Is this golf cart more ‘disruptive’ than Teslas?

In the May issue of the Harvard Business Review, Clayton Christensen and Tom Bartman tackle the question, “Is the Tesla a truly disruptive innovation?” The answer they come up with is “no,” but they have some interesting things to say in the process.

Christensen is the author of The Innovator’s Dilemma, one of the most highly regarded business books in recent memory. It originated as an article in the HBR exactly twenty years ago, and was published as a book in 1997. Christensen pointed out that established companies were often beaten at their own game by cheaper imitations that performed the same service at a much better price. He cited steel mini-mills and personal computers as examples of innovations that created whole new markets and ended up displacing previous technologies. The “innovator’s dilemma” is that established companies cannot compete at first without undercutting their own products. By the time they make the shift, however, they might be left behind.

An investor challenged Christensen as to whether Tesla was truly disruptive. (“Game-changer” is another popular term for the electric-car company.) Christensen has been feeling defensive about his work recently after a critical 2014 article in The New Yorker, and so he decided to take up the challenge. He assigned the task to Bartman, one of his assistants.

Bartman posed five questions: 1) Does the product target overserved customers by offering lower service at a lower price? 2) Does it create “asymmetric motivation” in that existing competitors aren’t motivated to initiate change? 3) Can it improve performance fast enough to keep pace with customers’ expectations? 4) Does it create new value networks, including sale channels? And 5) Does it disrupt all incumbents, or can an existing player exploit the opportunity?

“As Bartman worked through the questions,” says the article on HBR’s website, “it became clear that Tesla is not a disrupter. It’s a classic ‘sustaining innovation’—a product that, according to Christensen’s definition, offers incrementally better performance at a higher price. There’s nothing rudimentary about Teslas, which compete on price against cars by BMW and Mercedes.”

Truly disruptive technologies, so Christensen’s theory goes, start from the bottom up. They offer a cheap substitute, then grab a market and gradually improve until they have become a full competitor to the existing players. At that point, it might be too late for established companies to adopt the innovations.

Tesla is doing the opposite: It is starting at the high end of the market, competing only with luxury cars, and working its way down. The Model X, a family SUV scheduled to sell for $60,000, is due out this year; and the Model 3, which has a target price of $35,000 is scheduled to be showcased next year for 2018 sale.

It makes a big difference. “If Tesla is following a disruptive innovation strategy, theory predicts that it will continue to see no strong competitive response,” Bartman told HBR. “However, because it’s a sustaining innovation, theory predicts that competitors will emerge. Our analysis concludes that a competitive response won’t happen until Tesla expands outside its current niche of people who prefer electric vehicles to gas-powered cars—but if it expands by creating more variety (such as SUVs) and more-affordable vehicles, competition will be fierce.”

This seems like a pretty good assessment. Right now, Tesla is welcoming competitors. Musk even invited Apple to join him in the automobile business last week. There have been persistent rumors of Apple and Tesla joining forces in automobile manufacture, although Apple seems content to stick with personal electronic devices. But if Tesla succeeds in selling a $35,000 electric vehicle, it is certain it will face competition from GM, Nissan, BMW Volkswagen and the entire established industry.

So is there a vehicle out there that would be truly disruptive to the auto industry? In fact, there is. Bateman and Christensen identify it as the “neighborhood electric vehicle” – the NEV – and say there are already signs of it bubbling up from the bottom.

“In 2011, Polaris, the Minnesota-based manufacturer of snowmobiles and all-terrain vehicles, bought Global Electric Motorcars, a small division of Chrysler that makes battery-powered neighborhood electric vehicles,” writes the HBR. “Although NEVs cannot exceed 35 miles per hour and lack many features of cars, they could eventually steal enough market share to disrupt the automobile industry.”

Polaris CEO Scott Wine told HBR that his company has tightened up the braking system and added heaters and stereos in an attempt to upgrade toward regular automobiles. But the modified golf carts remain extraordinarily cheap –$2,000 to $12,000 — and are now being used in retirement communities. Bateman also points out that 200,000 of these vehicles are being sold in China each year. “When we launch our new model, in the not-too-distant future, it will be an opportunity to do exactly what Clay Christensen’s work says,” Wine says. “It’s going to be a significant disruption.”

So will the modified electric golf cart turn out to be the truly disruptive innovation that upends the internal combustion engine? We’ll soon see.

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