Case Study: TESLA

The Tesla Case Study: An Exploration of the Diffusion of Innovation

The evolution of Tesla's business model offers a compelling illustration of the diffusion of innovation theory in practice.

To put it succinctly, Tesla did not burst onto the scene aiming to create an Electric Vehicle (EV) for mass consumption. In fact, they were not the pioneers of the EV vehicle concept.

Back in the mid to late 1990s, General Motors launched the EV1, targeting a significant market segment. This strategy appeared to align perfectly with General Motors' position as an established automaker – developing an electric vehicle only made sense if it would appeal to a broad market.

However, this venture proved to be an outright failure. This case underscores a key distinction between a startup and a well-established company. When introducing new products, incumbents like General Motors often aim directly at vast market segments (targeting the late majority). On the other hand, startups with limited resources must take a contrary approach.

Tesla, given its constrained funding, had to strategically carve out a niche in the market, primarily to demonstrate its innovative technology without facing bankruptcy. In the early days of Tesla, the size of the niche they intended to conquer was of secondary importance. What truly mattered was showcasing their groundbreaking technology.

This is a crucial divergence - while newcomers cultivate markets by starting from minuscule niches, incumbents attempt to initiate markets by catering to the masses! The former tactic provides scalability options where failure is relatively inexpensive and manageable. The latter, however, creates a high-stakes scenario in which failure is so costly that if a product doesn't gain mass appeal, it is likely to be abandoned, potentially halting progress for years to come!

Hence, Tesla strategically leveraged the Roadster as their entry ticket into the automobile industry, zeroing in on a small market segment composed of innovators who resonated with and championed Tesla's mission.

Gradually, Tesla was able to simultaneously develop additional EV models, each designed to engage and captivate increasingly larger market segments.

It was a strategic journey spanning fifteen years before Tesla began focusing its efforts on the mass production of the Model 3.

This strategic approach continues to shape Tesla's trajectory in the automotive industry.