But electric cars aren't a disruptive technology. The only thing that might qualify as disruptive about Tesla is their direct to customer sales model, and I have a hard time seeing how they'll get around the entrenched interests there.
The Model S is by all accounts an excellent car, and I want one, but I am bearish on Tesla the company.
Considering that electric cars were held up in Christensen's books as an example of a disruptive technology that would disrupt a major market in coming decades, they qualify.
The definition of a disruptive technology is one that starts off objectively inferior but which, on projected technology trends, will meet the market need at some future date. The existing market can recognize these facts well in advance, but when the time comes to switch technologies finds upstart incumbents using the new technology with a cost structure the established companies cannot match.
Electric cars qualify because they do not at the same price have the same range, acceleration, or refuel time as gasoline cars. But all three aspects are improving exponentially over time. On current trends, electric cars will be comparable to or better than gasoline cars on all three metrics within 20 years.
What Elon has done is realized that the cost difference between building a top end car and a bottom end car is not that great, and at the price of a top end car he can deliver equivalent to better acceleration and range, with recharge time that is acceptable to many. This is very unusual - normally the upstarts in a disruptive market start at the bottom of the market and move up. (Indeed that was the pattern that Christensen predicted for electric cars.) But the mechanics work the same way. By the time Tesla can deliver a mass market car at a mass market price, the incumbents won't have the technology or business structure to deliver a competitive car at a competitive price.
For all of the reasons why existing companies will not be able to modify their technology and business structure to what is needed to compete with Tesla, I highly recommend Clayton's followup book, The Innovator's Solution.
This is well put. People have rightly complained about imprecise use of the term "disruptive" -- this term does not mean "any company that has novel products compared to incumbents". You've used the more precise meaning of the term.
>>But electric cars aren't a disruptive technology.
Of course they are. They work completely differently from ICE cars and even hybrids to solve the same problem (transportation). That's the definition of a disruptive technology.
Disruptive technologies serve customers that are unprofitable ornindesirable for incumbents to serve. Tesla is a direct competitor to luxury sedans, and is beating them at their own game.
A disruptive electric car would be if a golf cart maker made a $7500 car with a top speed of 60mph and a range of 50 miles. No current car customer would want that, but people that couldn't afford a new reliable car, or teenagers whose parents only sort-of trusted them, etc would love to buy it.
Wrong. By that logic, you wouldn't have considered cell phones as disruptive because they initially cost around $9,000 (inflation adjusted). The same for PCs, and pretty much any disruptive technology.
That's one of the central points in the aforementioned book Innovator's Dilemma. Disruptive technologies often start out as expensive products that only attract a small segment of early adopters. This leads established players to ignore them. But new technology often holds greater potential for improvement (easy gains in existing technology have already been tapped). With time, cost is reduced while performance is increased, and it wins over the market.
Tesla may or may not end up being disruptive. But price certainly doesn't rule it out.
Yeah, the $100k is a red herring. The issue is not how much it costs, but what it does, and I don't see the Model S as doing anything that incumbents already don't.
Yeah, the $100k is a red herring. The issue is not how much it costs, but what it does, and I don't see the Model S as doing anything that incumbents already don't.
You don't skate toward the puck, you skate where the puck is going. This kind of thinking is why, for example, Toyota was able to build the Prius and GM wasn't.
Japanese manufacturers started earlier, building up the necessary experience, technology, and culture at a time when nobody could sell hybrids without heavy subsidies. They took losses for years, learned the hard lessons early, and kept the disasters small. Then, when the market was finally ready, they were, too.
That's what Tesla is doing... but despite countless historical examples of market disruption, the incumbents will react with great surprise when they get their asses kicked. Today the car costs $100K. Tomorrow they will know how to build one that costs $10K.
The more interesting part of the Tesla is how it changes maintenance habits for owners. I don't know the full scope of what normal maintenance is like, but it seems like there's a lot less to think about.
If you consider the change in routine fueling habits, too, that's pretty amazing. Plugging in at night vs weekly trips to a gas station is a big deal.
I think you are confused. Disruptive technologies can either start at the bottom of the market, or the top of the market. What makes them disruptive is that they serve the needs of a market segment that is currently not served very well by the incumbents.
Oh, no doubt I'm confused. But what market isn't being served that the Model S can waltz in on? It's an M5 with a linear torque curve that you can't take on long trips.
I think you might be underestimating the technological sophistication of a twin-turbo V8 that develops 550bhp at 7000rpm, in a cabin so quiet that they have to pipe artificial engine noise in -- but set that aside. The Model S doesn't do anything that an M5 can't, save charge from the mains. That's not insignificant, by any stretch, but it also seems to me less like a different class of thing than a serious, big-time but incremental improvement.
I think this is pretty much correct, but Tesla only has to carve out a niche in each market it enters to be successful. They will enter a high volume market soon. Also, the EV feature comes with side benefits of decreased weight and size. For smaller cars this will be a bigger win as comparable gas powered cars have less space to use on passenger satisfaction. So you're missing that in your comparison. How much interior+trunk space does the model S have over the M5?
I'm not underestimating the technology used in the M5. If anything, though, the M5's technology is the one that I would describe as "incremental." They took an internal combustion engine, the mechanics of which have been well-understood for over a century now, and improved it incrementally until it became a twin-turbo V8 that has a ton of horsepower.
Contrast that to the Tesla, which has been engineered from the ground up to use batteries to power it. The car is a technological marvel, even compared to cars like the M5. And this translates to a driving experience that is different enough from ICE cars* that it makes it a disruptive tech.
*instant acceleration, no engine noise, real-time graphical feedback about the car's systems, etc.
That's how many disruptive technologies start. Then their price falls until it reaches parity with the old technology, and the choice becomes a no-brainer.
Of course they are disruptive. They achieve the same capability as an internal combustion engine, but they do it in a different way.
ICE automakers can't retool their supply chains overnight (or even over several years) to make an equivelent product.
How are they disruptive? They achieve identical (performance wise, superior) capability with reduced maintenance and reduced fuel cost due to electricity being cheaper than gasoline.
In the short term, the increased cost makes them disruptive only in the high-end sedan market. As the production scales up, this will move into the lower-tier markets. I think you are intelligent enough to get this.
They're not competing against non-consumption. Tesla may well end up successful, and an electric car company could be disruptive, but I don't see their product strategy as disruptive. Sales, however, is a different kettle of fish, and I expect it to be what brings Tesla down. Car dealers are way, way, way too powerful for a boutique to take on. Look at how much was clawed back from GM by their dealer network when they were trying to kill their terrible brands.
Then, all Tesla would have to do would be to sell in Europe. Car dealerships are a lot less powerful, and the market is not regulated like it is in the States.
I believe they are/will soon be selling in the UK.
Maybe I'm just hung up on a definitional thing here. I was using "disruptive" in the sense of a market entrant picking up non-consumption and solving a problem that the incumbents are rationally unwilling to address. I don't see Tesla doing this. I see them as making a superior version of what is already for sale.
My other mistake was in saying "electric car" and not "Tesla's electric cars". Thanks to all for the interesting discussion.
PS: I still want one.
PPS: I'm still pretty sure that trying to get to scale without a dealer network is what's going to break Tesla's back. Never underestimate the power of the local car dealer.
What about gas stations and oil infrastructure? Why fill up at a store when you do it over night at home? Also, Service stations will be disrupted. Electric cars require much less maintenance, no oil changes, timing belts, or transmissions.
Those things alone have a hell of a broad impact on American life.
The Model S is by all accounts an excellent car, and I want one, but I am bearish on Tesla the company.