Tesla could be the only automaker that doesn't survive the Great Auto Disruption (TSLA)


Elon Musk

  • There is no disruption of the auto industry. But there could be a “self-disruption,” with automakers pursuing an electrification strategy that would benefit from customers changing over from gas-powered cars.
  • Tesla kicked off the latest wave of the EV era, but it might not survive its own innovations.
  • Ultimately, that outcome could be fine with CEO Elon Musk, whose vision is wider than just Tesla.
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It’s common now to hear “auto industry” and “disruption” mentioned in the same sentence. If you follow car punditry, the transportation business is daily being roiled, disturbed, upended, remade. Before you know it, where we’re going we won’t need roads, and we certainly won’t have any red barchettas to outrun gleaming alloy aircars.

I don’t actually think the auto industry is being disrupted in any meaningful way, and certainly not in the sense that the person who popularized the theory of disruptive innovation would recognize (that would be Harvard’s Clayton Christensen).

If you want to follow along at home, the upshot here is that Tesla, often named as the Prime Disruptor, is really just a car company whose cars run on electricity rather than gas and whose CEO runs a side business launching rockets.

Read more: Tesla’s business is a mess — but it’s actually not that much different from every other car company

However, as established automakers have begun to pursue much more aggressive electrification strategies, with an eye toward capturing what could be huge chunks of a future China market (perhaps 40 million in annual sales, with half or more powered by electrons), the prospect of a more interesting disruption has developed.

Classic disruption versus opportunistic self-disruption

2019 Taycan Concept

Classic disruption theory requires that incumbents be out-innovated by new entrants, who start out at the low, cheap end of the market and gradually advance their innovations to the point that they overwhelm the established players, who basically can’t keep up.

The theory can’t apply to EVs because the vehicles are too expensive; even a relatively inexpensive EV, such as the Chevy Bolt, is priced around $40,000. Tesla’s cars sell for between $50,000-100,000. 

But I’ve come to think that while disruptive-innovation-style disruption isn’t taking place, a more productive version of “self-disruption” is. I might even go so far as to term it opportunistic.

The process goes like this. A Tesla comes along, with a wildly high-risk business model, and the big guys are happy to let Musk take his shot, gobbling up risk, validating a market, and spending other people’s money. The large car makers know that the business is extremely difficult, narrowly profitable in the best of times, and capital intensive. So they keep pace and make sure that a new player like Tesla doesn’t achieve an unanswered breakthrough.

But then what? 

Well, once the market becomes promising, the big automakers start thinking in terms of what I’ll call the CD paradigm. 

Read more: Everyone thinks passenger cars are dying in the US auto market — but Honda disagrees

Replacing gas cars with electric ones

discman 1984 cd player

From roughly the mid-1980s until the arrival of online digital music platforms in the early 2000s, the music industry found an unexpected windfall in the compact disc. People bought CD players, the technology went into cars and became portable, offering better sound quality than cassettes, and folks had to switch over their music collections from vinyl records. The music business then basically resold everything they had already sold, in a different format (and often without even digitally remastering the previous vinyl releases).

The analogy isn’t perfect, but the auto industry could be considering a similar outcome with gas-burning cars and electric vehicles. Over the next few decades, for various reasons ranging from government regulations to consumer attitudes toward global warming, car makers could see significant turnover in existing fleets. It doesn’t matter what these vehicles are powered by — if people want to buy them, automakers will manufacture and sell them.

Several trends in the industry suggest that we’re at the leading edge of this opportunistic self-disruption. General Motors brought the mass-market Bolt from concept to reality in about a year and has partnered with Honda to develop an autonomous EV; Porsche is rolling out its Taycan, which could be the first high-performance luxury EV of note; and Ford and VW have joined forces to use VW’s EV platform in Europe, where both companies have regulatory concerns.

We could be heading for a the largest replacement wave of vehicles worldwide in the history of the automobile.

So where does this leave Tesla?

The leader that becomes the follower

Tesla Model 3

Read more: An all-electric Ford F-150 pickup truck prototype has towed more than a million pounds

The leader is now playing catch-up, although it currently dominates the existing EV market. Tesla has just one factory, with a new facility under construction in China and a third, the Nevada Gigafactory, doing double duty as a car-and-battery plant. Tesla could be steamrolled by global capacity, as it isn’t terribly difficult for a car maker to convert a factory that makes gas vehicles to one that makes EVs.

I know that sounds bad, but I don’t think it means the end of Tesla. The company could handily survive as a producer of high-margin, high-priced vehicles. It might even achieve wider market penetration, but it would have to spend a staggering amount of money to expand its manufacturing capabilities.

Then again, Tesla could fail.

But here’s the kicker: to Musk, that wouldn’t entirely matter. His overarching goal has always been to replace the fossil-fuel-powered car with an electric one. In that sense, Tesla has always been a means to an end, and ultimately, the needs of the many outweigh the needs of the few. Or the one.

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