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Along with models like the 2019 Jaguar I-PACE, Audi e-tron, and upcoming Porsche Taycan, we're seeing a new generation of high-tech battery-powered vehicles that bring an exciting new direction to legacy automakers. These models also have something important in common: They aim to disrupt Tesla, the industry’s de-facto electric car leader.

Disruption is a word thrown about with abandon these days as veritable institutions of business and commerce fall from grace, or at least profitability, at the hands of an ever-changing and disruptive world. Think Sears, Borders, and Kodak. The list of major companies disrupted – either gone, a shadow of their former self, or on the ropes – continues to grow. While the auto industry has largely escaped this same fate, change is definitely in the wind. And its bogeyman in recent years has clearly been Tesla.

tesla-model-x-actionPREVIOUS DISRUPTION: We’ve seen the auto industry disrupted before, not by innovators but rather by geo-politics, circumstance, and a lack of long-term vision. The Arab Oil Embargo of 1973 and the 1979 Oil Crisis that brought serious gas shortages were a result of political disruption. It was a time when stations ran out of gas, lines of cars snaked for blocks as drivers tried desperately to keep their tanks full and their car-dependent lives on track, and consumers looked for more fuel-efficient vehicles to ease their pain. The problem, however, was there were few fuel-efficient models being produced since there had been no particular demand for them. The auto industry had to adapt, but with typically long product cycles it would take years to adequately fill this need.

Segue to 2003 and the launch of Tesla Motors, an occurrence that seemed interesting but hardly a threat to legacy automakers. Its high-tech Tesla Roadster introduced in 2008 – based on engineless ‘gliders’ produced by Lotus – proved that electric cars could be sporty, fun, and go the distance in ways that all other electrics before it could not, to the tune of 250 miles of battery electric driving on a single charge. Then came the Tesla designed-and-built Model S, Model X, and the new-to-the-scene Model 3. Clearly, the battle for leadership in electric cars was underway.

jaguar-ipace-rolling-chassisA HISTORY OF INNOVATION: The auto industry’s penchant for innovation has always characterized its giants. Over its long history, this is an industry that brought us the three-point safety belt, airbags, anti-lock braking, cruise control, direct fuel injection, electronic ignition, and near-zero emission gasoline engines. And let us not forget Kettering’s invention of the electric starter that first saw use in 1912 Cadillacs, an innovation that tipped the scales – and history – in favor of internal combustion over electric cars of the era and helped lead to the combustion engine’s dominance to this day.

While Tesla may have established its role as the industry’s electric car innovator, that’s not to say that legacy automakers haven’t made tremendous progress. GM’s short-lived EV1 electric car of the 1990s proved that exciting and fun electric cars were possible, but not necessarily affordable to make at the time. The technologies developed by GM through the EV1 program live on to this day with evolutionary electric-drive technology found in its acclaimed Chevrolet Bolt EV and other electrified models. Advanced battery electric production vehicles have also been a focus at Audi, BMW, Ford, Honda, Hyundai, Jaguar, Kia, Mercedes-Benz, Nissan, Smart, and VW, with others like Porsche set to enter the market with long-range battery EVs.

jaguar-ipace-and-model-x-1So here’s the lesson of the day: If a business model no longer works, as was the case with General Motors and Chrysler during the financial meltdown in the late 1990s, you restructure. A brand no longer resonates with consumers? You drop it, like GM did with Oldsmobile. And if a class of vehicles is falling out of favor in lieu of more desired ones, you move on, as Ford is doing by phasing out almost all of its passenger cars in coming years in favor of more desired crossover/SUVs and pickups.

THE AGE OF ELECTRIFICATION: A paradigm shift is also occurring as automakers grapple with changing consumer preferences, regulatory requirements, and the projected demand for future vehicles and technologies. Enter the age of electrification. Over the past decade, Tesla has set the bar for innovative battery electric propulsion, advancements in near-autonomous driving technology, over-the-air vehicle software updates, and more. It has achieved a real or perceived leadership position in these areas and that’s a threat to legacy automakers. Now automakers are responding in a serious way and Tesla itself is under siege.

2017 Chevrolet Bolt EVGM fired the first volley with its 2017 Bolt EV, beating Tesla’s long-touted Model 3 to market with an affordable long-range EV capable of traveling 238 miles on battery power. While Tesla is now delivering its well-received Model 3 in increasing numbers after a series of production challenges, the race with GM to produce an ‘affordable’ mainstream EV with 200-plus mile range was not much of a race to affordability at all. GM won that one handily, holding the line with a $37,500 price (after destination charges), while Tesla’s $35,000 Model 3 has yet to materialize. As Tesla did with its earlier model launches, the automaker is delivering uplevel, high-content, and higher-performance versions first, in the case of the Model 3 from a recently-lowered base price of $42,900 to $60,900, depending on configuration. The Bolt EV’s MSRP has moved in the other direction, dropping slightly to $36,620 for the 2019 model.

Nissan’s all-new, next-generation LEAF that debuted in 2018 improved its range to 150 miles, with a recently-announced LEAF PLUS model joining the lineup with a bigger battery and a range of 226 miles. Hyundai’s 2019 Kona Electric and Kia’s 2019 Niro Electric offer a battery range of about 250 miles, although these offer availability only in California and perhaps a few other ‘green’ states.

nissan-leafEXCITING NEW ENTRIES: Jaguar’s 2019 I-PACE, a fast and sporty crossover with a 234 mile battery electric range, is now available and priced to compete with Tesla’s Model S and X. We'll soon be seeing Audi e-tron and Porsche Taycan long-range electrics on U.S. highways, with others like Aston Martin and Maserati developing high-end electric models as well.

It will be interesting to see how this all plays out over the coming months and years. To be sure, legacy automakers will not cede their leadership positions and market share without a terrific fight… and that fight is intensifying. Tesla doesn’t fear risk and has shown it will go in new directions that others will not, unless they must.

Audi e-tronBut Tesla doesn’t operate like legacy automakers that have been around for a long time, some more than a century. Those companies have mastered mass production, fielded extensive model lineups, developed widespread and convenient service networks, and have a history of successful worldwide distribution. Tesla is still learning this game, although it is making headway with its intense and successful efforts to deliver increasing numbers of its Model 3 to customers.

Importantly, legacy automakers are immensely profitable, while Tesla has had but a few profitable quarters since its launch and its losses have been in the billions. Tesla’s well-documented difficulties in ramping up mass production of the company’s 'entry-level' Model 3 – and its initial deliveries of only up-level Model 3 examples at significantly higher cost than its widely-publicized $35,000 base price – have added to its challenges.

tesla-model-3That said, it would be a mistake to count Tesla out for the long haul based on its current and historic challenges including missed financial and vehicle delivery targets, serious Model 3 production challenges, and a number of high-profile Tesla crashes while driving on its much-touted Autopilot. Regardless of all this, in 2018 Tesla’s Model 3 was the best-selling luxury model in the U.S.

Legacy automakers will have Tesla directly in their sights and Tesla will continue to innovate. A veritable race-to-the-finish!

Among owners and fans, it’s a foregone conclusion that Tesla will remain the dominant producer of electric vehicles (EVs) as the automotive world increasingly adopts this technology. And why shouldn’t it? Tesla produces the best EVs, and perhaps the best cars made, has developed an incredible brand, and fills waitlists years before a new car is delivered. This all seems to indicate that Tesla has developed a world-beating business model, but is it actually a signal of future trouble?

thomas-bartmanTesla’s strategy has always been to build EVs that are better than their internal combustion competitors and sell them for premium prices. In the language of innovation theory, strategies that offer existing consumers better products at higher prices are called sustaining innovations. Sustaining strategies tempt entrepreneurs because they appear so logical: build a better product and customers will come. But research shows that it is a losing strategy for new businesses. In sustaining competition, the industry incumbents nearly always win.

Incumbents are favored because sustaining strategies build on capabilities that they have developed over the course of their rise to dominance. Worse still, a sustaining strategy presents the entrant as a clear and direct threat to the incumbents. The combination of these two factors creates a response that often proves overwhelming for the entrant. Incumbents respond ferociously and deploy so many resources to the battle that the entrant is overcome.

Consider the situation for Tesla: It would be difficult enough for a company that sells 50,000 units per year to fight even one major automaker head-on. But Tesla has attacked not just the automakers but also every incumbent in the value network that produces automobiles, including the entire base of suppliers and dealers. The resources that these aligned interests can bring to bear are vast. Collectively, these firms spend more on R&D every year than Tesla has invested in its lifetime.

Many have argued that the move away from internal combustion is simply too technologically painful for automakers, but the technology underpinning EVs is largely a modular combination of standard components purchased from independent suppliers. The technology simply isn’t a constraining factor, and with every new auto show the automakers demonstrate this with new concept cars, such as the Porsche Mission E, squarely targeting Tesla. With its fantastic design and beloved product, Tesla might have written the playbook that the incumbent automakers will follow to dethrone it.

tesla-storeIf better products and technological barriers aren’t enough to defeat incumbents, is there any hope for entrepreneurs? We’re believers in disruptive innovation strategy, which allows entrants to beat even the most-powerful incumbents. Disruptive innovation begins at the bottom of existing markets or by creating new markets where people don’t currently consume. They target the least-attractive customers and produce worse products for less money with lower-cost business models than conventional offerings. In doing so, they create the phenomenon of asymmetric motivation, which causes incumbents to ignore or flee them. But disruptive strategies don’t remain at the bottom of the market – they possess a technological core that allows them to improve their performance over time, capturing more of the market and pushing incumbents into ever-smaller segments at the high-end.

Many observers say this approach could never work in EVs, but we’re seeing it happen today. It takes the form of low-speed EVs driven by security guards on college campuses, retirees in the Sunbelt, and middle class families in China. The manufacturers are largely unknown and that’s the point. Each year they grow bigger and improve their products without any resistance from incumbents. Soon they will be good enough to lure the least-demanding customers away from traditional automakers and the disruption will have begun. While these companies improve their performance to capture more customers, Tesla’s only option is to reduce its performance. Which position would you rather be in?

Thomas Bartman is a Senior Research Fellow at the Forum for Growth and Innovation at Harvard Business School