This new SUV shows how car companies can't compete against Tesla

Agree with the assertion. Nice OpEd and well supported.

 

And I am sure that the Audi range claim of 310 miles is based on the European test cycle. So the EPA rating is likely to be close to 200. And Audi has no long distance charging network. And the car is coming in 3 years but the X is going into production now.
That's not competition that's a joke from Audi.

 

I think Tesla has shown that all EV's need to be built from the ground up if they want to make them competitive. An EV is inherently different from a gas/diesel car and using the same "form factor" means you are compromising the strengths an EV can bring to the table. The sad reality is that a major manufacturer doesn't want to show an EV's superiority for fear that it will impact their ICE/hybrid sales. Tesla probably has until 2022-2023 until we see someone make a truly competitive vehicle. That vehicle will probably be built in relatively small numbers just to test the waters....

It's going to happen but the major manufacturers will drag their heels as long as possible.

 

Up until the last couple of weeks, this is exactly how I've viewed and would have described the competitive response to Tesla. However I've been reading The Innovator's Dilemma recently, and I'm beginning to formulate an alternative explanation that I find more satisfying.

I'm still working on it, but the idea is that in the explanation above, we end up with something akin to malevolence or incompetence as the explanation for the competitive response. And I find that dissatisfying, if for no other reason, I've never encountered a human being that was actively and consciously, from their own point of view, being incompetent / blind / stupid (or malevolent for that matter, but I tend to think we're more likely to see a little of that in the wild). So if we don't go with incompetence as the explanation, what could explain Audi being so far behind? And seemingly not understanding it?


You'll need to read the book, and I'll need to develop the idea further, but the germ is that with a disruptive innovation, you have new customers and a new market from the established market. And for companies in the established market, their internal decision making processes from the individual contributors, through front line and middle management, and on up to the executive staff are all geared to make decisions in support of their existing market. Typically there is a margin issue with disruptive innovations, where the disruption has lower gross margins than the current product, and thus the decision making is geared to sustaining current margins. Not an issue here.

One idea I'm still toying with is that Audi's customer isn't you and me - the end consumer / purchaser of their car. In fact, outside of Tesla, the customers of the car manufacturers are the dealerships. That is at least true in the USA, and it causes me difficulty in explaining how the distribution channel could have captured the manufacturers in Europe or anywhere else that lacks dealership laws (maybe one of my international friends can help out).

But at least in the US, dealerships buy cars from manufacturers. And the dealerships therefore 'control' the resources of the manufacturers.


I'll develop this idea more completely another day, but the conclusion for me right now for investing purposes, is that Tesla stops being disruptive and becomes innovative (using Christiansen's terms) the day they have third party dealerships that they sell to. And on that day, I will need to reevaluate Tesla as a car company, instead of as a disruption to the car industry.


Back to Audi - the insight also provides a way of thinking about Audi's decision making that doesn't cast them as incompetent - it casts them as a company that is closer to their customers, a company that is very good at understanding and providing what their customer's demand. And I find that more satisfying, while also shaking my head in despair at their inability to realize the existential threat to their company that is alive and afoot in the world. That is the ultimate message for me from Innovator's Dilemma - good decisions, good business management, all in support of one's customers are the very same set of values and decisions that put you out of business in face of disruption.

 

There have been 3 big transitions in "personal vehicles" in the past 120 years.

Horse-drawn -> Horseless. The form of the vehicle changed as makers learned they had to redesign their coaches from the ground-up. That took until the mid-teens.
Wooden bodies -> Metal bodies. Again, many ground-up changes were required and this was actually quite a rapid change for the industry, taking about a decade.
Body-on-frame -> Unibody. Unit body construction required automakers to design cars from the ground-up all over again.

Electrification is a 4th big change. I suspect even with the Model S and Model X being clean-sheet designs, that we're going to see a fair bit of evolution in the form and layout of EV's as we learn what baggage from the ICE-era design playbook is holding vehicles back.

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This is very good stuff.

If I were in charge of a mainline automaker, I'd buy 50-100 Model S's, and make my VP's and their direct reports drive them as their primary vehicles for 3-6 months, and then have them passed down to their direct reports, etc. And then we'd have some serious talks about the direction the company was going to go...

 

Very well said. It's a shame the auto industry is in such a sad state of affairs. At least BMW understands with the i3 that a ground-up design is what is needed. As great as the technology employed there is it's still not compelling enough due to the lack of range and high price of that car. Model 3 is absolutely going to kill the i3 dead dead dead.

 

The one thing the i3 does have is that it is the first mass-production version of the "other" next transition for automaking:

Stamped & welded metal bodies -> formed & bonded composite bodies

There's a lot to learn there as well. My take is that there is a lot of "gain" there which is still to be realized. Cost, form, manufacturability, "quality", material-handling, thermal performance, crash safety, etc....

 

While I agree with the sentiments expressed here if we look at this from Audi's (or any other of the mass producers of ICE vehicles) point of view rather than from the echo chamber which is teslamotorsclub.com it makes a kind of sense. Those manufacturers live in the now, and the now is the ICE which accounts for 99.?% of their sales. If they did make a competitive EV it would likely cannibalise a few of their ICE vehicle sales anyway. So from a rational point of view it makes little sense to build an all new platform but better to save some dosh and convert an existing shell/chassis, which of course results in a vehicle that will always be a poor compromise. I feel sure they know that electric vehicles are the future but for now they would rather not think about it. If it were not for Tesla cutting into their North American top end sales they would happily ignore EVs altogether.

 

Agree. The way corporations make most decisions is a cold, dispassionate look at where to make the best return on their investment. Right now, I'm sure that EVs look like lots of risk with a very uncertain reward. If vested interests are going to have their way (which they generally do because they can make the biggest campaign contributions), fossil fuels and the vehicles that burn them will continue to be the way until ocean levels increase by 10 meters.

 

This would be a brilliant idea if it could be kept private, which would of course be impossible. Imagine the impact on MBZ sales if it became public knowledge that all of the top level MBZ employees were driving Teslas as their personal cars...

 

adiggs makes some good points.

Adding a few bits, car dealers make their biggest profits from their service centers. They make a little selling cars, but they make a lot more on service items. ICE cars need oil changes, belts, hoses, and a bunch of other things a pure EV doesn't. Hybrids make a lot of sense from a service point of view, they are more complex than pure EVs and require just as much maintenance as an ICE. Dealers don't lose money with hybrds.

I've been car shopping for about 6 months and started in the ICE world. My criteria was:

1) I have very long legs, so I needed to be able to get the driver's seat back far enough, that scratches most smaller cars.
2) I'm not a fan of SUVs, high drag, high center of gravity, usually poor mileage.
3) I need to take road trips to California (I live outside of Portland, OR) for both business and family (my father is 95). I need a car with enough room I'm not stove up after the trip.
4) I work from home so I've been able to get away with driving my 23 year old Buick, but I want something that gets better gas mileage than the Buick. At least 30% would be preferable.
5) I would like at least the same level of storage space as my current Buick.
6) I want something that can accelerate at least as well as the Buick, which has a 5.7L V-8. It's not a sports car, but it isn't bad either.

My price target was somewhere $30K - $40K, but I could stretch it to $50K without really hurting if I had to.

I didn't think it would be that tough to find something that fit all this criteria, but it was very tough. Most cars with enough leg room and even 70% the storage space of my Buick have horrible gas mileage. Some had gas mileage numbers pretty much the same as the Buick! I also found that engine design has come a long ways which means cars can produce a lot more horsepower out of much smaller engines now, however the trade off is a much narrower range where you get that horsepower. My Buick has good acceleration across the speed range (for an ICE), but newer cars with reasonable gas mileage that do have decent acceleration only have it in a very narrow band and are gutless under other conditions.

And this come back around to the point, one thing I found was the ICE makers make you suffer some kind of trade off if you want something like a hybrid. Usually the trunk space was reduced for batteries, and most hybrids have pretty bad acceleration. The Prius is the best selling hybrid, but I think that's because it's one of the few that doesn't make the buyer feel like they are giving up something to get the hybrid features. However, even the Prius is a bit sluggish on acceleration.

Ford was my first choice because the only car dealership close by is a Ford dealer. The Fusion was too small for me, but I test drove one because I did like the hybrid option. But even then I was wondering why they don't put the batteries under the floor instead of in the trunk.

Then on a lark I looked at the Model S. It met or exceeded every criteria, except the price. I need to be frugal for a while longer to afford one.

Tesla doesn't need to please their dealer network, nor any of the other suppliers that would be put out of business by a switch to pure electrics which freed them up to design the world's best electric car from the ground up.

Bangor Bob mentioned the various transportation revolutions. The switch from wood frames to steel was quicker because there was no incentive to stay with the old method. Wood frames were weaker and limited how big the car could get. The only people who might oppose the change were some woodworking shops. Other changes took longer because there was more resistance. When unibodies came along, there was still a well entrenched group of gear heads who loved body on frame. For one thing it's easier to do custom cars with body on frame, you can replace the entire body if you want. A lot of the execs at car companies were these gear heads who liked the "old way" and resisted the new. Some of the last cars to get unibodies were the top of the line models.

Changing from carriages with motors to what we think of as cars took some time because it was a major change to the look that the public was going to notice. They needed to get used to the idea of motorized transport first, then change the designs to better fit the new power source.

At this point I think it's a fairly good bet Tesla has started a revolution in the car industry, but there is still a chance (getting smaller every day) that Tesla could lose this battle. At minimum Tesla has shown what is possible with a complete redesign and people aren't going to forget that, even if the powers that be would prefer we did.

I watched "Who Killed the Electric Car" the other day. I hadn't seen it before and it is dated with what happened since. I also watched the sequel which follows the first days of Tesla among other things. In the first movie, they explored the possible players who could have killed the EV1 in California. It basically boiled down to: the car dealers hated it because they lost money on regular service, the car company execs hated it because it was too different, the oil companies hated it because it threatened their entire business model, and various government agencies resisted it, largely due to pressure from all of the above.

Tesla is still bucking all these forces. Their ace card is they have a fantastic product far superior to ICE cars in almost every way. There was a thread on the forum a couple of weeks ago about an article that asked why people aren't buying Teslas. At a get together we had a few weeks ago, the subject of Tesla came up (I didn't start it). Everyone knew a fair bit about Tesla and everyone wanted one (even the people who weren't into cars at all), but the only thing holding them back was the price. For that reason, I think the Model 3 will be a huge hit that will start sending true panic waves through the industry.

 

This is the classic innovator's dilemma. See's Christensen's book: The Innovators Dilemma: The Revolutionary Book That Will Change the Way You Do Business: Clayton M. Christensen: 8601300047348: Amazon.com: Books

Just like the steam shovels from decades ago that were displaced by hydraulic shovels, the incumbent technology and players own the majority of the market. The new technology has numerous apparent drawbacks initially and most customers ignore it, which cause the incumbents to not take it seriously. But the newcomers work on their technology out of necessity, as they have few existing customers to serve anyway. Sooner or later, the new technology surpasses the incumbent technology across several important factors and customers quickly jump to the new technology in droves. Unfortunately for the incumbents, they're years behind technology-wise and simply can't make it in the new reality.

Your whole life you've known Volkswagen, BMW, Mercedes, Toyota, Honda, Nissan, GM, Ford, Chrysler. Expect that not all of them will survive the next 20 years.

 

Chrysler is probably the weakest on that list. I've heard rumors Fiat isn't completely happy with the marriage. Most of the other companies have other divisions doing other things that will live on even if the automotive division takes a hit. Honda makes a wide variety of motors for different uses and it will be a long time before electrics completely crowd out all their market niches. Toyota and Volkswagen are the two biggest car companies in the world, they will probably manage to survive in some manner.

The car companies that will be hardest hit are the smaller ones without the huge market share like Subaru and Mazda. Subaru is a division of Fuji Heavy Industries and the parent company could survive the death of Subaru, but it would hurt them. If Tesla produces a Model 3 wagon, it would be higher priced than Subaru's products, but it would probably cut into Outback and Forester sales. My SO has been a loyal Subaru fan for over 20 years, but her loyalty is getting shaky because of Tesla and what the Model 3 might hold.

If the Tesla revolution takes hold, I do expect a shake out in the car industry as the companies without the capital to adjust go out of business and the bigger ones will have to spend like mad to survive the shift.

 

I am a Tesla promoter, however the Audi design looks better ...

 

The Audi presented above looks like it would be VERY hard to see over the mosterous hood they have presented in the image above.

 

Remember Elon said, "Production cars always better than prototypes."

Audi will both differ and defer. + it looks like only midgets would fit in the 3rd row. Wait, it only seats 4! Next...

 

I realize that everyone know on a conscious level that after buying any gas car, you keep making payments for the life of the car, to the GAS station. You also get to take your car back to the dealer every few thousand miles, for "service". This amounts to thousands of dollars.

Yes, with a Tesla, you pay more initially, but you don't pay for gas or maintenance. So, you say, you could stretch your budget upwards, but subconsciously, you think the gas car is cheaper, when in some instances, you end up paying for a Tesla, but you drive something that is so much less.

I have had my car not quite three years, have over 80,000 miles on it, have never paid for service or maintenance, and due to the fact that I have solar panels on my house that long ago paid themselves off, I do not figure I have paid more that a couple hundred dollars for "fuel", and that only at RV parks while on vacation before superchargers were "invented".

I would not repeat this over and over and over, but for the fact that just about every time anyone tells me why they cannot drive a Tesla is because it is too expensive for them, and yet I find that often they are driving a 4 door 4 wheel drive 4 speed automatic trans pickup truck for which they paid $50,000 plus, and will pay an additional 20, 30, or 40 thousand dollars at the pump.

So, continue to be frugal. Tesla is lowering the price of the battery, too. But make sure you count the rest of your costs, and realize the value to yourself and your children in owning Tesla.

 

Not to me. The Audi design looks like a giant stepped on the car and squished it. I dislike cars with high belt lines and skinny windows.

 

I will just add that the Audi design, as shown, is really just a styling exercise, and not likely to make it to production as shown. We will not see a production vehicle any earlier than three years from now. The really big news is that VW (VW, Audi, Porsche) are endorsing all-electric vehicles, which they would not be doing without the combined competitive pressure from Tesla and legislative pressure form California (and environmental partner states). Tesla really needs the competition, both to maintain the pressure to continuously improve and enjoy the financial support of investors who "believe"

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You are exactly right, Gordo. Tesla has but one path: full electric. Their incentive to make it succeed is truly existential. Current ICE incumbents will struggle. Even if GM created an entirely new division to do EVs only, I believe it would be extremely difficult for them to succeed...for the reasons you list. My favorite quote of this decade is Musk's musing during an interview in which he was asked about competition: "I can't believe they are giving us this much of a head start!" I think I have that quote correct, but that is what he meant. If you read Innovators' Dilemma, you will understand why what is happening is happening. This is an historic and exciting period. Go Tesla!