Tesla Motors in 2023: “Electrified” Competition

Tesla – the world’s largest car maker in market capitalization – saw its stock price tumble 73% from
its high of $409 in late 2021 to $108 in early 2023.1 (See Exhibit 1 for Tesla’s market cap over time.)
Despite the decrease and managing through the worldwide COVID-19 pandemic that temporarily shut
down Tesla’s factories,2 sent overall car purchases plummeting3 and caused supply chain woes and a
chip shortage,4 Tesla posted another year of record growth in 2022 doubling its net income to $12.6
billion and increasing revenues 51% year-over-year to $81.5 billion.5 Tesla delivered 1.31 million
vehicles to customers in 20226, and predicted deliveries would reach 1.8 million in 2023, surpassing its
long-term 50% compound annual growth rate (CAGR). 7

Throughout its 20 years in existence,8 Tesla had redefined people’s view of electric cars. Its Model
Y and Model 3, despite being more expensive than other electric vehicles (EVs), were the best-selling
EVs in the US and in the top ten most sold cars globally.9 Despite a number of setbacks such as failures
to deliver on some of its production promises, 10 PR issues related to its self-driving technology11 and
the company’s eccentric CEO Elon Musk, including a much-publicized acquisition of social media firm
Twitter,12 Tesla had become nearly synonymous with the concept of electric vehicles. 13

The company had been expanding its production facilities, opening a new factory in Shanghai in
2019,14 its first European factory near Berlin in 2022,15 a massive facility in Austin in 202216 and a newly
announced plant in Monterrey, Mexico. 17 The company was planning expansions to both the Nevada
and Austin factories; at over 10 million square feet (approximately 100 football fields), the Austin site
was already the world’s second largest building in volume behind Boeing.18 Furthermore, Tesla made
its first entry into the commercial market with the Tesla Semi in late 2022. 19 Meanwhile, a next
generation vehicle was under development with the aim of cutting production costs in half20 and the
company had released its Full-Self Driving (FSD) Beta AI-powered capabilities to 400,000 customers in
the US and Canada.21

Competition in the electric vehicle space was intensifying. Chinese manufacturers such as BYD and
Wuling had become EV powerhouses reaching second and fourth spots in pure battery-powered EVs
(BEVs) behind first-place Tesla in first and third-place VW. 22 Around the world, established
automakers continued to “chip away” at Tesla’s leading market share including formidable EV models
by VW, Ford, GM, Renault-Nissan-Mitsubishi, Stellantis, Kia, Hyundai, Subaru and BMW. Meanwhile,

Professors Eric Van den Steen and Ramon Casadesus-Masanell and Research Associate Karen Elterman prepared this case. The case is an in-depth
rewrite of "Tesla Motors," HBS No. 714-413 by Professor Van den Steen. This case was developed from published sources. Funding for the
development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2023 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
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 Tesla Motors in 2023: “Electrified” Competition 721-479

Apple was developing its first automobile with autonomous driving capabilities, 23 Honda had
partnered with Sony on the new Afeela EV 24, and Toyota (the world’s largest automaker by volume
and leader in hybrid vehicles) had made a major strategic shift by changing CEOs in order to dial-up
its focus on BEVs across its Toyota and Lexus product lines. 25

Tesla had responded to the intense competition by cutting prices by as much as 20% in early 2023
prompting complaints from recent buyers26 and then subsequently adjusting prices three more times
in the first two months of the year.27 In the company’s 2023 “Master Plan 3”, Tesla executives reinforced
the previous target of 20 million vehicles by 2030 and emphasized continual cost reduction as key
strategic pillars to facilitate the global shift away from a fossil fuel economy.28 As larger questions for
the ”electrified” economy loomed, could Tesla reach its goal and maintain its leading position among
the onslaught of hungry competitors?

The Car Business

America was said to have a love affair with cars.29 American households owned 1.255 vehicles per
licensed driver, with 22% of households owning three or more cars as of 2019.30 The average trip was
less than 10 miles, with less than 1% of trips exceeding 100 miles. 31 Households spent on average
approximately 16% of their income on cars, gasoline, and related expenses.32

At nearly 3% of GDP33 and 3.1 million employees34, the car business—manufacturing, distribution,
and service—was one of the largest in the U.S. It was also concentrated, with the three largest car
companies making up 46% of the U.S. market in 2022 (down from 98% in 1969). 35 Despite this high
concentration, two of the three large U.S. car manufacturers went bankrupt in 2009. Since WWII, no
U.S. firm had successfully entered the car industry with a mass-produced car, until Tesla.

Car Design36
A car was a marvel of technology with thousands of parts, often sourced from more than a thousand
suppliers.37 Conventional cars (CVs) were equipped with an internal combustion (IC) engine, which
ran on gasoline. Due to their limited speed range, IC engines required a transmission to transform the
speed of the engine into an appropriate speed for the wheels. Both the engine and the transmission
were complex and required their own lubrication. Cars also needed a fuel storage and injection system,
an exhaust system with catalyzer, a cooling system to prevent the engine from overheating, an oil
system to lubricate the moving (and hot) parts of the engine, and the electronic control system.

Given this complexity, cars were difficult and expensive to design. Developing a completely new
car would involve hundreds of engineers and was estimated to cost between $1bn for a regular car—
excluding expenses for retooling and factory modifications—up to $6bn for a global car but then
including retooling and plant modifications. Such new car design would take four to five years, though
simpler redesigns of an existing model were often done in less than a year. 38

Car Manufacturing
Cars were manufactured in huge assembly plants, often the size of more than 50 football fields. A
traditional assembly plant would reach its critical scale (or minimum efficient scale) at between 100,000
and 250,000 cars per year and a plant of such size could cost as much as $1–$2 billion.39

In a typical car assembly plant, the assembly line was a slow-moving chain from which the
unfinished cars were suspended and that moved the car bodies past stationary assembly stations where
workers added, in a very particular sequence, all the necessary parts. As there were a lot of interactions
among the different parts of a car, an error early in the assembly process could lead to cumulative

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problems down the line. Cars that needed repairs were repaired in a repair zone at the end of the
assembly line, which could take up more than 10% of plant floor space. 40

Cars were not only expensive to design but also expensive to make, with manufacturing cost
making up about 80% of a car’s final selling price. Moreover, car manufacturing had a considerable
learning curve, estimated to be about 95%. a,41

Car Marketing, Distribution, and Service

Car producers were among the heaviest advertisers in business. For example, GM spent $4 billion
on advertising in 2022.42

Cars were sold through dealerships.43A dealership franchise had a mutually exclusive relationship
with a car manufacturer: in exchange for the dealer being exclusive to one manufacturer, it would get
an exclusive territory for one or more of the manufacturer’s brands. (Some dealer companies would
own dealership franchises for different brands, but these franchises would be physically separate.) A
car dealer would both sell and service cars, though some had questioned whether it was optimal to
combine sales and service in one entity.44 Exhibit 2 captures the typical revenue and cost structure of
a US dealership. New car sales had limited profitability but brought in business for the far more
profitable financing and service business. GM had more than 4,600 dealerships versus about 1,500 for
Toyota in the US.45

Given their complexity, cars needed regular maintenance and occasional repairs. The engine with
its moving parts exposed to heat and large forces, was the focus of most maintenance and repair.
Indeed, the most frequent maintenance task was changing the motor oil, while 7 to 9 out of 10 repairs
were related to the powertrain. b 46

Electric Cars47
Electric cars were popular in the late 1800s. In fact, the first speeding ticket was issued to an electric
car (driving 12 mph)48 and the Hartford Electric Light Company even operated an exchangeable
battery service. But electric cars were quickly overtaken by the internal combustion engine. The interest
in electric cars increased again sharply in the late 20th century when oil prices shot up and improved
battery technology increased their range.

The main difference between an electric car and a conventional car was in its powertrain, which
consisted of just an electric motor and a simple battery pack, but that difference had implications for
the rest of the car’s design and manufacturing, for example, through its greater simplicity (Exhibit 3).

The electric motors that were used in cars were fairly conventional motors that had been widely used
for more than a century. In contrast to internal combustion (IC) engines, such electric motors could
develop a strong torque (rotational force) at a very broad range of speeds. As a consequence, electric
motors could be used without a transmission. They were also much smaller and didn’t need the motor
oil and cooling that IC engines required (though EVs needed some form of cooling for the battery). A
nice feature of an electric motor was also that it could function as a brake and then generated electricity

a A 95% learning curve means that the cost decreases to 95% of its former value, i.e., decreases by 5%, every time the cumulative
production doubles. The 95% learning curve for car manufacturing applied to cost of goods sold. Learning curves for SG&A or
R&D were not known.
a The powertrain was the collection of all components and systems that generated power and made the car move.

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to charge the battery. (Converting the car’s energy back into electricity was the key feature of hybrid
cars such as the Toyota Prius.)

The battery was the most expensive, heaviest, and most challenging component of an EV. A
complete EV battery would be assembled out of a large number of battery cells (similar to consumer
batteries but typically considerably larger) that were combined into the battery pack. The pack played
an important role as it monitored and managed the batteries both for efficiency and for safety,
controlling for example charging, balancing, usage, and temperature. In EVs, the battery pack was often
part of the floor of the passenger cabin freeing up space inside the cabin and for storage and improving
the handling of the car as it gave the car a low center of gravity. In particular, with the heavy IC engine
mounted above the front wheels of the car, conventional cars had a high center of gravity and hence
tended to swing or sway a bit when turning. Conventional cars were also more complex than EVs.

Governments actively promoted the adoption of EVs to combat pollution, smog, and climate
change. One measure was direct tax-subsidies for the purchase of an EV. Some states, including
California, also required that a minimum percentage of a car manufacturer’s fleet sales were zero-
emission vehicles (ZEV). Manufacturers that fell short could buy ZEV credits from others who were
above the mandated minimum.49

There were, however, also important hurdles to adoption. These fell into two broad categories. 50
The first were issues related to EVs being a new technology with considerable uncertainty about
longevity, resale value, and safety. The second were different sources of “range anxiety,” which
included the limited range of most EVs, the time it took to charge a car, and the early lack of charging
stations. The latter issue was being resolved, as many companies and public entities started offering
both private and public charging stations. The US Department of Energy, for example, listed more than
15,000 public charging stations in the US in 2016, which had expanded to over 50,000 by 2023.51

Some companies also offered free charging spaces to their employees. On any regular outlet, EVs
would recharge between 5 and 10 miles of range per hour. But higher-amp household outlets could
double or triple that, while Tesla’s Supercharger could charge 150 miles of range in 30 minutes. 52 To
reduce range issues, Tesla also operated a network of Superchargers where customers could charge
their cars – originally for free, though that was later restricted. 53 By early 2023, Tesla had over 4,600
stations (with 42,000+ connectors) worldwide54 , including more than 1,400 stations in the United
States.55 In late 2017, Volkswagen, Daimler, Ford, and BMW created a joint venture called IONITY,
later also joined by Hyundai, to build a network of high-power charging stations in Europe.56 As of
March 2023, IONITY had 458 charging stations with 2,110 chargers and 85 more under construction.57

Tesla
Tesla Motors was founded in 2003 and named after Nikola Tesla, one of the inventors of the electric
AC induction motor. The founding team included Elon Musk and Tesla’s CTO, JB Straubel. Musk
provided most of the capital and became chairman of the board and head of product design. In 2007,
when Tesla was faced with product delays and quickly dwindling capital, Elon Musk took over as CEO
and reduced headcount. Musk – at the time relatively unknown outside of Silicon Valley – quickly
became famous as the face of Tesla. Born in South Africa, with an engineering and an economics degree
from the U.S., he sold his first start-up, Zip2, for more than US$ 300 million to Altavista.58 He then co-
founded Paypal, of which he was CEO and chairman, and sold the company in 2002 to eBay for US$
1.5 billion. The sale gave Musk the capital to pursue his dreams. Over the next years, he started the
space transportation company SpaceX, became the largest shareholder and chairman of SolarCity, a
provider of solar power systems, and co-founded Tesla. In October 2022, after a dramatic process
including a legal battle, Musk acquired the social media network Twitter for US$44 billion.59

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None of Tesla’s founders had a background in the car industry and neither did its original
engineering team.60 Over time, Tesla assembled a team that was a mix of specialists from the car
industry and people with their roots in Silicon Valley (Exhibit 4).61

Tesla Roadster
Tesla’s first production car—and the first-ever high-end production EV—was the Roadster. (See
Exhibits 5a and 5b for images, prices, and specs of each Tesla model.) Tesla designed and produced
the car’s powertrain in-house in California and then combined it with a body and chassis—derived
from the Lotus Elise—that was co-designed by Lotus and Tesla and assembled by Lotus in the U.K. 62

Originally released in 2008, the US$109,000 Roadster was a high-end sports car that could accelerate
from 0 to 60mph in less than four seconds, which was faster than a Ferrari Testarossa and in the same
range as more recent Ferrari models, and had a range of nearly 250 miles.63 The car received a lot of
press coverage from 2008 to 2012; instead of focusing on its environmental benefits, reviewers used
expressions like “head-turner,” “jaw-dropper,” “future of the automobile,” and “profoundly humbling
to just about any rumbling Ferrari or Porsche that makes the mistake of pulling up next to a silent, 105
mpg Tesla Roadster at a stoplight.”64 Some observers thought that it changed how people thought
about electric cars.65

Tesla and Panasonic cooperated to modify a commodity Lithium-Ion battery design for car usage,
paying particular attention to safety and the risk of overheating and fire. Tesla also designed a liquid
cooling system to keep the batteries on their optimal temperature. The powertrain design was
proprietary and Tesla did not reveal much about it.

Per its contracts with Lotus, Tesla built 2,500 Roadsters. When the contract ran out in 2012, Tesla
stopped taking orders.66 Tesla first announced the new version of the Roadster in 2017, though its initial
release date of 202067 was later pushed back to later in 2023.68 Starting at a price of US$200,000, Tesla
had boasted the new Roadster would be the “quickest car in the world” reaching speeds of 250 miles
per hour and accelerating from 0 to 60mph in less than two seconds.69 It used a version of Tesla’s new
Plaid powertrain and had a sleek design had a range of 650 miles and had a detachable glass roof that
could store in the trunk with an interior that had four seats.70 There was also a limited “Founders
Series” model available for $250,000, which required full payment up front to reserve.71

Model S
Tesla’s first mass-produced car was the Model S, a high-end electric car meant to compete with the
Audi A6 and BMW 5 series. The Model S could accelerate from 0 to 60mph in under 6 seconds, which
was 10% faster than a BMW 5.72 The car was selected as the 2013 Car of the Year, receiving the highest
Consumer Reports rating ever, and receiving the best safety rating ever, an astonishing feat for a
company that was only at its second car.

Design Tesla designed the Model S completely in-house, at a cost of about $0.5 bln.73 The
powertrain was an evolved version of the Roadster’s. The Tesla S had rear-wheel drive, like BMW and
Mercedes, but avoided the extra costs that rear-wheel-drive typically imposed, as the small electric
motor could be positioned next to the rear axis. For the battery, Tesla used an improved version of the
technology it had developed for the Roadster.

The car also had other unique design features. 74 It was controlled by software that could be
wirelessly updated through its cellular connection and it allowed the driver to customize the car’s
behavior. User behavior was transmitted securely with encryption back to Tesla and used in decision
making for future design considerations. 75 The level of electronic integration was considered a

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benchmark. 76 The car also had a 17” touchscreen in the middle console to control almost all its
functions, from air conditioning and lights to entertainment system. This reduced the need for buttons
or other manual controls, simplifying the dashboard and other parts (Exhibit 6). Another unusual
feature was that the brake lights lit up based on how much the car was slowing. Many of the car’s
components, including its suspension, were custom-designed.77

Manufacturing In contrast to the Roadster, Tesla brought the assembly of the Model S in-house.
Observers questioned Tesla’s ability to do so successfully, given its lack of experience in car design or
assembly, an issue that Tesla itself openly recognized.78 But the crisis in the car industry played in its
favor, allowing Tesla to buy facilities and equipment from other manufacturers on the cheap.
According to some estimates, Tesla spent less than a third of the $1bln that its plant would normally
cost.79 Tesla also brought a large part of its parts production in-house, making, for example, 90% of
Model S-specific plastic parts on its injection molding machines and manufacturing its complete
powertrain in-house.80 The decision to make parts in house was in part driven by the large number of
design changes in the early production stages, combined with the fact that suppliers found it
uneconomical to relocate plants to California, given the relatively low volume of the Model S.81

Sales and service Instead of independent dealerships like other car manufacturers, Tesla built
a network of company-owned stores with salespeople on salary rather than on commission. Musk
argued that “existing franchise dealers have a fundamental conflict of interest [as it is] impossible for
them to explain the advantages of going electric without simultaneously undermining their traditional
business.”82 This approach put Tesla in conflict with the dealership lobby, which had pushed many
states to pass laws requiring car companies to sell through independent dealerships recognized by the
dealership association. In some of these states, Tesla was able to sell online from other states. But, under
pressure from dealers, the Texas legislature passed a law to block Tesla from doing so. 83

In marketing the Model S, Tesla stressed speed, comfort, and handling, before mentioning low
emissions. It also focused on the potential cost savings from gas and on the reduced need for service
and repairs.84 While estimates varied widely, the total cost of ownership of the Model S seemed similar
to that of the BMW 5-series with which it competed, with higher initial price but lower gas and
maintenance cost.85 Tesla’s service operations were independent from its sales network, unlike the
dealership structure of traditional car manufacturers. And while complaints about poor build quality
seemed surprisingly common, Tesla led car brands in customer satisfaction. 86

In 2023, Tesla’s reintroduced a traditional steering wheel after a couple of years with the aircraft
“yoke-style” steering with no center column to its Model S. The new Model S came in two versions –
Model S and Plaid – that accelerated from 0-60mph in 3.1 and 1.99 seconds with ranges of 405 miles
and 396 miles respectively.87 The models were priced between US$94,990 and $114,990.88

Model X
In early 2012, Tesla revealed the Model X, a cross-over SUV with unique features, such as wing
doors and dual motor all-wheel drive.89 The car shared the powertrain and other components with the
Model S.90 Due to technical challenges with, among other things, the wing doors, production was
delayed for over 2 years; the first Model X was released in 2015. 91 Moreover, the Model X suffered from
considerable quality issues, with Consumer Reports ranking it among the 10 least reliable cars. 92 In
2023, a new Model X was introduced with an updated interior and an option to add autopilot for $6,000
extra or Full Self-Driving (FSD) for $15,000 extra.93 The new version was priced at US$109,990 for the
base model and US$119,990 for the Plaid model, the latter of which could accelerate from 0-60 mph in
2.5 seconds with a range of 333 miles.94

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Gigafactories and Battery Production

In June 2014, Tesla broke ground on the Gigafactory, a massive $5 billion plant for battery cells and
battery packs in cooperation with Panasonic. Tesla originally claimed that, at full capacity, the Nevada
plant would have an output of 35 GWh—equal to the global battery output in 2013 and sufficient for
500,000 EVs.95 However, in April 2019, Musk called that 35 GWh figure “theoretical,” whereas actual
output was closer to 23 GWh, though there was still room for improvement.96 In January 2023, Tesla
announced a $3.6 billion investment in the Nevada factory to build its Semi truck and more batteries.97

Tesla expected the plant to reduce its battery costs by 30% through scale economies and process
improvements—though without being specific about the reference point. Some observers suggested
that at $100/kWh cost for the battery pack, EVs’ initial purchase price would reach parity with that of
conventional cars.98 According to Bloomberg, Tesla’s 2020 battery costs were about $115/kWh, while
the average price of EV-suitable lithium-ion batteries was about $137/kWh.99 However, due to supply
chain constraints and increases in lithium prices, battery costs had increased in 2022, delaying the
overall industry’s aim at reaching upfront cost parity of $100/kWh with IC engines. 100

In 2019, Tesla had signed battery contracts with CATL and LG Chem for the Chinese market. 101 In
the next few years, it planned to manufacture its own batteries while also continuing to purchase from
Panasonic, LG Chem, and CATL.102 Musk wrote that Tesla would not reach “serious high-volume
production” of the new batteries until 2022,103 saying, “Even with our cell suppliers going at maximum
speed, we still foresee significant shortages in 2022 and beyond unless we take action ourselves.”104

By 2019, the total lithium-ion-battery market for EV passenger cars was 117 GWh (enough to power
about 2.4 million purely electric vehicles), and McKinsey predicted that it would expand to 1,000 GWh
by 2025.105 As of November 2022, CATL held an estimated 40.9% of the EV battery market, followed
by BYD (15.6%), LG Chem (11.9%), Panasonic (5.8%), Samsung SDI (5.3%), SK (4.4%), and CALB
(3.6%).106 In 2022, the EV battery market comprised about 63% lithium-ion batteries, 31% lead-acid
batteries, and 6% other battery types.107

One potential alternative to the lithium-ion battery was the solid-state battery (see the Glossary for
definitions). Solid-state batteries could have nearly double the range of lithium-ion EVs, and could
charge in as little as ten minutes; they were also less likely to catch on fire. 108 Toyota revealed a
prototype of a vehicle with a solid-state battery in 2021 —developed in partnership with Panasonic—
and aimed to have vehicles with the battery in production by 2025. 109 Toyota and Panasonic led the
industry with 1,776 patents on solid-state batteries.110 Nissan, VW and others were also working on
solid-state battery technology.111 However—at least in their early stages—solid-state batteries were
expected to cost between $400 to $800 per kWh and faced considerable production hurdles.112

Another alternative power source was hydrogen fuel cells, which produced only water vapor as a
byproduct. Hydrogen fuel cell vehicles did not need to be plugged in, but did need to refill their
hydrogen tanks at special refueling stations. 113 These were mostly located in California, which as of
early 2023 had 55 public hydrogen fueling stations in the US. 114 In 2023, Toyota, Hyundai, Honda,
BMW and Renault all offered hydrogen fuel cell vehicles, which could travel between 300 and 400 miles
on one tank.115 The average price of hydrogen at California refueling stations ranged between $10-
17/kg in 2020.116 One study suggested that it would reach price parity with gasoline—at about $6.00-
$8.50/kg—by 2025.117

Model 3
In a blog post titled “The Secret Tesla Motors Master Plan (just between you and me),” Musk stated
that Tesla’s plan was to “[b]uild [a] sports car, [u]se that money to build an affordable car, [u]se that

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money to build an even more affordable car.” 118 In March 2016, Musk unveiled that ‘even more
affordable car,’ the Model 3. Within a week, more than 200,000 people had made the $1,000 deposit to
reserve a car. The first Model 3s were delivered in July 2017. 119

The Model 3 was a smaller version of the Model S, comparable to a BMW 3. As of 2023, the average
sales price in the US was $42,990 for the base model and $53,990 for the Performance model. 120 The
base model had a range of up to 272 miles and the Performance version 315 miles. 121 While Tesla
struggled with its initial production, by 2023, the Model 3 was one of its top selling models and the
seventh in the world across all types of cards (including IC engine-powered vehicles) with about
596,000 units sold.122 (See Exhibit 7 for Tesla’s quarterly deliveries, 2014-2023.)

Model Y
The Model Y, first announced in March 2019, was a small SUV that had the same basic platform as
the Model 3 and shared 75% of its parts.123 However, The Model Y had more headroom than the Model
3, a motorized hatch door at the back, and an optional small third row with two seats. 124 The Standard
Range model had rear-wheel drive, while the Long Range and Performance models came with all-
wheel drive.125 Tesla delivered its first Model Y to US customers in March 2020, earlier than its
originally stated delivery goal of Fall 2020.126 In January 2021, Tesla began producing the Model Y at
its new Gigafactory in Shanghai and delivered its first made-in-China Model Y in that country.127 By
2023, Tesla’s Model Y was its top selling car and the fifth most sold car globally 759,000 units sold.128
The price was $54,990 for its Long Range model and $58,990 for its Performance model with ranges
between 303 and 330 miles.129 The Model Y produced at the Berlin factory would have fewer parts than
the US version, due to “giga-casting” of large unified parts, which aimed to simplify the production
process and reduce costs.130 (See Exhibit 8 for estimated revenue and cost structure of an average
Model Y)

‘Full Self-Driving’ and Autonomous Vehicle Plans

Between 2016 and 2023, Tesla introduced several new self-driving features to its cars via over-the-
air software updates. In October 2020, the company introduced the beta version of its Full Self-Driving
(FSD) mode to select users.131 This mode included an “Autopark” self-parking system; a “Smart
Summon” feature, which allowed the car to drive remotely to its user (but only within a private parking
lot or driveway); and automatic highway driving to a preprogrammed destination, including
navigating on- and off-ramps and changing lanes. 132 A car in FSD mode was also meant to
automatically stop at stop signs and all stoplights (even when they were green) unless the driver
intervened.133 However, in October 2020, Consumer Reports found that Full Self Driving mode—which
added $8,000 and later $15,000 to the cars’ purchase price—had numerous bugs and ”require[d]
significant driver attention” to ensure the safety of both the Tesla driver and others on the road. 134
Subsequently, YouTube videos had become popular showing FSD-enabled cars making mistakes,135
while a crash in San Francisco had ignited a debate and reportedly was being investigated by
regulatory bodies.136 In February 2023, Tesla recalled over 360,000 cars to repair defects to the Full Self-
Driving software.137

Tesla faced intense competition in autonomous vehicles. One competitor, Cruise, was majority-
owned by GM and counted Honda as a major investor. 138 In December 2020, Cruise began testing
driverless cars on public roads in San Francisco. 139 Another major competitor was Waymo (spun out
from Google),140 which in October 2020, launched a “robo-taxi” service in Phoenix metro area.141
Apple—which had been testing autonomous vehicle technology since 2017—hired a former Waymo
and NASA engineer to lead its self-driving project, acquired a self-driving startup, and secured several
autonomous driving patents.142 Other competitors included Amazon-owned Zoox; Uber Technologies;

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the Chinese search giant Baidu; Chinese ridehailing company Didi Chuxing; BYD; Audi; Ford; BMW
(with Intel and Mobileye), and dozens of other companies and partnerships. 143 Meanwhile, Tesla’s
robotaxi fleet, originally planned for 2020, had yet to materialize. 144

New Factories
Tesla announced it would build a 50 GWh per year lithium refinery in Corpus Christi, Texas and
an auto factory in Monterrey, Mexico. 145 Although details had not been released as of March 2023,
executives talked about design, engineering, production and automation teams all participating in the
Monterrey factory layout to achieve a 40% reduction in the needed footprint to produce the lower-cost
Next Generation Vehicle.146

Other Vehicles
Semi The Tesla Semi was a commercial truck that could haul 80,000 pounds and travel 500 miles
on one charge (or 400 miles on only 30 minutes of charge time). 147 Announced in 2017, production was
pushed back from 2019 to 2022.148 Tesla had received Semi orders from PepsiCo, Walmart, Anheuser-
Busch, and FedEx, among others149 and the first 36 pilot units had been deployed by PepsiCo at the
end of 2022.150 The base price was $150,000 for a 300 mile range or $180,000 for the 500 mile range. 151

Cybertruck The Cybertruck featured a stainless-steel outer shell, or ‘exoskeleton,’ ‘armor glass,’
a 7,500+ lb. towing capacity, and an adjustable suspension system with a ground clearance of up to
16”.152 Choosing stainless steel made the company rethink the production process, leading to the
removal of several steps such as stamping and painting allowing the company greater efficiencies in
the truck’s manufacturing. 153 Within a week of its November 2019 reveal, Tesla had received over
250,000 preorders for the Cybertruck (which required only a $100 deposit),154 and by June 2020, that
figure had topped 650,000.155 Pricing ranged from $39,900 to $69,990; production had been delayed but
was expected to ramp up by the second half of 2023. 156

Competition and Market Outlook

In 2022, global annual sales of electric vehicles topped 7.8 million units. 157 (See Exhibits 9a and 9b
for the best-selling plug-in models and brands in 2020, and the Appendix for details on select Tesla
competitors.) EVs made up roughly 10% of total passenger vehicle sales in 2022 158, up from 1.3% in
2017 and just 0.6% in 2015.159 Between 2020 and 2030, Deloitte predicted a compound annual growth
rate of 29% in overall EV sales, so that by 2030, global EV sales would reach 31.1 million units—or 32%
of the total market for new cars sold.160 Others expected the transition to be swifter such as McKinsey’s
estimate that 55% of new production would be related to battery EV (BEV) and plug-in hybrid EV
(PHEV) representing 47 million units by 2030.161

By 2023, steady improvements to EV technology had made many EVs comparable or even superior
to their gas-powered counterparts, especially when taking into account total cost of ownership and
subsidies.162 The global chip shortage had caused delays to new EV models and hampered deliveries.163
Government policy remained a major factor driving EV growth. Beginning in January 2023, the US
government introduced tax credits up to $7,500 for EV vehicles made in North America.164 In February
2023, the European Union approved a ban on fossil fuel cars by 2035 while setting a 55% reduction in
CO2 emissions targets for new cars sold in 2030 against 2021 levels. 165 Although China ended its
subsidy after a 10-year period (accounting for 3% to 6% of the average cost of EVs), it continued to
invest in EV infrastructure and encourage EV production. 166

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 Tesla Motors in 2023: “Electrified” Competition 721-479

China was the largest market for EVs, with approximately 6.7 million sold in the country in 2022.167
By comparison, the US sold about 800,000 units in the same year.168 Despite subsidies ending in China,
the growth was expected to increase to 8 to 10 million units in 2023 and seven out of every ten new cars
were battery or plug-in hybrid vehicles.169 Although Tesla was the leading EV producer of pure battery
EVs (BEVs) in China, BYD had overtaken Tesla in unit sales when considering both battery (BEV) and
plug-in hybrid (PHEV) models.170 Tesla faced a number of other Chinese competitors,171 including the
automakers SAIC and Wuling who had formed a joint venture with GM, achieving a top selling car in
China – the Wuling Hong Guang Mini EV – at a price of US$4,900.172 After BYD (28% combined BEV
and PHEV market share), Wuling (9%) and Tesla (7%), there was a long list of additional competitors
including: Changan (4%), Geely (4%), SAIC (4%), Chery (3%), Hozon (2%), Li Auto (2%), Great Wall
Motor (2%), NIO (2%) and Xpeng (2%).173 The other notable foreign competitors in China’s EV market
were VW (3%) and BMW (<1%).174 (See the Appendix for details.)

Since 2020, there had been a domino chain of major EV announcements from established
automakers, including VW’s plan to spend €73 billion on EV and digital technology over the next five
years,175 GM’s promise (in January 2021) to sell only vehicles with zero tailpipe emissions by 2035,176
and Ford’s plan (announced in March 2022) to ramp up its EV investment to $50 billion though 2026
and run its EV and IC businesses separately. 177 The US also had some EV start-ups that were making
waves, like Rivian, which was supported by Amazon, Lucid, and Nikola. (See Exhibit 10 for details on
legacy carmaker EVs.)

Spotlight on Toyota
Established in 1937, Toyota had become the world’s largest automaker in volume for three years
consecutively selling 10.5 million retail units in 2022.178 Renowned for their Toyota Production System,
whereby a relentless reduction in waste and a focus on kaizen (“continuous improvement”) were central
concepts, the “Toyota Way” had deeply influenced the automotive industry.179 At its fiscal year end in
2022 (March 31st), Toyota earned revenues of ¥31.4 trillion (US$275 billion) and net income of ¥2.9
trillion (US$25 billion).180 The company produced models under Toyota, Lexus, Daihatsu and Hino
with 370,000 employees spanning 67 manufacturing plants, 20 R&D centers and 5 regional
headquarters.181

Toyota had conducted research on battery storage since the 1960s.182 Sensing the importance of
greater fuel economy and mounting environmental concerns in the 1990s, Toyota made its first foray
into the “electrified” market in 1997 through two main models. The first was the 1997 hybrid Prius,
that achieved greater fuel economy over comparable IC cars by switching between the IC engine and
a battery that charged as the IC engine was running.183 Toyota had deployed about 1,000 engineers to
overcome mass production challenges and sold the car at $20,000 (reportedly losing $20,000 per car in
the early stages) and then worked to steadily reduce costs and increase the price. 184 By 2010, the
company had sold over 2 million units of the Prius. 185 The second model was a BEV version of the
RAV4 utility crossover produced in small quantities and intended for fleets in California (due to state
government incentives); selling for $42,000 or leased at $457 per month, the EV RAV4 had a range of
100 miles and a top speed of 78 miles.186 Toyota discontinued the line in 2003 and some observers
suggested the model was cut as it was deemed impractical for consumers given its range and
performance.187 Others purported it was related to a patent suit against Toyota and Panasonic for the
battery since it was being produced under license from a company partially-owned by Texaco.188

With Prius sales still going strong, the company announced another BEV in 2010, the eQ Mini car189,
and adapted the Prius design in 2012 to a plug-in hybrid (PHEV) so the battery could charge from an
external source as well as from the IC engine. In the same year, Toyota unveiled its second generation
all EV RAV4 for the California market with the battery and powertrain supplied by Tesla and

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Tesla Motors in 2023: “Electrified” Competition 721-479

Panasonic.190 Whereas the PHEV version contributed to Prius’ continued success, the EV RAV4
was short-lived again, with only 2,500 produced and phased out by 2014 when the Tesla and
Panasonic agreement ended.191 Toyota’s eQ Mini car was cut before making it to the market;
Toyota’s head of R&D rationalized: “The current capabilities of electric vehicles do not meet
society's needs, whether it may be the distance the cars can run, or the costs, or how it takes a
long time to charge.”192 See Exhibit 14 for quotes from executives on electrified vehicles
throughout the years.

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