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Tesla competition: The problem of cannibalism

Discussion in 'Tesla Motors' started by Ludus, May 25, 2013.

  1. Ludus

    Ludus Member

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    It's often brought up that Tesla's direct competition has the technical capacity to produce model S and X killers and it's only a matter of time until Mercedes, BMW, Lexus crush the upstart american New kid.

    There's a social/organizational problem with that scenario though. I think it's not a coincidence that none of the concept cars and new products by competitors are directly aimed at Tesla. The reason may be that Tesla targets their mainline high end products and if they responded directly with model S and X killers, the immediate effect would be to cannibalize sales from their own highest profit and prestige lines.

    The revolutionary nature of the model S platform means that much of the engineering expertise of the traditional car companies doesn't apply. There's no question they have the capacity to do it...but not without effectively hiring a lot of new people and spending a lot of money earned by the existing workforce who would justifiably see themselves as working to pay for their own replacements.

    I think a lot of the internal arguments that lead to decisions to make complex hybrids that just layer electric drive on top of conventional systems are motivated ultimately by the fear that a pure electric platform is a threat to much of the current workforce.

    Tesla has been very open about it's designs and plans for years but the competition insisted that it was just another entry in the "electric car market" rather than a car targeting their top models that happened to be electric. The idea that there is a tiny market of greens that wants electric cars to save the planet and that's all they have to be concerned with has been a great comfort. With Tesla outselling over $70k BMW, Mercedes, Lexus, Jaguar, Audi in the US right out of the gate, that comforting worldview is being challenged, but it's still an open question as to whether their fear of cannibalism will hold back real change.
     
  2. Krugerrand

    Krugerrand Active Member

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    There are a couple of things that can happen.

    A) Sales of their higher end vehicles will eventually decline to such a point, because of the S and X, that they'll no longer be profitable. That forces them to shut down those lines, in turn making it viable to now produce electric in that segment. Rinse and repeat for other segments as Tesla releases GenIII, Pickups, whatever.

    B) Take an existing factory (one that is the least productive) and shut it down in terms of ICE production. Revamp it for electric, keep the employees who are adaptable, hire new ones...go!
     
  3. SebastianR

    SebastianR Member

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    And, do the same with most corporate functions (marketing, sales...), do the same with dealers, repair shops etc. and you see how this is super hard for the petrol heads.

    Problem with cannibalism is that you gotta do it yourself if disruptive technology is involved - unless you want someone else to come and do it to you.
     
  4. Krugerrand

    Krugerrand Active Member

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    Yep, sometimes change is hard and painful. On the plus side, they'll have the option of purchasing the tech from Tesla. That'll ease some of the pain. The other thing in their favor is that it'll take at least a few decades for a full switch to EV's and even afterwards there will be the classic ICE market...it'll be leaner and meaner, but it'll still be there. Industries die all the time and new ones are born. Vinyl records to tape cassettes to 8-track tapes to cds to iTunes, black and white tube TVs with bunny ears to cable TV to Satellite TV to Plasma TV, Pony Express to newspapers to microfiche to Internet, books in libraries with card indexes to ebooks, horse and buggy to Model T to Mustang to Model S. Times change. Go with it or get left behind.
     
  5. MarkH

    MarkH Member

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    This is the same position Nokia was in a few years ago. They knew their Symbian phones were going to be disrupted by the new breed of Apple and Android smartphones. Besides struggling Blackberry, the only smartphone OS / ecosystem vendor available was Microsoft. So a VP from Microsoft was recruited over to run the helm at Nokia.

    What did he do? He Osborned their whole existing line by publicly announcing they were dumping Symbian and moving to Windows Phone OS. (Google "burning platform" speech) No carrier wanted to push the now-obsolete Symbian phones even though Nokia had 2 more years of deployments until their Microsoft integration was ready. So their existing phone sales plummeted, and even now after building a couple decent phones with MS software they still arent taking off with consumers.

    Also, when they announced the switch, they pissed off and lost alot of capable in house engineers who were working on new smartphone OS options, and now they have no alternative but MS and their $250M quarterly platform (child) support payments to keep them afloat.

    The best thing for the Euro luxury makers to do, if they are not already, is to model Apple and run a skunkworks operation off-site on a need to know basis. If luxo-electrics pan out then they have a ready option without sinking their current system like Nokia did, as well as avoiding near term morale issues.

    Outsourcing the brains of the product, in this case the powertrain, to Tesla only makes them look like they arent capable of figuring this stuff out, and now they are beholden to a third party for the core IP of their product.

    And even if they get the product right, Ludus makes a good point that that it is not all about the end product but about the wrenching systemic effects on other ancillary departments / processes.

    IMO Tesla might just have a tiger by the tail here for at least the next five years.
     
  6. richkae

    richkae VIN587

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    The biggest reason the established automakers need to do a skunkworks secret project to develop their own EV technology is to protect it from the rest of their own companies.
    I have no doubt that they all have talented engineers who can do great things, they just need to be allowed to.
    The entrenched divisions will try to kill new threats to their legacy products, if not outright - they will undermine and roadblock. Read the history of Saturn or Kodak.
     
  7. ZestyChicken

    ZestyChicken Member

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    There was a wired article about some of the engineering Chevy was doing on electric cars that came out like 10 years ago. It was amazing. Motors in each wheel with the wheels able to turn 90 degrees (imagine parallel parking). Of course, does that go anywhere? No... Because management lacks vision. Just take the baby-step and compromise filled Volt. I actually like the Volt but it's a complicated as hell machine. The engineering is incredible but that's because they built a hybrid where both the electric engine and gas engine run the car (yes at highway speeds the gas engine turns the wheels). That's a complicated beast.

    Contrast that with the Model S which is an incredibly simple drive train. Very little to go wrong. The technology is all in the battery. Nothing else is all that revolutionary. However, the overall stellar quality of the product is desired from simplicity. You have the skateboard and then everything up from that is taking what's already available and making it their own. Crumple zones, aluminum frames, touchpads, 3g connectivity, regen braking... I could go on and go but the point is you have a pure, simple approach and that gives you such power.
     
  8. gameon

    gameon Member

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    I am not surprise other companies will make high end electric model if they see demand. Right now, tesla is on high and people love the model S. It will interesting to see how big companies react if high end car sale is going to tesla.
     
  9. Eberhard

    Eberhard #421 Model S #S32

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    if the german car maker would announce electric cars to compete with Model S and Gen III, they would get osborned and would not survive. They would loose to much in turnover on ICE cars before they can create enough new income from electric car to cover the running cost.
     
  10. gameon

    gameon Member

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    If they don't do anything ICE cars will be in parking lot waiting for customers or slow sale. Will that happen in 3 months or 12 months who knows? Even if gas price go down below $3 it will be game changer but I don't see that happening.
     
  11. ggr

    ggr Roadster R80 537, SigS P85 29

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    I haven't seen anyone mention The Innovator's Dilemma by Clayton Christensen in this thread, although many of the themes first appeared in it. I'd been to many management and innovation courses, and the instructors went through a bit of a fad talking about the examples from it. But about a year ago, I read it myself "in the original Greek" if you know what I mean, and was blown away. Even if you think you know the message I highly recommend reading the book itself. It pretty clearly explains why no incumbent auto maker could have done what Tesla has done, and why new companies like Tesla will eat most of them alive.

    However, it doesn't necessarily imply that Tesla itself will be the winner. It looks that way to me, mostly because of Elon and first mover advantage, but it isn't a given.
     
  12. CroDriver

    CroDriver Member

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    I don't agree with you. Look at Fiat - they're loosing 10k on each electric 500 they sell. Everyone in the industry knows that BMW will loose billions with the i sub-brand --> it is just a huge marketing bubble. Audi canceled most of their EV projects. The list goes on... Tesla manages to make appealing products for competitive prices and still make money on them. No one else as of today managed to do that in the EV business.
     
  13. DriverOne

    DriverOne Member

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    I think a large part of their problem is that their customers are actually the dealers, and dealers can't or won't promote EVs. They need to somehow switch customer bases... But we already know that legally they are in a bind and are forced by the legal system to go through dealers. They are stuck.
     
  14. ShortSlaver

    ShortSlaver Member

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    Many car companies can't simply just start making EV's that are comparable. Their factories are setup for to create engine blocks and assemble the thousands of parts their engines require. They have contracts with hundreds of suppliers that last years. On top of that, there's supply line issues. Have you ever been to a manufacturing plant? I was at BMW in Munich and there's simply no way that thing could be converted. They could begin doing partial EV's but they're trying to compete with a company that is only doing EV's and it will be a tough sell.

    And then there's the issue of capital. Many of these companies don't have money to switch gears and maintain their old lines while switching over.

    They are dinosaurs and many will be extinct within 10 years. And as they fall the Tesla's of the world will rise just as fast.
     
  15. ggies07

    ggies07 Active Member

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    and the crowd goes wild: "aaaaaaaaaaaaaaaaaaaahhhhhhhhhhhhhhhhh" "cheer" "cheer" "applause" :)
     
  16. qwk

    qwk Model S P2681

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    The writing is on the wall for existing automakers just like it was for Fisker, Coda etc. It's so easy to see this, yet I bet the existing automakers will not change. They don't want to take the risk, but not doing anything or just compliance cars is the biggest risk that they just won't see until it's too late.
     
  17. gameon

    gameon Member

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    It is too early to say that big companies are dying in 10 years. Tesla is car company and people won't buy every two years like cell phone. Also existing ICE cars are not going anywhere so does oil.

    It is funny market is acting like 2000 for tesla and that is kind of scary and funny at a time. It is like pushing stock in 3 to 5 years of speculation but you can't control bull...
     
  18. Liz G

    Liz G P03056

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    I would agree we can't count them out, at least not for many years. The big car companies and big oil (not to mention the auto dealers) are going to fight this change tooth and nail, so I wouldn't be surprised if we see other set backs in other states. In addition, until there is a low cost EV or a lot of low cost used EV's out there, there are still a lot of people who will be driving ICE's as the initial cost of EV's is too high for them. On top of that until apartment complexes, condos, etc build out charging capabilities it will be hard for some who want to own an EV to actually own one.

    None of these obstacles are insurmountable but it may take a while to get over them.
     
  19. gameon

    gameon Member

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    Exactly cost of S & X models are out reach for most of the population & still stock price above 100. Also making low cost & profitable EV is out of window for 5 years (add couple more to be safe) because people don't buy car like cell phone, laptops or TV sets.

    It takes time for common people to jump on to this. It will be easy for tesla to say something on S model but to convenience and produce car for 98% population is not straightforward task.
     
  20. Kaivball

    Kaivball Member

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    +10000

    The true nature of capitalism and free markets. The creative destruction of capitalism.

    Definition of 'Creative Destruction'
    A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
     

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