Tesla - while it is not disrupting the auto industry

Résumé:

Tesla: Why it is not disrupting the auto industry
Michael Smitka, Prof of Economics, Washington and Lee University

This paper seeks to critically examine Christensen’s “disruption” paradigm in the automotive context, using Tesla as a foil for developing a concrete application of the model.

The passenger vehicle is a highly differentiated, complex assembled durable good with long product cycles, ongoing services needs, and a century-long history of incorporating new technologies. This is in contrast to the archetypical case of disruption put forward by Clayton Christensen of hard disk drives, which were an intermediate good with a rapid product cycle that were discarded rather than repaired, and which were purchased according to technical considerations and so were subject to little product differentiation.

For a single firm to disrupt the industry, it would need to be able to bring an array of products to market in a short span of time, and in a manner that could not be readily challenged by established firms. In the case of electric vehicles, incumbent firms all offer multiple drivetrains. Adding an electric motor is not a fundamental challenge, the more so because of the availability of a robust supply base – one of the very things that made Tesla’s entry possible. In addition, no young firm such as Tesla can offer an array of products, and faces challenges in distributing and servicing vehicles. In contrast, that is the essence of what established firms do.

Now Tesla itself is poorly managed and adopted a strategic direction that cannot deliver profits. Nevertheless, highlighting that incompetence helps focus on the dimensions that make new entry in the industry difficult, and make the concept of disruption inappropriate for the auto industry.