Welcome back to our course on protecting business innovations via strategy.

Today, we're going to talk about another interesting high-tech company using

strategy in an innovative way to help build their business as part of a global strategy.

It's also a diversification strategy and related diversification.

And that company is Tesla.

Now, if we look at Tesla's market share,

it doesn't feel totally like a global company or certainly not an Asian company,

only about 10 percent of their sales are from China and

about 10 percent from the rest of the world, or a little less.

It's US/European dominated, mostly US.

That sounds not exactly global,

although the global sales are about half of Tesla's total sales.

So, if you look across the planet,

global matters, and it is important to Tesla,

but it's interesting because it's helped the company build a mystique and

an awareness about their brand that is

extraordinary in the car business for a startup to be able to achieve.

Tesla has gotten people's attention and imagination,

somewhat the same way Apple has in phones.

And so, they've done a very good job of brand awareness and marketing across the planet.

But they've done more than that.

They've view international expansion as critical to their future.

They understand that China is going to become

the world's largest automobile market very soon,

and there's huge capacity.

They're building factories in Shanghai to lower the cost and produce

their production because they can't make

enough cars and they need to keep their costs down.

So this is helping Tesla as part of their global strategy.

It's not just global marketing,

it's also global production and thinking across the planet.

They're also doing global sourcing for many components and many parts,

not just China but throughout the globe.

In addition to selling cars, they're also diversifying.

They're looking across the planet and asking,

"What else can we do with the strengths that we have?"

And one of the things they're looking at is saying,

"We do batteries well.

We're one of the best in the world at making low cost batteries in Tesla."

And so, recently, New South Wales in Australia had some problems with power,

and particularly with renewable power,

like solar and wind generating a lot of

power for the country and for the area, and that's good.

That's good for the environment.

It's good for the planet. We love this.

It's great for green energy to proliferate and grow.

But the problem is, the sun doesn't always shine and the wind doesn't always blow.

And so, if a lot of your power is coming from solar and wind,

but you want your air conditioner on at a time that is not a peak power production time,

or your demand exceeds your ability to handle it with your base load capacity,

you need some energy storage,

or you're going to have what Australia had, brownouts, serious problems.

You want your air conditioning to turn on,

and the electric utility says,

"We don't have power."

And that can actually damage your air con or end up

with outages across the country, and that's bad.

And so, they said, "We need capacity,

we need storage for

energy generation which comes off-peak when people don't want to use it.

And we have this excess supply of electricity,

but we don't have enough at the peak times,

and peak electricity is expensive because we've got to

use something like natural gas to run these turbines,

and that's not as good for the environment."

Tesla said, "We'll pretty build you a 100 megawatt battery."

And that's huge.

This is a massive battery farm.

And the government said,

"You know we need this really fast.

We don't know whether a startup or a young company can meet our needs.

We're not sure you're reliable enough or that

you're serious enough for the problem that we're facing.

We need something now."

And Elon Musk said, "Tell you what?

You'll have it installed, up and running,

serving your customers' needs within 100 days, or it's free."

And Elon Musk said,

"Is that serious enough for you?"

Government of Australia said,

"Yeah, that's serious enough."

They signed the contract.

He delivered in less than 80 days.

Now, normally in high-tech,

we run over budget and over time,

but not Elon Musk.

He said, "We can do this." And they did.

And they delivered, and it worked.

This is the kind of success,

not only could it be replicated in other markets,

but it gives you economies of scale in

battery production that's bigger than any other car maker,

because you're not just selling batteries,

you're selling electric utility storage capacity.

You are the battery company for the planet Earth.

That's a valuable position.

That gives you scale to be able to compete with

anybody else who might want to be in the electric car business.

So it's not just high-end electric cars,

this is the battery business.

And so, Elon Musk is very serious about that,

and he's looking at other opportunities to expand beyond just cars,

and the battery storage business,

and the green energy business, et cetera.

So, Tesla is thinking about new markets, new opportunities.

They're also thinking about international expansion,

but there are some challenges in trying to do that.

For example, Tesla's trademark.

Their brand was registered in 2006 by a trademark troll

long before they came to China as an aggressive market expansion.

They are a global company,

and they've done a great job of international strategy and branding and expansion,

but they missed this important principle

that when you're going to play in other countries,

get your trademark registered now,

first when you're young,

not when you're rich and you can be held hostage for big money.

Go quick and get that name registered because it gives you a low-cost option to expand.

Tesla had to pay a much higher price,

both in court rulings and price, to trademark trolls.

We talked about this in the trademark course.

They also have challenges in just meeting the demand that they have.

They can't even meet the US demand for the Model 3,

and now they're talking about opening up China market and selling more.

Well, that's a challenge.

And so, if you're having trouble with supply,

and some of their trouble with supply is making the cars,

some of it is making the batteries.

They want to be the world's largest battery producer.

But you need cobalt,

and cobalt to make these batteries is scarce,

and there's not a lot of supplies.

And so, when we talk about resource-based advantage,

that's a challenge for Tesla in overcoming

that dependency or finding ways to deal with that situation.

There's also some issues for the electric cars in general.

And certainly with Tesla,

the government tax incentives may be a large portion of the cost or value of the car.

And so, without the tax incentives,

if governments start withdrawing these,

and we are seeing pressure that way,

as governments start to withdraw the tax incentives,

Tesla is looking and saying,

"This could hurt sales."

But that doesn't mean you don't need international expansion,

because what happens is,

if you're only in one country,

and that government withdraws your incentives, you're in a lot of trouble.

If you're across the planet Earth,

and some of the car markets that you're competing in have subsidies, some don't,

you may have market share that will shift,

but you can move with opportunities,

move with consumer demands.

You are not totally dependent on one government's goodwill for your success.

That makes international even more important for Tesla.

So, Tesla has some challenges and some risks in international markets.

They haven't done everything right,

but they have done some impressive things as part of strategy,

both in diversifying geographically and

diversifying in terms of product offerings to where they are thinking

about the planet Earth and all products related to

battery power or energy as part of their market opportunity.

Now, of course, Elon Musk may be even thinking bigger.

He's not thinking about international expansion.

He's thinking about interplanetary expansion.

He'd like to go to Mars.

That's a little bigger than Tesla,

and that may be a little harder to achieve,

but it's part of a visionary leader in a business community.

He's not alone. He's not the only one with that kind of vision.

But for Tesla, at least,

it is important for them to be looking beyond a single country market,

and they have made half of their success now come from

outside the US and probably more over time.

Thank you.

2.8 Tesla is Going Global

Protecting Business Innovations via Strategy

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