Tesla Innovation Is Ushering In A New Era Of The Global Auto Industry

Featured Image Credit: Mark Vletter/Flickr [CC BY-SA 2.0]

Tesla has been ushering in the new era of the global auto industry by embracing disruptive innovation. The current global auto industry still separates the EV market from the traditional ICE market. To most—if not all OEMs—EVs are still a niche market, but that may change in the coming years, especially since Tesla appears to be riding up its S-curve of innovation.

Believe it or not, at least two legacy automakers saw Tesla’s potential at the beginning. It may come as a surprise to some especially since the EV automaker has been pitted against traditional OEMs.

To TSLA bulls, owners, and those in the community, it often seems like a David and Goliath battle between Tesla and legacy automakers. However, Tesla has managed to pique the interest of at least two big names in the auto industry; namely, Daimler and Toyota.

Daimler & Mercedes-Benz’ Peek At The Future

In May 2009, Daimler invested US$50M to acquire a ~10% stake in Tesla. The investment gave Daimler’s subsidiary, Mercedes-Benz, a peek inside Tesla and allowed its engineers to observe Elon Musk and his team. Some Mercedes engineers couldn’t fully understand the way Tesla pushed for innovation that could compromise some aspects of its vehicle. 

Mercedes engineers helped Tesla develop the Model S—the car that TIME Magazine would say changed the auto industry years later. Tesla wasn’t the only one that benefitted from Daimler’s investment. In exchange for its help with the Model S, Mercedes received access to Tesla’s battery packs.

The trade-off might have seemed a little lopsided to the OEM back then, but in retrospect, some might deem it as fair. Mercedes gave Tesla a shot at a future and the EV automaker gave the OEM access to the future of the global auto industry.

Daimler vs Tesla

In the end, Tesla’s collaboration with Mercedes was brief. Daimler’s rigid approach towards production plus its reluctance to embrace imperfect innovation collided with Tesla’s out-of-the-box thinking and push for innovation despite its technologies’ imperfection.

Tesla battery packs made it into an electric Mercedes-Benz B-Class, but it had a shorter range due to Daimler’s conservative configurations to the vehicle. The OEM was concerned about long-term battery degradation and overheating.

The configurations were made with Daimler’s “Lastenheft” in mind—a blueprint that lays out the properties of each component for suppliers. It ensures that the OEM will be profitable during mass production so changes cannot be made once the blueprint is finalized.

Daimler’s decision to conservatively configure the electric B-Class reflects how much it valued control in its products. In contrast, Tesla was flexible with the Model S.

For instance, the EV automaker raised the height of the Model S through over-the-air updates (OTA) to prevent road debris from puncturing the battery pack as per Daimlier's suggestions. Just recently, Tesla added a cover to the Model Y’s heat pump after Sandy Munro made the suggestion during his teardown of the vehicle.The Innovator’s Dilemma

Tesla didn’t just conflict with Daimler’s approach towards production or innovation. The EV automaker’s way of doing everything clashes with almost every OEM in the global auto industry, especially to those resistant to change.

Tesla’s clash with OEMs can be explained by “The Innovator’s Dilemma” by Harvard professor Clayton Christensen. The book also explains why legacy automakers, like Daimler, don’t take big risks like Tesla. According to Christensen there are two types of innovation: 1) sustaining and 2) disruptive.

OEMs follow the path of sustaining innovation. They try to improve their products’ performance based on the feedback they receive. Sustaining innovation is pretty much self-explanatory, it sustains a product through incremental improvements over time by reducing defects, accelerating production, or making the product more powerful.

Tesla follows the path of disruptive innovation which stands in stark contrast to sustaining innovation. Disruptive innovations are born from needs in a niche market.

In Tesla’s case, disruptive innovation would be an affordable all-electric vehicle that could one day replace an affordable ICE car. Disruptive innovations may have lower performance, more defects, less speed, and less power, which describes most early EVs.

Porsche Taycan Fire Reveals The EV Revolution Is About Survival For Legacy Automakers https://t.co/dnLLZ1cLsK pic.twitter.com/Kh2mt2jF6t

— Tesmanian.com (@Tesmanian_com) February 18, 2020

Tesla subverted Christensen’s definition of disruptive innovation with the Tesla Roadster and Tesla Model S. Elon Musk knew performance, design, and range mattered to potential EV customers. The fact that Tesla didn’t even adhere to conventional notions of disruptive innovation proves how unpredictable and flexible it actually is. 

The OEMs approach towards innovation keeps them from exploring their potential future in the EV market. Sustaining innovation usually only satisfies customers’ current needs which can be restricting at times.

However, disruptive innovation can lead to growth for a company as its niche market widens. This is supported by Tesla’s growth and the expansion of EV adoption around the world. 

Time and time again disruptive innovation has become the new norm for industries. For instance, Apple’s first iPhone was laughed at by big phone companies, like Blackberry, at the time. However, the first iPhone ultimately heralded the age of the smartphone. Now, the phone market has flipped. Smartphones make up most of the mobile market while regular brick phones are niche. 

Legacy OEMs might face the same fate if it doesn’t start experimenting with disruptive innovations and allocating resources to them. In the end, the question isn’t “When will traditional auto enter the EV market?” The real question is: “When will battery electric vehicles take over the global auto market?”