Defending Tesla

Recently stumbled upon an article on HBS by Tom Bertman (Research Associate, HBS’ forum of Growth and Innovation) titled ‘Tesla’s not as disruptive as you might think’. Made me recollect a joke in the Ivy league circles – “There is no BS like HBS”.

Bertman’s evaluation of disruptive innovations are based on the following 5 questions:

  1. Does the product target over-served customers? i.e Can it provide product/service at a lower cost provided the customer is ready to settle for lower performance as well?
  2. Does it create a new market?
  3. Can it maintain a low cost structure?
  4. Can it create new value markets?
  5. Can it threaten/elicit actions from the incumbents?

Tom Bertman holds Tesla guilty of faltering in all these questions. He states that Tesla 1) has not developed its products enough 2) has not reduced its cost enough and 3) has not induced enough competitive response to be considered a disruptor. He goes on to call Tesla a sustained innovation. It is an extension of existing technologies (higher performance at higher price). With audacity, he also mentions that NEVs (neighbourhood electric vehicles) which are better versions of golf carts are the maximum extend of electric vehicles.

[Readers may at this point read about a company called Polaris GEM. They are into the business of NEVs]

  1. My disagreement with Bertman stems from the now famous quote of Henry Ford- “If I had asked people what they wanted, they would have said faster horses”. When Ford made Model T, there was no market for it and hence certainly no demand. He sold a higher performance product for a higher price. Competitors did not respond due to their inability to respond. If we were to answer Prof. Bertman’s 5 Qs of disruptive innovation, Model T was no disruption.
  2. Before we answer the “Can it create new value markets?” question, let us define the industry that Tesla serves. In a sense, Bertman may have taken liberty in defining Tesla’s industry. Tesla could always be evaluated as an energy company employing its tech to the automobile industry. Hence, in the industry that it works in, it is an innovator.. and a disruptive one at that.
  3. To answer the lack of enough competitive response from the incumbents, let us do some scenario building. There are these century old giants in the automobile industry. They have spent billions of dollars on R&D to develop superior machines running on oil and gas. More money has been spent on capital assets of manufacturing and distribution. If they were to actively pursue a small demand for electric vehicle, then they are killing the golden-egg laying goose. They are probably giving a stamp of approval for the teeny-tiny electric vehicle industry and helping the infrastructure support needed for it to grow.

A GM or a Volkswagen is going to wait. They will wait for Tesla to draw the 1st blood. To travel the rough road of a 1st mover. They will wait till the investments have been milked for their worth.

A lack of competitive response says more about Tesla’s competitors than Tesla.

P.S: Defending Tesla has been an easy blog to publish in the light of recent events. Elon Musk shooting a roadster into space has to be definition ‘uber-cool’.



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