About two-thirds of worldwide methanol production comes from natural gas, something the U.S. has in abundance at the moment. Methanol can even be made from coal, another feedstock that’s bountiful in the U.S.
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.
(Photo credit: Polaris.com)
Pumping more gasoline into your car than the tank can supposedly hold would be quite disconcerting. Yet with electric cars, the idea of supplying more energy than your battery’s capacity is an entirely normal scenario—one that you should get used to.
The overall consensus? The Hyundai Tucson FCV is quiet and refined to drive, with simple, easy-to-understand controls. Refuelling is described as relatively mundane for the owners that GreenCarReports spoke to, although refuelling times aren’t anywhere near as fast as advertised.
Tesla’s CEO, Elon Musk, is suffering from an affliction of which Thomas Edison complained more than a century ago: inventors and promoters lining up at his door, each with lofty claims for a new battery.
Exponential gains in industrial productivity, software-assisted logistics, rapid urbanization, increased political turmoil in key regions of the developing world, and large bets on renewable energy are among the many factors that will combine to slow the previous breakneck growth for oil.
Having heard so much good about petrol cars, we decided to test drive one. They are said to combine cheap price with long range and fast charging. A winning formula on paper – but how are they in real life?
Electric-car maker Tesla Motors Inc. has begun selling used versions of its Model S electric cars on its website, an important step for the luxury car maker as it matures from a startup to a mainstream company.
Toyota does not like battery-electric cars, and the world’s largest carmaker isn’t shy about that sentiment.
Elon Musk’s bet that he can sell 50,000 versions of the Model 3, the $35,000 version of the Tesla, due out in 2017, still seems like a long shot, given the somewhat limited market for electric cars.
But he might have one more card up his sleeve. The development of solar energy for home use offers an alternative market for his batteries that could be enough to save Tesla from a market collapse.
Musk is unveiling a new home storage unit that will allow homeowners to move their electrical consumption from expensive peak rates to the rock-bottom rates of overnight power. If nothing else, this will create a secondary market for the millions of lithium-ion batteries that Tesla will be cranking out from its $5 billion Gigafactory in Nevada, which is scheduled to be operational in 2017.
Early indications are that the demand for batteries to power the mid-priced roadster might be thinner than anticipated. Musk was counting on big demand from China, and already there are indications that it’s a much tougher market than he realized. As reported here last week, China already has 100 manufacturers turning out 400,000 undersized vehicles a year that can reach 48 miles an hour. They certainly wouldn’t sell in the United States, but for a million Chinese, it’s just what they need to putter around their small villages and cities. China also has 90 million electric scooters on the road and 120 million electric bicycles — an entire electric-vehicle market that doesn’t exist in this country. Making a dent in this market with a $35,000 scaled-down version of a luxury vehicle is not going to be easy, which is why Musk cut his China effort in half only a few weeks ago.
But there’s an out here in the burgeoning market for home electric storage that is taking shape in the United States, particularly in California. The Golden State has established a goal of getting 33 percent of its electricity from renewable resources by 2020, and 50 percent by 2030. Now powering with renewables isn’t just a matter of putting up solar collectors and windmills. You have to store that electricity for a time when it’s needed. Otherwise, most of it is wasted. And that’s where Musk’s plan to power electric vehicles with large complements of relatively small lithium-ion batteries enters in, because such a system also will be ideal for storing electricity in household-sized units.
Without any fanfare, Tesla already has installed such a system in more than 100 homes in California. It also has a deal with Walmart to install it on a commercial scale. “Tesla has been able to install more than 100 projects, really without anyone noticing,” Andrea James, a Dougherty & Co. analyst, told Bloomberg. She also estimated that the home-storage business could add $70 to Tesla’s stock, about one-third of its current value.
The effort already has paid off for Tesla in that it has collected $65 million in state incentives under the advanced storage technology portion of California’s Self-Generation Incentive Program (SGIP), which rewards users for coming up with ways of generating their own power. With household units running anywhere from $2,000 to $10,000, they’re going to need plenty of help from the government.
Tesla is not the only company working on battery storage. Bosch, General Electric and Samsung all have experimental systems going. There are also research projects being conducted at Harvard, MIT and other universities.
In Notrees, Texas, Duke Energy Renewables, with the help of the Department of Energy, has built a project that is using thousands of lead-acid batteries to store the electricity from a large wind farm. The lead-acid batteries are more expensive, however, and require frequent repair. Also, Duke has found that there is not as much of a market for their product as it had anticipated, mainly due to the costs. “There was little interest from customers willing to pay for that,” said Greg Wolf, president of Duke Energy Renewables, according to The New York Times. “That has not evolved as much as some folks, including ourselves, thought.”
But there are other opportunities that could enhance Tesla’s overall business model. One is that when lithium-ion batteries begin to lose their power so that they are no longer capable of driving a car, they still remain strong enough to power a home storage system. That could mean there will be a secondary market for Tesla’s car batteries.
Another dream that has always been in the back of people’s minds is that the electric vehicles themselves could serve as storage for utility power, drawing on cheap nighttime power and then reselling it to utilities during the day. This would involve an elaborate infrastructure, however, and this would mean the cars would not be available for a good part of the day if their stored power was being fed to the grid.
Altogether, however, the storage potential of the batteries means that Tesla will have an alternative means of income in addition to the electric cars. This means the company could diversify enough so that it will not depend entirely on the success of the Model 3. In the long run, this might mean that the company can survive long enough to make the electric vehicle a standard item for the American consumer.
