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.
