
“Sell Tesla”

london.edu 72
 Let’s do a quick vote

Stream A Stream B
(Not available)

Stream C Stream D
(Not available)

Stream E Stream F

london.edu 73
 Recommendation of analysts
Opinion of 25+ top analysts in the financial markets

london.edu 74
 Today’s agenda

• Course recap

• Management practices

• Tesla Case

• Innovation framework

• Takeaways

london.edu 75
 What we haven’t discussed today
“How to generate technological innovations”

london.edu 76
 Pisano (2015): 1st message
Fit between innovation and strategy

“Best practice” approach Strategic approach

V/S

london.edu 77
 Pisano (2015): 2nd message
“Allocate resources to different types of innovation”

london.edu 78
 Today’s agenda

• Course recap

• Management practices

• Tesla Case

• Innovation framework

• Takeaways (and prompt to discussion board)

london.edu 79
 Today’s takeaway
Impact on performance
• Course: “conceptual map to guide diagnosis and choices”
• Management matters! (it can be source of comp. adv.)

From the case:

• Technological innovation needs strategy to succeed!
• Attention to business model choices
• Dynamics are very important
• Learning and scale effects // Disruption dynamics // Long run imitation

From the reading / framework,

• Best practices v/s strategic approach
• Two basics dimension/sources of innovation
• Technological innovation // Business model innovation

london.edu 80
 Discussion board / Reflective learning

Directly following from the Applying session topics to Apply session topics to
session other contexts your career

Why did TESLA made their Discuss how innovation is Have you pursued or do
patent open in 2014? approached in: i) your you want to pursue a
former employer, ii) a firm career in innovation?
Can you provide an that you are interested in. Are you passionate about
economic logic for it? innovation?
Was innovation aligned
Read this blog post by Elon with the firm’s strategy? Tell us your stories,
Musk: What type of innovation anecdotes and why
https://www.tesla.com/en_GB/blog/al was prioritized? (See this innovation drives you.
l-our-patent-are-belong-you
week’s reading)
..or watch this video:
https://www.youtube.com/watch?v=I
cIzaqSnBdA

london.edu 81
 Next session:
Strategic interactions

london.edu