Driving Digital Transformation at Tesla
On a sunny September day in Carson City, officials attentively listen as Tesla’s founder, Elon Musk announces that Nevada has been selected as the official site for the Gigafactory 1 and is now part of Tesla’s ultimate mission of producing a ‘high-volume, affordable compelling electric car.’ By the time they achieve this, Tesla will have caused upheaval within the traditional automobile business model, phased out the combustible engine and led the charge disrupting an entire industry.
Founded in July 2003 they have amassed a loyal following and are one of the most innovative companies actively embracing significant levels of innovation risk. Their latest release, the ‘Tesla Semi’ an all-electric heavy-duty truck has already been accumulating pre-orders from freights operators and fleet companies across the world and claims to be the safest, most comfortable truck ever.
A significant part of Tesla’s success can be attributed to its highly effective implementation of Digital Transformation across its entire value chain. By using technology to pioneer a customer-centric strategy they have developed an entire digital ecosystem of integrated products, services and operational capabilities:
The Connected Car
The automotive industry has embraced digitality, and as a result, high-end cars are some of the most complex digital products with around 100 million lines of code. However, existing car manufacturers have found it challenging to fully utilise their digital potential. The most visible example of digital transformation within the automotive industry is Tesla’s connected car. Tesla use technology to unify all aspects of the driving experience. Advanced sensors, real-time software updates, enhanced autopilot, 360 cameras and significant computing power have disrupted many assumptions about the car and redefined its value proposition. The company is transitioning away from the car as a manufactured good to a continuously updated service platform for rapid feedback loops fuelling further innovation. As with smartphones, Tesla car owners receive frequent operating system upgrades defining and unlocking new capabilities, such as level-2 self-driving features. Tesla is also the only major self-driving car company, which banks on being able to provide level-6 self-driving features without the use of the expensive lidar sensor, and relying on existing sensors and more complex data processing.
Tesla has a unique approach to marketing relative to other companies in the automotive industry. Its advertising spend is less than $6 per vehicle and it intends to disrupt the traditional business model of distributing through car dealerships, and instead sell directly to consumers. It sells its cars online through its website and uses social media platforms, such as Twitter, to allow customers to interact freely with the company, and even communicate directly with its CEO. Tesla’s own branded stores, dispersed across 28 countries around the world, are carefully positioned in inner city spots to provide a highly customised buying experience. Customers can design their own Model S using interactive displays and design studios, as well as be educated on Tesla’s bigger mission of moving the world towards sustainable energy.
The Digital Factory
At Tesla’s 2016 annual shareholder meeting, Elon Musk talked about the realisation of “how important it is to build the machine that builds the machine” and “how much harder it is to build the manufacturing system that builds the product than it is to create the product in the first place”. In placing such importance on the capabilities of the factory and “really thinking of the factory like a product” Tesla are able to achieve significant gains in productivity and seamless technological integration between the car and the factory. In the case of the Gigafactory 1, every aspect of its design has been constructed for efficiency. It is even diamond shaped so minimal land had to be excavated, and faces true north so all of its equipment can be mapped out using GPS. The Tesla Fremont factory is also one of the world’s most advanced automotive plants and focuses on achieving the most automated manufacturing systems possible. Autonomous Indoor Vehicles (AIVs) are able to navigate through the factory using digital mapping and advanced sensors.
Tesla have ultimately demonstrated a complete commitment to digital transformation in every aspect of the company. Most importantly, they have used technology to enhance customer value and create a legacy that most companies can only aspire to.
Dr Will Venters
Dr Carsten Sorensen
The London School of Economics and Political Science