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.
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.
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.
So 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.
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.
GM 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.
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.
But 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.
That 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!
Crossover SUV buyers looking to drive exclusively on electric power have a single choice today, and that’s Tesla’s Model X. Following in the footsteps of the Tesla Roadster and Tesla Model S, and ahead of the just-debuted Model 3, the Model X provides a unique driving experience for high-end buyers with its attractive design, advanced tech features, and zero-emission operation. While the model’s price tag means it’s not for everyone, Tesla fans will appreciate that the price of entry for the base Model X 75D has recently dropped by $3,000, to an MSRP of $79,500.
Beyond this full-size luxury crossover’s all-electric range of 238 to 289 miles, the model’s most distinctive features are its ‘falcon wing‘ doors and the largest panoramic windshield in production today. Model X doors articulate upward to enable easy access to second and third row seats, with the third row seats folding flush for more cargo capacity. The interior is designed to accommodate seven passengers with luggage carried in a front trunk or behind the seats. A recent $3,000 option enables both second and third row seats to fold flat to provide an expansive load floor.
Powering the Model X is an all-wheel drive system using two electric motors, one up front and another at the rear. The three models offered include the 75D, 100D, and P100D, with the number referring to their battery capacity in kilowatt-hours. The P in P100D stands for ‘Performance,’ with the $145,000 top version’s Ludicrous mode enabling acceleration from 0 to 60 mph in 2.9 seconds and a top speed of 155 mph.
Like Tesla’s Model S, the Model X uses AT&T to provide 3G and LTE Internet access to its onboard navigation and music services via Slacker. It also provides connectivity to the vehicle through Tesla’s iOS and the Android app, allowing remote adjustment of climate control settings along with other control features. Regular over-the-air updates add safety and navigation features, enhance performance, and improve the driving experience. Like other Teslas, the Model X can also be quick-charged at several hundred Supercharger locations along key transportation corridors in the U.S., which allows capturing an 80 percent charge in about 30 minutes.
Driver information is presented in a digital display in front of the steering wheel and a center-mounted, 17-inch touchscreen. Active safety technologies include side collision avoidance, parking sensors, and blind spot warning. Model X camera, radar, and sonar systems continually scan the surrounding roadway, providing the driver with real-time feedback to help avoid collisions. Model X is designed to automatically apply brakes in an emergency.
A sophisticated Autopilot system allows the Model X to match its speed to traffic conditions, stay within its lane, and steer around curves within a lane. It also enables automatically changing lanes with a tap of the turn signal. Our time behind the wheel of a Model X has shown Autopilot to provide a seamless, near-autonomous driving experience. For safety reasons and because this system is still 'learning,' Autopilot requires a driver's attention and hands are required on the steering wheel at set intervals. A ‘Summon’ feature allows the Model X to automatically park and unpark itself, plus open and close a garage door automatically. It can scan for parking spaces, alert a driver when one is available, and parallel park on command.
An available towing package with a high strength tow bar and two-inch hitch receiver allows the Model X to tow up to 5,000 pounds, although driving range will be diminished with the additional load. Software actively monitors trailer sway and applies braking as needed.
Tesla’s plug-in crossover aspirations don’t end with the Model X. In fact, the company has announced plans to produce the Model Y – a compact crossover – by 2020. The new model is expected to make use of much of the technology and architecture of the Model 3 and come at a more approachable price point than the Model X.
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?
Tesla’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.
If 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
Electric drive vehicles of all types are increasingly in the news, often led by a near-nonstop focus on Tesla and its Model S, Model X, and planned Model 3 battery electric vehicles. People want electric cars. Some feel they need them, or more accurately, that we all need them. It has been so for quite some time.
I was one of those pushing hard for electric vehicles in the 1990s, driving prototypes on test tracks and limited production models on the highway as I shared their benefits on the pages of Green Car Journal and Motor Trend before that. It was an exciting time filled with hope that battery breakthroughs would come, bringing full-function EVs offering the same driving range as conventional vehicles.
Expectations were high that a public charging infrastructure would expand to make topping off batteries convenient. New ideas like 15-minute rapid charging and battery swap stations would allow drivers of all model EVs the ability to renew on-board energy in the time it takes to enjoy a cup of coffee, enabling them to head back on the road in short order with a full battery charge. Importantly, there was an expectation that EVs would be affordable, both to manufacture and to buy.
If only this unfolded as expected, automakers would commit to developing battery electric vehicles of all types to meet the needs of an emerging market. But things have not unfolded as expected.
California’s Zero Emission Vehicle mandate drove the electric car surge in the 1990s and it’s a huge influence today. While less refined than electric models we have now, electrics of the 1990s like the Toyota RAV4 EV, Nissan Altra minivan, and Honda EV Plus were quite well engineered. Then there was GM’s EV1. Sleek, sexy, and fun, it provided a daily driving experience unparalleled in the field, something I came to appreciate well during the year I drove an EV1.
The challenge then was the same as now: cost. The EV1 was so costly to build with such massive losses there was no business case for it to continue, and so it ended, as all other electric vehicle programs of the 1990s ended, for the same reason.
Early on, Volvo had the foresight to challenge the status quo. While evaluating ways to meet California’s impending ZEV mandate, the automaker concluded there was no way to do this realistically with a vehicle powered exclusively by batteries. In 1993, I test drove Volvo’s answer – its high-tech Environmental Concept Car (ECC) that added a high-speed turbine-generator to an electric drivetrain, thus creating what we now call a range-extended electric vehicle (think Chevy Volt). Sadly, the ECC’s high cost turbine-generator meant this innovative car never saw production. But it was at the leading edge of a movement that brought us hybrids and range-extended electric cars. Today, even BMW – a high-profile champion of electrics with its innovative i3 – understands the importance of offering a range-extended variant with a gas engine-generator for those who prefer the convenience of longer range.
In answer to the chorus of Tesla enthusiasts sure to raise their voices, I am aware that Tesla is committed to all-electric vehicles and the range of the $70,000-$95,000 Model S (before the addition of popular options) is substantially greater than its competitors. The coming Model X electric crossover is expected to be in the same aspirational category as the Model S with a price suitable for premium buyers. The company's planned Model 3, presumably a vehicle accessible to the masses at a price Tesla says will be about $35,000, is said to be three years away. That's a good thing since significant battery cost reductions will be required to make this Tesla-for-the-masses electric an affordable reality. Will three years be enough? Achieving battery cost reductions of the magnitude required is no sure bet and, as history has proved, battery technology advances move at their own pace.
One stock analyst recently quoted in a major newspaper article shared that Tesla has the ability to reduce battery costs by nearly half in the coming three to five years. Of course, the backstory is that this ‘ability’ is really but a ‘potential’ based on batteries that do not yet commercially exist. The past 25 years are replete with examples of major government and industry efforts aimed at developing energy-dense, safe, and affordable electric car batteries that deliver the range and cost expectations of auto manufacturers and consumers. Over these years there have been many incremental improvements in battery design and chemistry, a slew of failures, and pending ‘breakthroughs’ that have often been promoted only to have expectations and actual production sidelined for a plethora of reasons du jour.
As just one recent example, Panasonic's 2009 announcement of a lithium-ion battery breakthrough using a silicon alloy cathode was accompanied with a claim it would be manufactured in 2012. Many positive reports on electric vehicles take into account this very ‘breakthrough’ and others like it, with the considerable cost reductions that would follow. Yet, Panasonic did not begin mass production of this battery technology in 2012. According to a Panasonic spokesman, the company’s work on developing high-capacity battery cells using a silicon-based negative electrode is ongoing. Hopefully, developments like these will lead to the kind of mass production that could bring long-hoped-for battery performance and cost reductions. Perhaps this will come to pass with a mass effort by Tesla through its proposed $5 billion battery ‘Giga Factory,’ and perhaps not. But after 25 years of following battery development I have learned not to count on claims or development, but rather actual production and availability in the real world.
Tesla continues to develop its Supercharger quick-charge network and has potential plans for a battery swap system, both exclusively compatible with its own vehicles. An innovative and expanding infrastructure for battery electrics will be required for their ultimate success and these are very positive moves, although only for those with a Tesla product and not electric vehicle owners as a whole.
Battery electric vehicles priced at levels accessible to everyday buyers will continue to grapple with cost and marketing challenges until a battery breakthrough comes. This is illustrated by Fiat Chrysler Automobiles CEO Sergio Marchionne's comment earlier this year that the company is losing $14,000 on every one of the Fiat 500e electric cars it sells. Is it so different for other automakers also selling EVs in limited numbers and in constrained geographic locations? Not inconsequentially, to bolster the market battery electric cars will also require continuing federal and state incentives that combined typically total $10,000 or more. Hopefully, innovative thinking and real technology and cost breakthroughs will emerge in the years ahead.
In the meantime, gasoline-electric hybrids and plug-in hybrid models, plus range-extended electric vehicles that combine all-electric drive with an on-board electric generator, are providing functionality for everyone even as battery-only electric cars fight hard to establish their place in the automotive market. Let's hope that mass-market, nationally-available models like BMW's innovative i3 electric car change this dynamic sooner than later.