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Is Tesla Disruptive?

To the analyst, the car industry is a wonderful study. Unlike some other “high technologies,” whose market births and deaths are separated by a few changes of the seasons the automobile industry has been around for well over a century. It has been sustained through dozens, perhaps hundreds of innovations. Almost everything about the car of a century ago has been improved.

Not only improvements to the product itself but improvements to the infrastructure that supports it: roads, gas stations, services, insurance, regulation. At the same time, its numbers have increased steadily as the car has spread to all corners of the world through waves of increased production and distribution. Although invented in Europe, the production system that allowed it to reach the mass market took hold in the US. That production system was then exported to Europe then to Japan and then to Korea and now to China.  Screen Shot 2015-05-28 at 5.30.54 PM

Figures 3.3.9 and 3.3.10 from Arnulf Grubler’s The Rise and Fall of Infrastructures

However, throughout this century of improvement, the business structure—the way money is made—has not changed. Even with the arrival of Volkswagen in the 1960s and Japanese automakers in the 80s, the network of incumbents has not been displaced. Newcomers have taken share, but there have been few exits suggesting that classical disruption has not taken place.

When we look at the reasons for the share displacement that did take place, we see innovation in production systems and distribution as the core causes. We see new manufacturing processes and competition against non-consumption. What we don’t see is new technologies. We don’t see diesel engines or anti-lock braking or crumple zones or fuel injection or radial tires or airbags or automatic transmission or air conditioning or electronic ignition or safety glass, or any of the other hundreds of technologies that have been adopted as causing any change in market share.

Screen Shot 2015-05-28 at 5.32.41 PM

Every innovation tends to diffuse rapidly throughout the industry, being widely adopted by all manufacturers. Production systems such as the ones from Ford and Toyota have been much slower to be adopted which has offered those innovators an advantage for a few decades, but they too have eventually been widely copied and created normative behavior. The opening of new markets like Asia, Eastern Europe, Latin America, Africa and China have created opportunities for local manufacturers but eventually those advantages too have or will be diminished with time.

So, given this, we have to ask if the the availability of new power storage technologies would allow an early mover to displace and move aside these established makers. To answer in the positive would imply that the challenger has an asymmetric business model—one which causes the incumbents to flee in the opposite direction. But Tesla is manufacturing cars using the same JIT processes and ramping quite slowly. Toyota-style process-driven innovation does not seem to be even in the works. There is no shortage of manufacturing capacity, indeed there is too much.

Furthermore, Tesla is selling cars in established markets competing against existing consumption. Volkswagen Beetle or Model T style competition against non-consumption does not appear to be on offer.

Tesla’s product introduction rate is relatively sedate, so a higher rate of product development which might let them “turn inside” the incumbents, does not seem likely.

Finally Tesla is introducing products priced well above average appealing to the wealthiest of customers, again causing us to ask how this might cause a luxury company to look at their solution and exclaim “Not for us!”.

Looking from every angle I am unable to find the way that Tesla is asymmetric. Disruption theory suggests that whatever causes it to survive or prosper will be embraced and extended by competitors precisely because it will also cause those competitors to survive and prosper.

The auto industry may be a lot slower than the computer industry to respond. But once the industry embraces battery-based power, it will convert a world-wide production and distribution system to sustain itself.

That does not mean Tesla is a bad business. They may carry on with Porsche-like or even BMW volumes for a long time. But that’s not a disruptive outcome, it’s a niche strategy.

There is one more point. As Tesla has chosen to share its intellectual property and as Elon Musk has stated publicly, they welcome others to build the same cars they do. So by their own admission the company does not seek to disrupt. Disruption is a competitive stance.

  • Sage

    Just curious, what was the dip in automatic transmission and power steering adoption around 1960 caused by?

    • Walt French

      It *could* be due to the recession of 1960–61. Consumer spending, especially on big-ticket items, sagged a bit during that time.

      Also, the most flamboyant models — 1959’s Cadillac comes to mind — may have caused a bit of a conservative backlash or at least made for a catch-up opportunity for some of the newer compact models. The Falcon was introduced in 1960, and competed against against the Chevrolet Corvair, the Dodge Dart, Plymouth Valiant, and the Chevy II. These lower-cost models would’ve generally sported stick-shifts, both because the smaller engines needed all the efficiency they could get and because the automatics were less reliable. Likewise, they were light enough that power steering, then relatively less reliable, was not required.

  • Luis Alejandro Masanti

    Why do not see it with a wide angle lens?

    Actual automobile’s industry begins with oil prospection and extraction to climate change in the other end.
    So, if Tesla ‘breaks’ the oil-dependency of cars (and alleviates the climate problems), it could be seeing as disruptive.
    Of course, energy must come from somewhere, so the ‘new paradigm’ should include whichever means of producing the electricity to feed the Teslas.
    Just an idea.

    • A Guy

      It isn’t disruptive if the other car manufacturers are just as good at putting batteries in their cars and using the batteries to produce rotation of wheels. I don’t believe that process is all that hard. It strikes me as much easier than producing miniature explosions and using that turn a crank. I believe I could buy battery powered lego cars and build them as a kid decades ago.

      The point is that Ford is going to be able to do this as well as Tesla unless Tesla comes up with something really cool. Which it doesn’t seem like they can yet.

      • Luis Alejandro Masanti

        We can see the iPhone as disruptive and all the other making the same thing… OK, copying it.
        So… maybe, Tesla is disruptive even if all the others make the same electric car.
        I truly do not know if Tesla is disruptive, but on the other hand, it also is selling by itself and not thru dealers. Maybe they are disruptive there,

      • incumbent

        A lot of mobile phone incumbents, such as Nokia and Blackberry, were essentially put out of business by the iPhone. Which car companies will Tesla drive out of the market?

    • http://www.asymco.com Horace Dediu

      Because you are observing correlation not causation. Oil discovery did not cause the automobile and additional oil production did not cause additional car production.

      • Luis Alejandro Masanti

        Thanks for the clarification.

      • Walt French

        Seems a BIT more involved. Oil production was pretty much unnecessary except for the machine age, gas for lighting having become obsolete at about the same time. And countries without access to coal or petroleum were a lot later to the industrial age, and widespread use of cars & trucks.

        I’d say more co-evolution or in Econ terms, a problem with endogeneity: demand for both cars & oil depended on the (somewhat exogenous) invention of the internal combustion engine. The relationship between oil & autos is obviously structural, not merely statistical coincidence, and understanding such challenges as more than throwing one’s hands into the air and giving up, has been dealt with since about 1928.

  • Techy3

    There is one disruptive element to Tesla’s business strategy and it’s distribution. While companies like Mercedes have marketing the ability of some of their models to go 100,000 miles before they need their first tune-up; Tesla has pushed that selling point further than anyone else. They don’t have dealers and they brag about their over-the-air software updates rather than how much fun it is to come into their dealers for service.

    If the prices of battery packs decline and other manufacturer’s start building electric cars then they will have to price in the cost of supporting a dealership network that relies on the parts department and regular fluid changes to pay it’s rent- revenues that won’t be available from cars with many fewer moving parts and hydraulic systems.

    If electric cars move towards commodification with every manufacturer selling some version of a rolling battery pack; then a company without a traditional dealer network may benefit. This doesn’t seem to be a big enough strategic differentiator to justify Tesla’s market cap; but it is one way in which they have revenue model and operating cost structure that is asymmetric to the incumbents.

    • Walt French

      All the pro-dealer laws exist because dealers fought against the manufacturers’ efforts to assert more control, successfully, in state legislatures.

      Other manufacturers would be happy to bypass their dealer networks if it were economically significant (which, as you suggest, it is), and also possible. If Tesla wins the right to bypass state rules for dealerships, rest assured that the other manufacturers will similarly move the same way.

      • Techy3

        Tesla’s distribution model is not really available to other companies precisely because they sell non-electric vehicles. They have to service those vehicles regularly. Tesla claims that they don’t need dealers because they don’t need to provide those services.

        If the franchise laws were altered or repealed to allow the incumbents to sell electric cars through other channels:

        1) the incumbents would still be supporting millions of deployed gas-powered vehicles, so they couldn’t really close their existing dealerships very quickly. Those dealers would need large margins to put any effort into sales of electric cars.

        2) Part of the reason why incumbents incorporate new ideas but companies with new ideas can’t catch up to the incumbents is because the advantage of having financing arms, joint advertising budgets with local dealers etc. acts as a huge barrier for a newcomer to overcome to compete for awareness and sales even if they have an equal or better product. If the incumbents start selling through channels outside their dealership networks then they’re surrendering part of what Warren Buffet would call their business’ “moat.”

        3) Internal politics matter. For GM to cross it’s dealers in any way would take amazing brass. As the smaller upstart, Tesla doesn’t have conflicting internal divisions in it’s bureaucracies that must be overcome to try something new.

        Again, this doesn’t seem like enough asymmetry in cost structure, scalability, or value proposition to justify a $20B market cap for a start-up; but it is a real difference and not one that GM or Ford could mimic without colossal reorganization of their priorities and processes.

        Arguably a non-American, non-incumbent electric car maker (BYD?) could mimic Tesla quite easily if Tesla ever became successful. Tesla’s only differentiator against that sort of competition would be brand-strength (hence the ample paublicity budget and cult-building around Mr. Musk) and reputation for quality (Consumer Reports winner)

      • A Guy

        Tech you are wrong. The dealer laws are justified by the dealers with arguments about servicing the cars. But that is not reason for those laws. Your local unaffiliated mechanic would be happy to have your business. In the rest of the world (using the same cars) they do not have the same dealership laws. The dealership laws exist to maintain the businesses of dealers. This allows the dealers to grab a piece of the pie between car manufacturer and customer.

        If those laws are revoked, the manufacturers will all drop their dealers or at least change the terms of the deals. It won’t take more than a couple of years. Tesla has no real advantage here. You can make the argument that the car manufacturers will keep propping up the dealers because fo some entrenched corporate culture. But that really only goes so far. The laws are there because the dealers are one of the big businesses in town and the sponsor the local politician and the local kids little league team. They don’t really provide a meaningful service when we are talking about selling a commodity product.

      • Techy3

        But if the laws are not changed (and they haven’t been in most states so far), then Tesla will continue to operate a different sales and distribution channel than any current manufacturer is able to.

      • A Guy

        Maybe they will but they have also been legally restricted in the way that they sell. I believe Folks can’t actually buy from their show rooms, instead they are directed to buy online and then receive delivery. I don’t know if Tesla can really move large numbers of cars to the mainstream consumer in that fashion. Right now they are just moving a sports car that rich folks are buying as their second, third or possibly even fourth car.
        There really is no reason why Tesla should be allowed to sell directly and the other manufacturers can’t.

      • Tatil_S

        Other manufacturers have a dealer network that they need to buy out, as those dealers argue that they have spent a lot of money cultivating a market for that brand in their region. They wouldn’t have put in that effort and expense if their agreements were easily revokable. In other words, yes, there is a reason.

        As Tesla never had a dealer network, it doesn’t fall under the purview of dealer protection laws in many states, and you can actually buy the car in the showroom there.

      • http://twitter.com/brian_henderson Brian_Henderson

        Regional Dealer Association laws are an USA anomaly … elsewhere around the globe there are other channels to purchase vehicles. (including online sales outside a dealer network)

    • http://www.asymco.com Horace Dediu

      Automakers would love nothing more than to be rid of their dealers.

  • Yoda

    Perhaps Tesla’s aim is not to disrupt the auto industry but (with the help of others) to dirsupt the car fuel industry.

    • leberumen

      That’s exactly right. “Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible” http://www.teslamotors.com/blog/mission-tesla

    • marcoselmalo

      Yes. Tesla is one component of Elon Musk’s larger strategy.

  • art hackett

    I still can’t see battery powered vehicles as anything but novelties till there are massive changes in the technology. They might work as short distance shuttles or even Horace’s autonomous transports, but there would have to be far more charging than “on the road” at any time. Till there are fuel cells which can be refilled easily or super efficient mini generators (hybrid style) charging batteries away from base, probably liquid or gas fuelled and reliable enough for easy or minimal maintenance, there is little point in mass electric vehicle adoption.

    • http://twitter.com/brian_henderson Brian_Henderson

      Sounds similar to what Blackberry execs said, not too many years ago.

      • art hackett

        How did you know I was a bb exec?

    • http://fakeapple.com Fake Tim Cook

      A Tesla Model S has a hot swappable battery pack that can be replaced in 90 seconds. https://www.youtube.com/watch?v=H5V0vL3nnHY

      • art hackett

        At home? By Mother? As easy as filling a tank with liquid with a standard delivery device?

      • art hackett

        Sure, but what happens if you’re not paying sufficient attention and you go flat, not in towing distance of a suitable power point? I haven’t run out of juice, ever I think, but I’ve come close due to faulty information, and I can do over 1000km per “recharge”.
        It might seem petty, but these are still major hurdles to general adoption. How much is the battery swap? How many locations?

      • shilly

        Eh? You can not pay attention to a fuel gauge and run out of petrol, or you can not pay attention to a charge meter and run out of electricity. These are not materially different concerns. Range is a concern, but Tesla was specifically set up with addressing range as one of its three major challenges (the others being performance and price, with the latter addressed by (a) funding the Model 3 from the Model S and the Model S from the Roadster, and (b) building the Gigafactory. As for the price of the hotswap, the whole point is that drivers will get a choice at a charging station: 10mins waiting and enough free juice to get to your destination or $60 bucks for 2min hotswap. The hotswaps are intended to be rolled out across the Supercharger network, AFAIK. And that network is clearly intended to be ubiquitous in time, assuming that the money doesn’t run out.

  • FC

    How about Tesla’s supercharger network as a disruptive agent. It’s free energy vs others’ slower charge plus fee.

    • 程肯

      Yes, but those who can afford a Tesla can also afford the ~$500 in electricity a year that the Tesla would use. The attraction of the supercharger network is not the zero cost, but knowing that there is a power infrastructure that will minimize the inconvenience of long distance travel from home.

    • Techy3

      Tesla also seems willing to make these chargers available to cars made by other manufacturers. They’ve open-sourced the IP for these superchargers and are making little effort to keep this network proprietary.

  • David W.

    You’re looking for disruption in the wrong place. The “car” is pretty well established. It provides transportation for between 1 to 8 people. It needs to travel well between the speeds of 5 to 70 mph. It has to fit into the current parking space. It doesn’t matter what the engine is or how it runs. Cars are going to be fairly expensive, big machines that most people need.

    That’s where disruption will happen. What if our basic assumption about cars and what they need to do is all wrong?

    Disruption will come from companies like Uber and Zipcars which is changing the assumption that we even need a car. I have two sons who live in New York City. Neither has a car and neither wants one. Too expensive and too much effort to maintain and park. If they need to go somewhere beyond where the subway can take them, there’s Uber. If they need a car for a weekend trip, their’s Zipcar located down the block from each of their apartments. When I was out of college, the first thing I did was get a car. Heck, I got one while in college. Many kids today don’t want one.

    The true disruption will happen when cars can drive themselves because that will completely change how we think of cars. Right now, people buy cars based on what they think their maximum need may be. I might use my car 90% of the time driving only myself to and from work, but I want an SUV because I occasionally pick up large loads at Home Depot. I have three cars at home, so the rare occasion when my wife, my child, and I all need a car, there’s a car. And, when we all do need cars, they actually spend 90% of their time parked somewhere.

    Imagine if I could always summon a car like I can with Uber, Imagine I can summon the car I need when I need it. Do I need to actually own a car? If all cars can self drive, do we need to spend all that money on vehicle control infrastructure? Does a self driving society need stop signs, traffic lights, or even controlled access roads?

    It’s not the engine that will be disruptive. It’s how we think about cars that will change.

    • rational2

      Tesla could change some aspects of the car business model — no dealers, no need for much servicing, no fuel — but it won’t, of course, remove need for a car. But if it can perturb this system enough to upset the established order, that’s a task well done.

    • sense

      “You’re looking for disruption in the wrong place.”

      The question addressed by this article is whether Tesla is disruptive, so this criticism doesn’t make much sense.

      • neutrino23

        I think he is making the point that Tesla is not disruptive. In the current car business a company integrates various technologies to produce a vehicle that is sold (or leased) to an end user who is responsible for driving it and maintenance. Changing the tire technology or drive train technology might be a competitive advantage but is not disruptive.

        Here are some ideas of what I think disruption might look like.

        Apple could sell a self driving car to a fleet owner. Apple would earn a share of each fare. There would be no yearly model changes. Cars would change gradually. It would completely change the insurance business and the car repair business would disappear. Cities would need different financing if cars almost never got tickets or needed to pay for parking. Homes would be built differently if you didn’t need a garage or a driveway. If people didn’t own cars the world would be very different.

        Apple could collaborate with other companies to make a standard car platform, analogous to the PC of 1990. The frame would have standardized attachment points. Different companies would supply the engine, interior, body styling, electronics. I’m not suggesting this is practical. It is a different way to organize the business. Instead of a dealership you would visit a systems integrator to buy a car. You would have a huge variety of components to choose from.

      • David Leppik

        Except that Apple has never been particularly good at B2B sales. Their heart isn’t in it. Corporations want consistency and predictability (including a transparent product road map.) I don’t see Apple targeting a fleet vehicle market.

        Uber, on the other hand, recently poached 40 researchers from Carnegie Mellon’s robotics department. They have an interest in self-driving fleet vehicles.

    • Luis Alejandro Masanti

      Jesus! The car is going the way of the wired home phone!

    • Walt French

      A coworker surprised me 40 years ago by saying most SF residents didn’t need a car: expensive to purchase, garage, insure, etc. Meanwhile, taxis & rentals were easy to find in a tourist city, for when he needed to escape to the mountains or Muir Woods.

      The economics have only changed in favor of his argument. ZipCar and Uber are only small parts of the change. Still, most of us, even in urban areas, keep a car or two per household.

      This week I filled up my low-MPG Acura for only the 5th time in 2015; I guess it’s getting close to where my bike covers both my daily commute AND short hops around town, possibly supplemented by transport/car services, as a cheaper and flexible alternative to owning. Part of a trend that’s been on a slow rise for 40 years, only recently ticking up due to the new economics of living in an increasingly dense urban area.

    • http://www.asymco.com Horace Dediu

      Are you suggesting that Tesla is or is not disruptive?

      • Chris Hockley

        Their investments appear aimed at disrupting the energy sector more than the auto sector. Gigafactory is building batteries, not cars.

      • http://www.asymco.com Horace Dediu

        That may be, but several problems appear. 1) As a battery vendor their primary customers seem to be utilities, (hence not establishing a separate value networks) and 2) if they did somehow also become an utility, are their current investors prepared to accept the margins and regulation that comes from being a utility as opposed to an automobile manufacturer. If current investors become disillusioned with the prospect, how would further funding become available to disrupt such a high capital-intense-global-but-fierecely-locally-regulated industry?
        And, finally, even as a battery maker, I don’t see how China, Inc. could resist not swamping Tesla with over-capacity.

  • http://www.isophist.com/ Emilio Orione

    Tesla has a different strategy, they are building a dedicated fueling network of charging stations while slowly selling electric cars at high prices.
    After the network will be completed they will have a strong differentiation from competitors in the electric cars sectors. Every competitor will have to build his network from scratch to compete.

    The high price of current Tesla cars is due to the high battery requirements needed having a charging station every 200 miles with half an hour recharge time.
    When the network will allow fast recharge with switching batteries every 100 miles, lower price cars will be possible.
    The base of competition in the electric cars market is not the car but the charging limits. Whoever will be able to solve the charging problem will have the electric market and once the problem is solved the electric engine is disruptive against the combustion engine, for fuel cost, regulations and long term energy strategies.

    • http://twitter.com/matthewwanderer Matthew

      “Tesla has a different strategy, they are building a dedicated fueling network of charging stations while slowly selling electric cars at high prices.”

      Tesla’s Supercharger network and the Powerwall announcement telegraph a strategy that has Tesla looking more like a power company than a manufacturer of cars. Now factor in SolarCity’s plans.

      When the transportation part of Tesla hits full stride, I wouldn’t be surprised if we view that Tesla product line as equal parts transportation and mobile power.

      Tesla is disrupting the power industry, not the car manufacturing industry (for all the reasons HD outlines above).

    • http://www.asymco.com Horace Dediu

      You assert that each car company will build a separate charging network. This is not the situation in the present. All car manufacturers have agreed on standards for charging stations and there is wide availability of agnostic charging stations. I don’t believe the Tesla Supercharger network is exclusive to Tesla. See: http://my.teslamotors.com/forum/forums/sharing-supercharger-network-other-ev-makers

      • http://www.isophist.com/ Emilio Orione

        Tesla is developing two different type of recharge stations, they started with recharge stations and then they added quick battery swapping.

        The battery swap features is obviously Tesla only, while the recharge could be shared, but will it be really sharable?

        A Tesla owners get the recharge for free, I suppose that a not Tesla owner should pay the recharge but there are not charge counters and paying methods in the recharge points, how will it work, with a subscription? Tesla will become an energy supplier for competitor’s cars without their own charging station network?
        How fragile could that be for a competitor, if Tesla change its policy all his users will be without recharge, deals will have to be made and paid with Tesla to allow the use of their recharge network with competitor’s cars. This will give an advantage at least in price.

        A second issue is compatibility. Tesla is pushing hard to get less recharge time increasing the kW available in their charging points and upgrading the charging counterpart on cars. This technology is changing fast, will competitor’s cars be compatible with Tesla quick recharge mode or will they be constrained to hours of recharge time? Will their cars support high kW charging? Will they upgrade when Tesla does it?

        Obviously a theoretic openness of recharge points could clash with effectivity of recharging compatibility that will be guaranteed only for Tesla models.

        I think that recharge points are different form fueling stations because the recharge technology involved for quick recharge or battery swapping will be a differentiation point and owning the recharge points will give an advantage.

        Solving the electric mobility problem means solving the recharge problem and the one who does won’t share his solution with others to clear his advantage. Openness will have limits and it will only be truly done in deals where the parts have a similar number of charging points, so that each one can benefit from the other network, unbalanced deals will have limits.
        So again to compete and get fair deals you will have to build a consistent mass of charging points in different locations so to be a useful complement for the existing network.

        Here is another example of a proprietary charging network built to give competitive advantage in electric mobility: http://www.theverge.com/2015/6/9/8750399/gogoro-smartscooter-experience-center-taipei

        Everyone can make an electric scooter, proprietary charging points are all the difference.

      • http://www.asymco.com Horace Dediu

        You’re arguing against Tesla’s stated mission statement. I wouldn’t do that.

      • http://www.isophist.com/ Emilio Orione

        You are right and I didn’t want to argue that, but I think that charging stations will evolve with battery technology and if you integrate both car production and charging stations network you have an advantage want it or not because you can evolve seamilessy while not integrated solutions could not.
        Furthermore battery swapping is not easily opened so if your stations swap batteries you have a distinction point.
        The asymmetry toward traditional car makers is making cars and energy networks.
        Even if your mission is an open energy network you will nevertheless be in advantage against car producers only because of the control of the evolution of the network.

        Just think about a car only producer creating a faster charging solution, he will have to wait for the network to comply before his car can use the solution, while Tesla could upgrade both the car and the network gaining a competitive advantage.
        You can’t decoupling the network from the cars like you can for fuel since the charging solution must be adopted both by the stations and the cars to succeed and because the price of the electric fuel is not high enough to sustain a charging only business that upgrade independently.

      • http://www.asymco.com Horace Dediu

        The interface between battery and grid is a century-old innovation called the transformer. There is no problem that needs to be solved whose solution can be made valuable through proprietary implementation. The interface lends itself to standardization more easily then perhaps any interface I’ve ever heard of.

      • http://www.isophist.com/ Emilio Orione

        It is not that simple. The problem is decreasing charging times, you can do that charging more batteries at the same time, you need more kW and you need more control on heat and locations of recharge.
        Not all cars can recharge at 20 kW and not all recharging stations car deliver that quantity of energy for one recharge, and the next stations will do 40 kW or more.
        To decrease time charging stations must increase the kW available while car hardware and software must be able to handle the higher parallelism of recharge and the high heat.

        There is new technology involved, there is innovation, it is a point of diversification and evolution.
        You can swap batteries, you can use higher kW, you can change batteries recharge times, you can change the intervals of recharge of each battery to find the quicker way, it is the field where the battle for electric mobility is fought.

  • Tatil_S

    I don’t know if it would amount to disruption in the classical sense, but at the very least Tesla’s sales & service model is going to be very difficult to replicate for established car companies. Dealers, for sales and repairs, are extremely disliked by consumers. They are chasing the short term returns, most do not care about customer loyalty when the next purchase by that consumer might be ten years away, in another town. Most sales people work on commissions, which is always an incentive to dupe and overcharge, so many do get tempted by the short term rewards.

    It is similar to Apple Stores vs. third party phone or electronics stores. Samsung, Sony etc have still not caught up, the chances of car companies catching up is even more remote. If a company already has a dealer network, it is very difficult to get rid of it and bring it in house due to legal protections. That is in addition to the company cultures of many of the car companies that is sure to resist major changes. (“Culture eats strategy for breakfast”) It will be very difficult for many of them to change until the company is circling the drain.

  • Dr. Dean Dauger

    “Looking from every angle” Then you need to think harder or seek ideas from a dissenting opinion. The “car market”, far from monolithic, operates as numerous submarkets. A buyer interested in a high-performance sedan finds the truck market irrelevant, and vice versa. Most looking for a gas car replacement will be uninterested in a below-100 mile BEV, hence a demand-constrained market: Chevy stopped production of its Volt to clear inventory. Incumbent automakers are not really in the car market; they’re in the gas engine powertrain vertical, from design to maintenance, sourcing the rest from suppliers. Meanwhile Tesla’s long-range electric powertrain is disrupting every submarket it touches, and their >200-mile BEVs are supply constrained.
    “Once the industry embraces battery-based power” A good researcher offers evidence supporting their claim; Dediu offers none. Tesla sold the first long-range (over 200 mile) BEV to the public in 2008, _seven years ago!_. In those seven years no incumbent has put any 200-mile BEV on the market. Even Elon Musk is surprised at that non-response. Meanwhile the incumbents have only vaporware, aspirations of Chevy’s and Audi’s first 200-mile BEV in 2018, maybe. If true that’s a decade behind Tesla, by which time the $35k Model 3 will be for sale.
    The incumbents cannot embrace long-range BEV because it would kill their gas-engine cash cow, so they must move at most slowly, providing only short-range BEVs that do not disrupt.
    Tesla, with no such burden in the gas-engine vertical, has the unique opportunity to disrupt any submarket it chooses.

    • tesless

      Given that they sell in such small numbers and don’t make a profit, not being currently followed by incumbents isn’t a good measure of how disruptive they are.

    • DesDizzy

      Maybe “incumbents” have to sell cars at a profit and without similar subsidies to those given to Tesla, they cannot.

    • tmay

      AFAIK, Elon sells three different battery capacity tiers, and built his second car around them that matches other luxury sports cars in build. His first EV was based on a Lotus chassis.

      If the context is a disruption in the battery market, then I will give him credit when he is successful. Packing more battery capacity tiers into a car model is an innovation, but not disruption. Any of the manufacturers with EV’s or even hybrids could do the same, and most likely would as well lose money at this point in time.

      Manufacturing more battery capacity to drive faster adoption and longer range of EV’s might turn out to be disruptive to the industry, but if it is, Ford, Toyota, and GM will likely be the beneficiaries.

      • Dr. Dean Dauger

        Tesla will have a monopoly on the least expensive battery supply, the Gigafactory. Selling any of that supply to other automakers goes against Tesla’s mission statement “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible”. Recent analysis shows that Tesla’s battery costs will be below that of other carmakers for years to come:

        http://www.marketwatch.com/story/heres-how-tesla-batteries-will-beat-the-competition-2015-05-19

        That long term cost reduction solely benefits Tesla and will allow them to grow their BEV production faster than anyone else can.

        Where are the other automaker’s Gigafactories? A publicly traded company cannot keep a $5B, five-year, 179-football field project secret.

  • Samaira Khan
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  • David Leppik

    Remember the Apple QuickTake? A digital camera the size of high-powered binoculars, that took VHS-quality photos? Not very disruptive at the time, but a harbinger of things to come.

    I see the electric car disruption coming from the supply chain.

    Tesla may not be the one to get us there. But considering that GM, Tesla, and Nissan all plan to have relatively affordable all-electric cars with 200-mile range within a few years, we’ve got at least three different battery suppliers scaling for an electric future.

    The whole reason there are so few car companies is that car manufacturing is complicated. Every internal combustion car company has its own complicated, company-specific supply chain. The cost to enter the market includes manufacturing your own engine, plus a whole host of other parts. Only the tires have a third-party brand name.

    Contrast this with PCs, where the components are standardized and the manufacturers assemble them from brand-name parts. Your Dell and your iMac both have Intel processors and name-brand GPUs. The cost to enter the market is so low that profits have been crowded out of all but the high-end models.

    With electric cars, all you need is a battery pack and an electric motor. Okay, you also need windshield wipers, brakes, headlights, seats, etc. But all of these parts are conducive to outsourcing in a way that engines aren’t.

    An internal combustion designer’s “special sauce” is a combination of custom parts. An electric car designer’s “special sauce” will be their unique combination of off-the-shelf parts.

    Tesla is paving the way for a host of other companies—possibly including Apple—to enter the market more quickly. Some (like Apple and Tesla) will compete on high-end design. Others (Dell or its equivalent?) may compete on price or build-to-order options. What’s more, by building cars from off-the-shelf components, electric car product design cycles will be much shorter, making it harder for traditional car manufacturers to compete.

  • Jerry Leichter

    “Even with the arrival of Volkswagen in the 1960s and Japanese automakers in the 80s, the network of incumbents has not been displaced.” That’s true only if you ignore the government interventions that pumped huge amounts of capital into the industry. To engage in some hyperbole, saying that GM hasn’t been displaced is like saying Zenith hasn’t been displaced because I can still buy Zenith electronics. The new GM is a shadow of the old behemoth, having left many of its creditors and stockholders behind, and even its survival is by no means certain. And it’s not as if this is the first time: Chrysler was saved from bankruptcy by government intervention back in 1979.

    The fact is, by 1979 the US decided as a polity that we weren’t going to allow our major automakers to go out of business. Given that, economic and business analyses based on the observed fact that none of them have are simply meaningless.

    I don’t want to get into a debate over the term “disruption”. As a term of art, it means what those who use it technically want it to mean. As a plain English word, the effect of Japanese imports on the American auto industry was clearly a major, if slow moving, disruption. The first part of it, when “Japanese car” was equated with “smaller, cheaper, uses less gas – but just barely competitive on styling and build quality”, was similar to the pattern we’ve seen in (most especially) the computer industry. What’s fascinating is that the Japanese manufacturers managed to pivot over time to selling exactly on build quality. It’s as if Apple started out as a vendor of cheap PC clones.

    What would have happened in a world in which the Japanese makers had decided to continue to drive cost and price down and move upmarket much more slowly than they actually did? Would we be looking at American makers locked into a slow-growing or even shrinking high end, with GM heading toward making only Cadillacs?

    • http://www.asymco.com Horace Dediu

      I am offering a view of the realities of the industry as it exists. The fact that incumbents are not allowed to fail is still a fact which needs to be included in the analysis. In another world perhaps Toyota would have displaced GM but in this world it did not. My observations of the perversions/anomalies of this industry were summarized in the first link posted: http://www.asymco.com/2015/02/23/the-entrants-guide-to-the-automobile-industry/

  • ptmmac

    Tesla does have the potential to be disruptive. The purpose of the company is to disrupt our current transportation status quo. That would be a social disruption rather that an economic one, but successful economic disruption has always entailed social disruption.

    The necessary ingredients seem to be well thought out by Mr Musk. He seems to be interested in controlling supply of the batteries, and the early charging network, plus the software that makes the charging possible. The software should include autonomous driving, fast charging systems, and hardware wear data collection. The rate of change for electrical systems is much faster than the rate of change for mechanical systems. Data from the first fleet of cars, new business models, charging services, lower cost batteries and lower maintenance costs, are all aspects of the disruptive change that Mr Musk is attempting to pull off. It is the very granular nature of this disruption that makes it harder to see then the iPhone.

    The monopoly behavior of the Mobile Telecom Corporations is very evident in the lack of customer satisfaction. The competition for automotive market share is much more dynamic and the political clout of the automotive sector is quite high. The blow back from the dealers over Mr Musk’s business plan in New Jersey is clear evidence of this. I believe Tesla has had to be much more careful then Apple needed to be. The other problem for Tesla is the much slower change of pace in battery technology which is a form of chemistry rather than electronics. The chemistry field has had it’s own growth trajectory pushed upward by the improved control of the nanotech scale processes.

  • ev

    Worth noting that Elon dislikes the term disruption.

    • http://www.asymco.com Horace Dediu

      The term or the theory?

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