At the turn of the 20th Century, electric vehicles dominated the automobile market. In 1900, they outsold all other automobile types and accounted for approximately 28% of automobiles production . However, by 1925 Henry Ford’s mass production of the Model T, which run internal combustible engines fueled by hydrocarbons, made gas-powered automobiles cheaper than their electric counterparts. Consequently, automobile innovation and production in the 20th Century was heavily geared towards gas powered vehicles while electric vehicles were left trailing behind. Recent concerns about greenhouse gas emissions and climate change have brought electric vehicles out of the shadows and back into the public eye. In addition, international agreements such as the Paris Agreement and Kyoto Protocol have solidified attempts at driving environmentally friendly innovation globally.
Tesla is an example of a company that is attempting to create alternative technologies that reduce the impact of greenhouse gas emissions. The electric automaker’s mission is to “accelerate the world’s transition to sustainable energy”  and become “best manufacturer in the automotive industry” . Despite these ambitions, cost-effective innovation for electric vehicles has yet to keep up with increased demand. Some of the key challenges include high battery costs and uncompetitive performance . If these and other challenges are not met, the electrical vehicle industry may be considered unlucrative from an investment perspective.
Tesla’s Open Innovation Policy  addresses the need for accelerated innovation among electric vehicle producers. In 2014, Tesla informed its competitors and the general public that Tesla would not be issuing any patent lawsuits against any competitors who shared in Tesla’s innovative technology as long as the competitors acted in “good faith” . Tesla believed this initiative would not inhibit their innovative progress because they couldn’t build enough electric cars to solve the carbon crisis by themselves, and alternative fuel vehicle sales formed less than 1% of total vehicle sales at top automobile manufacturers . Thus, the company did not consider competition in electrical vehicle segment to be intense.
Tesla’s Open Innovation Policy could be crucial in addressing industry wide and company specific challenges with electric vehicle development. A 2017 Harvard Business Review article stated that electrical vehicle battery performance may not match the performance of gas-powered options for another 50 years . The article also highlighted some challenges specific to Tesla, including the fact that their current battery technologies are not better or cheaper than existing internal combustion options . Knowledge sharing (i.e. open innovation) may help accelerate progress and overcome general industry challenges which would allow auto manufacturers like Tesla to focus more on forming their individual competitive advantages.
As stated earlier, limited competition and sales in the electric vehicle segment drove Tesla’s decision to adopt an open innovation strategy in 2014. The former dynamic still persists with electric vehicles sales forming approximately 1% of all vehicles sold in 2017 . However, in Tesla’s 2017 annual report, the company noted how competition in the electric vehicle segment had increased . Although this shift in the competitive landscape may only be slight, it may signal a need for tweaks in Tesla’s approach. A focus of deriving value via disruptive technology is one option the company should explore. It is not clear whether Tesla is considered disruptive player at the moment . However, given the increased competition from more established auto manufacturers, Tesla may decide to focus on establishing a unique competitive advantage with disruptive technology. Indeed, prior to announcing their open innovation policy, it was widely considered that a significant portion of Tesla’s value would be driven by its intellectual property rights and technological advancements .
Tesla’s brand name is arguably the strongest in the electric vehicle segment . However, Tesla’s competitors could easily establish a comparable reputation given their expertise and success in the auto industry. Toyota, Volkswagen, and the BMW Group have already announced plans to aggressively pursue the electric vehicle market . These competitors could easily leverage Tesla’s technological advances via open innovation and use their greater resources to develop higher quality electric vehicles and squeeze Tesla’s current and future market share.
Recently, Tesla have had lot of troubles with declining stock prices, strenuous production targets, and pressures to be cash flow positive . Going forward, should Tesla reconsider their open innovation strategy and move towards “closed innovation” if they stumble across disruptive technology? Even without disruptive technology, should a “closed innovation” policy still be pursued especially since protected patents could help drive up Tesla’s valuation?
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