Is Tesla really disrupting the car market?

The electric vehicle maker is gaining ground on the automotive giants, but that doesn't mean Elon Musk will own the future of transport.

by Adam Gale
Last Updated: 28 Oct 2016

Even by the usually low standards of business jargon, the word ‘disruption’ gets thrown around a lot. Every suit-and-t-shirt clad entrepreneur from Shoreditch to Silicon Valley is disrupting something, while every corporate office has some chump insisting we ‘disrupt ourselves’.

Tesla might seem like an obvious choice for the real deal. If you had to name five disruptive companies on the spot, the chances of Elon Musk’s electric car company being on the list would be fairly high. The fact that it just made its first quarterly profit for years seems only a prelude to an impending, meteoric rise.

But you’d be wrong, at least as far as the originator of the theory Clayton Christensen is concerned. A crucial feature of disruptive innovation, the Harvard professor says, is that it takes place from the bottom up. Elon Musk on the other hand has made no secret of Tesla’s plan to take over the market from the luxury end down.

It’s easy to scoff and dismiss that as semantics, but remember what the theory of disruptive innovation is actually about: not explaining how new technologies and products replace old ones, but why well-funded incumbents don’t simply adopt those new technologies and squash upstart challengers before they become a threat.

If an innovation makes a product better, Christensen says, that’s exactly what will happen. When a plucky start-up makes a breakthrough in machine learning search technology, you can be sure Google will either rapidly catch up or buy the thing.

It’s only when the innovation enables a significantly cheaper – but crucially also worse – alternative to existing products, and in so doing appealing to customers who had previously been priced out of the market, that it can be called disruptive.

In those cases, incumbents quite rationally ignore the innovation to focus on higher margin customers, preserving their profitability while letting the disrupter have the scraps. The incumbents only usually respond when it’s too late and the disrupter has figured out how to combine value with improved quality, thus becoming an existential threat.

(The classic example is the PC in the 1970s and 80s: cheaper and worse than the business machines of the day, they opened a new market, rapidly improved, and then replaced the larger machines altogether.)

Electric cars are not disruptive in that sense. They may well be the future, but they aren’t categorically different from regular cars – they take you from A to B in the same time and manner, and at similar cost.

What this means for Tesla is that the big auto firms should therefore use their considerable resources to fight back – which is exactly what’s happening.

Though Tesla is a major player in electric vehicles, accounting for a third of the US market for instance, it’s facing increasingly stiff competition from the likes of BMW on one side and Toyota on the other.

The more customers gravitate towards the clean technology, the more the auto empires will divert their time, money and energy into them. It’s naive to think they won’t be able to compete.

Tesla isn’t ‘disrupting’ the car market then. But does that actually matter? So Elon Musk won’t gobble up the whole automotive sector, but he’s still managed to carve a chunk out of the luxury car market and establish Tesla as a leader in the next generation of vehicles.

Indeed, his greatest achievement is arguably not a technological one: by focusing on the luxury market with the Model S, Tesla took electric cars in general from weirdy-beardy fridges-on-wheels to super-slick status symbols. That’s not disruptive, but it doesn’t mean it’s not impressive. 

Image credit: kylevb/Wikipedia

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