How did Tesla outsmart the legacy car manufacturers?

Tesla was able to overcome the lack of complementary assets by engaging with strategic partners, which could provide know-how, technology, large-scale manufacturing and much needed investments.

.credits: Ha Hoang and Frank T. Rothaermel / Mellisa A. Schilling

---

It was an insurmountable task to grow as an early stage car manufacturer, reach the global scale needed for profitability and successfully implement a radical innovation. However, Tesla found the solution in a strategy based on collaboration and international strategic alliances. As a small company you simply can not possess all complementary assets needed for successful implementation of such innovation as electric cars. (1,2) Therefore, partnering up with enterprises, which could provide know-how, technology, large scale manufacturing and much needed investments, was a crucial aspect in Tesla’s success.

.storyline of Tesla’s partnership strategy (1/3)

Daimler AG

Toyota

Successful launch of the model S and relational rents gained from partnerships with Toyota & Daimler AG set the company on a growth trajectory. In addition, cost efficiencies generated through learning, process optimization and scale helped Tesla to finally become profitable in 2013. (3,4,12)

---

"Individual companies may not need to own all of the resources, skills and knowledge necessary to undertake key strategic growth initiatives. When conditions are uncertain and the stakes are high, partnerships can be an attractive alternative to going it alone or to M&A."

Ha Hoang & Frank T. Rothaermel

---

.storyline of Tesla’s partnership strategy (2/3)

Panasonic

Mobileye

---

How to achieve company’s growth

via strategic alliances?

A closer look on the succession of Tesla's partnerships reveals an evolving approach which could be generally applicable for collaborative business models and growth strategies. In sum, different types of arrangements are suitable for different stages of the overall company development process. In fact, companies have to be cautious about the appropriateness of collaborative approaches in the first place and in some cases preemptively define the termination guidelines. (i.e. Mobileye lost their unique know-how and partnerships with Toyota ended in 2016)

Early stage companies might be willing to exchange shares for technological know-how and investments. While growing companies could seek JV’s partners for scale and control over complementary assets. Finally incumbents prefer acquisitions and industry-wide alliances. Which brings us to the latest stage of Tesla’s partnership story.

---

.storyline of Tesla’s partnership strategy (3/3)

Acquisitions and other agreements

North American Charging Standard

---

Conclusion

Successfully implementing radical innovation & growing into profitability may be often a challenging task. Tesla was able to overcome the lack of complementary assets by engaging with strategic partners, which could provide know-how, technology, large-scale manufacturing and much needed investments.

Decision makers have to identify the appropriate occasions and governance models for collaboration in order to be beneficial for all engaged organisations and thus successful. Last but not least, enterprises also have to be decisive and recognize when to say NO and when to terminate the partnership.

---

References

1. Dyer, J.H.; Singh, H. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review 23(4): 660-679.

2. Teece, 1986. Profiting from technological 'innovation: Implications for integration, collaboration, licensing and public policy. Research Policy.

3. https://sloanreview.mit.edu/article/how-to-manage-alliances-strategically/

4. https://www.reuters.com/article/us-tesla-batteryday-technology-insight-idUSKBN2680K4

5. https://www.tesla.com/it_IT/blog/strategic-partnership-daimler-acquires-stake-tesla

6. https://ir.tesla.com/press-release/tesla-announces-pricing-initial-public-offering

7. https://www.tesla.com/blog/tesla-motors-and-toyota-motor-corporation-intend-work-jointly-ev-development-™

8. https://www.ft.com/content/130a937a-48fd-11e7-919a-1e14ce4af89b

9. https://www.atlantis-press.com/proceedings/icemed-22/125975507

10. https://www.tesla.com/es_es/blog/panasonic-and-tesla-reach-agreement-expand-supply-automotivegrade-battery-cells

11. Zahra, S., and George, G. (2002) Absorptive Capacity: A Review, Reconceptualization, and Extension. Academy of Management Review, 17 (2): 185-203.

12. Schilling M. A. (2020). Strategic management of technological innovation (Sixth). McGraw-Hill Education.