Do Legacy Automakers Have True Motivation To Bury Tesla?

Red Tesla Model S driving

APR 2 2018 BY EVANNEX 27

CORPORATE INERTIA: HOLDING BACK LEGACY AUTOMAKERS FROM PLAYING ‘CATCH-UP’ WITH TESLA

A frequent theme of the legions of Tesla skeptics is the idea that, when the traditional automakers finally get serious about EVs, Tesla will be toast. However, while the auto giants, with their access to amazing amounts of capital and their enormous economies of scale, certainly have the ability to bury tiny Tesla, the reason that this scenario isn’t going to take place is that they don’t have the motivation to compete with the California carmaker.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

EV blogger Patrick C, writing in Cars With Cords, sums up the situation very well with the phrase “Culture Eats Strategy.” Most of the major automakers have well-thought-out strategies for electrification, but successfully implementing these plans will be an uphill battle because their corporate cultures are not conducive to pushing a new product at the expense of an old one (Silicon Valley tech firms are much better at this sort of thing).

Blue Tesla Model S front

Tesla’s Model S now outsells German flagships on their home turf in Europe (Instagram: teslamarksthespot)

 

Like “Tomorrow” in the musical “Annie,” the majors’ new EVs are always a day away, or rather 3 to 4 years away. Patrick C cites the example of Toyota, which has announced big plans for new EVs multiple times, but can’t seem to produce anything beyond low-volume plug-in hybrids and fuel cell vehicles. “If [Toyota] really jumped into EVs with both feet, they could be a significant threat to Tesla’s future,” Mr. C writes. “But they can’t turn the ship. Toyota’s revenue sources are gas and hybrid cars and trucks. And Toyota has years of R&D sunk into fuel cells. They have a culture of designing, manufacturing, and selling these gas and hybrid cars. They have been very successful doing this. Success detours change.”

Blue Toyota Mirai front

Toyota’s hydrogen fuel cell vehicle, the Mirai (Image: Softpedia)

When a company is failing, it’s obvious that change is needed. But when an industry is growing and reaping record profits, as the automakers have been doing for the past several years, the logical business move is to continue doing exactly what you’re doing and dismiss the stirrings among the startups. “The Kodak view of ignoring upstarts is far more common when things are going well,” writes Patrick. “Find a few flaws with the current generation of competitive technology and you can erroneously use them to dismiss the entire category present and future.”

The world is changing – emission standards around the world are tightening, and the next generation of drivers may not have the same relationship to their cars as their parents did. “Strategies that were successful in the last five decades are not likely to be successful in the next decade,” says Patrick. The automakers’ past success is “their biggest hurdle to taking their companies in a new strategic direction.” As Marshall Goldsmith put it in the title of a 2008 book, What Got You Here Won’t Get You There.

Blue Tesla Model S sideview

Another look at Tesla’s Model S (Instagram: teslamarksthespot)

The legacy automakers are producing excellent EVs, but selling them in volume would require explaining to buyers why they are superior to their existing ICE vehicles, something the companies will not do. Some 400,000 people are waiting in line to buy Tesla’s Model 3. GM sold about 23,000 Bolts in 2017. Where are the lines of customers for the Bolt, which some reviewers consider the equal of Model 3? As Patrick explains, GM dealerships “often divert people to other cars when they come in and ask about a Volt or Bolt. They cannot market the environmental benefits of their plug-in cars without making every other car that they sell look bad.”

Meanwhile, over at Ford, former CEO Mark Fields said, “We have driven the Model S, torn it down, put it back together, and driven it again. We’re very familiar with that product.” But what did Ford learn from that teardown? Has it introduced over-the-air updates? Large touchscreens? Long-range electric cars? A coast-to-coast charging network? Nope, nope, nope and nope. BMW, Mercedes, and Volkswagen have also reverse-engineered Tesla’s vehicles. Many of Tesla’s patents are open-source. These companies know the technology, and they have the resources to produce an answer to the Model 3, and to market it to sell in volume. But their culture is not about taking risks.

Tesla Superchargers

Tesla is the only dedicated automaker with an established worldwide charging network (Instagram: zoya89)

While the pundits pontificate about the glad day that the legacy automakers get serious about EVs, Patrick C understands that they will not get serious as long as they are still making money on the gas cars that they are currently selling. “Only after they are no longer profitable with combustion engines will they have the epiphany that they need to ‘get serious.’”

By then it could be too late. For, while the majors play a delaying game, timidly testing the market with low-volume compliance cars as their lobbyists work hard to eliminate pro-EV regulations, Tesla is steadily positioning itself for the future. The legacy automakers are giving Tesla time to build out its production capacity and its charging network, time to develop new vehicles, and time to build customer brand loyalty. By the time the Dinosaurs of Detroit “get serious” about EVs, they are likely to find that the Startup from Silicon Valley has established itself as the undisputed leader in the electric vehicle space.

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Written by: Charles Morris; Source: Cars With Cords

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.

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27 Comments on "Do Legacy Automakers Have True Motivation To Bury Tesla?"

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They want the ICE party to continue as long as possible. They are having fun.

Rocket man wants to end the ICE party. Therefore they don’t like him.

Rocket man has started a new party. More and more people are joining that new party. The music is probably much better.

Yea the music Plays.. “The sounds of silence”…No Huffing Puffing Loud Farting Noises..

They’re playing… Beastie Boys, Sabotage !

I think the reality is a lot simpler. EVs are not yet profitable, but they will be soon. Tesla has adopted the tech industry’s growth-first-let’s-worry-about-profit-tomorrow strategy, buying market share and establishing their brand while there is an opening, while legacy makers (for whom this strategy would probably not work anyway) are simply trying to keep up with the technology, with limited offering but lower risk and cost. It looks like 2020 is right about when these two approaches will collide.

I think the point of the article is that it would be trivial for any legacy auto maker, to, in 2008, have really pushed into the EV market the way Tesla did, on far less R & D money than any of the legacy auto makers are spending now. Sure, the Toyota Camry has amazingly consistent build quality. Great. It’s still a Camry. Burns petrol. Inexpensive. Status quo. The Prius? Incremental improvements, the slow, safe way that Toyota will always advance. Behind the curve, about catching up and keeping their market share. Assuming Tesla did not file for Chapter 14.5 bankruptcy on Sunday, and that they can at least get to 5,000 units a week before they increase their debt ratio to the point that it becomes an operational risk, I think Toyota will feel the loss of their market share, because that objective is about 50% of the manufacturing numbers of the Camry right now. Tesla is getting a larger gross margin on their vehicles than Toyota is, all their vehicles are more expensive, and it will be an upturn to see Toyota, in 2024, without a single pure BEV to sell. Sure, 2025 is when they come out,… Read more »

“Jaguar is, oddly, first out the gate with the iPace in that market. Sure, it’s about the size of the GM Bolt, but… it competes in a few columns against the Model X.”

It’s only being compared to the Model X because Jaguar has labeled the car an “SUV”, despite the fact it’s much too small for that designation.

The I-Pace seats five, just like the Tesla Model S (without the additional jump seats in the rear), and that’s what it should be compared to. Or perhaps it should be compared to the Tesla Model 3, if it really is that small.

Comparing it to the Model X, which has a seating capacity of 7 in the standard layout, is rather inappropriate. That’s more of a contrast than a comparison.

It competes with the Y. And is first out of the door. Great! But the later Y will be better, because the iPace somehow uses a lot of electricity for every mile driven.

“EVs are not yet profitable” EVs are profitable. Tesla make profit on every single vehicle they sell. I think their profit margins are around 15% on the S and X. And it’s around 25% on the Model 3. These levels of profit are unheard of in the car industry even for ICE cars. Legacy car manufacturers sell their EVs at a loss which is why they sell at such small volumes. This is why Tesla is so much ahead, they understand what they need to do and they can deliver this. Tesla’s challenge is getting the Model 3 up to volume production such they can have decent revenue from the car sales.

You have to look at who the big institutional investors are in the LICE industry and they tend to be people invested in the status quo, like the petrolium industry. Do they see change as not being in their best interests? You bet.

by the time Toyota realizes Tesla 3 has eclisped the Camry it would have lost that market

I think the problem for them can be very bad. It is not just Tesla; GM Bolt, Jaguar, Porsche, Nissan Leaf and the Chinese are already producing cars and they will be making more in the future.

Today, you really only have Tesla to think as a competitor, in couple of years there will be tons of competition to any car they produce.

It’s the usual pattern, in any and every disruptive tech revolution, for the legacy market leaders to cling to the old tech so long as they can continue making money selling it. Why not? It’s what they’ve spent lots of time and money developing, it’s what they are familiar with, it’s what has obviously worked for them; if it didn’t, then they would no longer be in business. Happily this gives room for “young Turk” upstart companies to move in and take some or all of the market away from the “dinosaurs”. The upstarts can move faster, change directions easier, and don’t have entrenched interests within their companies of seeing things stay just as they have been for decades. I say “happily” because this means that there is a real opportunity for new companies to offer new products and to provide more choices on the market. Capitalism works best when there is a truly competitive market — not necessarily a “free” one, since a free market can lead to monopolies, price fixing, and other abuses. If Tesla were to vanish from the face of the earth tomorrow, it wouldn’t result in the legacy auto makers trying to move into the… Read more »

+1 for the overall point

+1 for recognizing the difference between a free and a competitive market

I would also add that this kind of disruption has a way of letting non-leaders seize an opportunity and leapfrog the bigger players. The best example of that right now, IMO, is Hyndai/Kia. With the Soul 2.0 and the Kona (among other offerings), they’re set to do more than some other conspicuous-by-their-absence competitors.

Since Hyundai isn’t currently selling it’s BEV’s in fifty states, I’m going to have to disagree with that.
If, they applied the same marketing force throughout at least the “lower 48”, it would be a different story.

And what’s more, based upon another follower of these posts, as well as my own experiences, Hyundai seems to instruct it’s employees outside of the BEV sales footprint to not even acknowledge the fact that they offer a BEV’s.

O/T- SpaceX
https://www.theverge.com/2018/4/2/17187972/spacex-falcon-9-nasa-crs-14-launch-watch-live

The phrase “It’s not rocket science” is officially obsolete- NASA having accepted it can’t compete with Elon in resupplying the ISS. Does NASA carry similar legacy baggage as the major ICE makers?
Mass-producing EV’s is far more difficult than ‘rocket science’ but here’s hoping M3 takes off like the Falcon 9!

Well that is an interesting narrative. NASA wanted to move the resupply missions to commercial ventures – they tendered and paid for each mission. You might be able to state that Boeing may soon have to concede defeat but Boeing is not NASA.

NASA really, really excels at the development of bespoke technology to address extremely difficult problems in space exploration and scientific missions.

They really suck at building, running, and maintaining base level infrastructure at anything approaching a sane ROI.

NASA building rockets is the equivalent of having Ferrari’s F1 team building delivery vans.

The ICE car makers would rather still be selling sub-100 mile small EV’s, sitting back and saying how their lack of sales proves people don’t want EV’s. Tesla has screwed them by showing that people do really want EV’s, if they are done right.

Porsche and Jaguar seem to have the biggest sense of urgency in bringing truly ICE competitive BEVs to market. Slightly behind them is the rest of VWAG and BMW. It will be interesting to see whether Tesla can catch up to them on manufacturing quality and rate before they catch up to Tesla on design and battery costs. I would not bet against Tesla. Until GM and Ford feel like they can build profitable BEV versions of the products that pay their bills (pickup trucks, CUVs and SUVs) I think they will continue to dabble.

That is because in the EU car makers have to comply with fleet average co2 targets. Or face big, big fines The next. The next round of tightening the targets is in 2020 that is why the European car makers allhavenew EVs coming out in 2020.

Jag and Porsche are way off meeting their targets because they are selling large and powerful luxury cars. That is why they are extra motivated.

I’m glad that China and the EU are pushing the greening of transport hard.
Is this repect the EPA being dismantelled is not the end of the world. It is just. Going to cost the US a lot in terms of future competitiveness.

The current US government seems to much beholden to big business to make the. Country truly great again. So far everything point in the exact opposite direction. So sad to see.

I think this is a super simplified, and not accurate article. The EV market has not really been profitable, up until now. When Tesla says it makes with a certain profit margin on their products – what is included? There are no rules of what to include, and different brands include different things. It’s not just to take the sales price, and deduct labour and parts. How much of the moulds, robots and manufacturing infrastructure is included? How much have they set aside for recalls, for modifications, for parts, logistics, adjustments of production lines, education of employees and mechanics and so on. Some companies also include some of the estimated costs for development for the first facelift version of the car. Over how many years do they write of the production equipment? In Teslas case, it’s a bit special as they have only produced expensive vehicles. That is logical, as with all new things somebody are more interested to be early adopters, and pay extra to be the first. Take the cheap MP3 players that came years before Apple. They were OK, but Apple was the first who could milk the marked with overpriced products that people wanted to buy.… Read more »

“But their culture is not about taking risks.”

No, their culture is not about losing money. Why should Ford build EVs when it makes $10k+ on every F-150 it produces?

If EVs were profitable, everyone would be making them. This is especially true for ‘affordable’ EVs, which the Model 3 is not, and why the mythical $35k Model 3 might never see the light of day.

The article’s overall theme that corporate complacency creates opportunities is valid, but the concept that there is some sort of global “vast ICE-wing conspiracy” to retain the ICE-engine-powered vehicle vs an EV is flat-out-wrong. I’ve lived long enough to watch the US and other global auto industry giants get caught with their pants down multiple times over the decades when there is a sudden disruption to each company’s model, no matter what that model was. The Japanese mfgr’s cashed in on US hubris in ’73/74 & 1980’s oil crises, and 2008 was a collective crisis that Tesla was able to cash-in on. I think the globals finally learned their lesson and globally have figured out they need to constantly be engineering new products that cover all sectors, ready to ramp up production the moment it becomes “hot” and “profitable”, because the only thing they now can predict is that the future is unpredictable. Look at the iPace as an example. We had little idea quiet Jaguar had put SO much time and effort developing such an EV until just last month when they made a huge rollout presentation. Even Tesla has suffered from corporate complacency and hubris and are paying… Read more »

“vast ICE-wing conspiracy”

It isn’t a conspiracy when they form an official publicly disclosed Association to lobby on their behalf, and that jointly hired lobbying association that nearly every one belongs to lobbies for laws that will hurt EV adoption rates.

Please tell me you know that ICE car makers lobby against green car regulations through their very publicly known lobbying association?

Author does not understand the Auto business. It’s not a case of “their corporate cultures are not conducive to pushing a new product at the expense of an old one”. It’s a case of having to manage a huge product portfolio, a massive manufacturing footprint, a unionized workforce. It’s having to be able to produce 1000 vehicles *a day* with six sigma levels of quality.

Taking risks & being wide-eyed idealistic is two very different games, but Tesla would want you to think they are one and the same. Automakers, legacy or whatnot, exist to make $. Every business in the world exist to make $, otherwise they are classified not as a business, but a charity or a non-profit organization. These agencies rely on the altruistic nature and generosity of others to exist. Nissan is an automaker. BMW is an automaker. Chevrolet is an automaker. Tesla (as of now) is a charity. Their objective is to “accelerate sustainable transportation”, “Elon does not want profits!”, “Tesla would have won even if it falls!”…in the way they operate & from the words from its fans, it might as well be a church. “Has it introduced over-the-air updates? Large touchscreens?” – simple answer: CARS DO NOT NEED THESE. Tesla sells based off gimmicks. A large touchscreen is distracting and OTA updates have already more than one instance crippled a Model S. For a mobile device or computer having the latest & greatest would be handy, but a car ISN’T a smartphone. It is a mode of transportation and Tesla seems to have forgotten about that when adding… Read more »
Charles poses a great question!…and then an equally interesting and diverse thread appears – and I’ve read them both carefully (I hope). I had a chat with Alex Guberman on his E for Electric Vlog at the weekend and we covered much of this stuff coincidentally. Now, as I’m old and decrepit, it means I’ve been in and around the auto business’s ups and downs for over 30 years now – 10 in an OEM (Audi) and the rest in start-ups and SME’s.My sense is that what’s about to emerge is a fundamental shift from linear to circular economics, which will be driven by the need for all forms of sustainability. Maximising efficiency and maximising utilisation will be at the core of all enterprise, and the enabling technologies will be connectivity and AI. Energy sits at the top of the food-chain of it all, so as I’m sure some of you’ll agree, Mr Musk is 100% aligned to all this. However, the way forward is in my view about intelligent collaboration and not head-butting bozo competition as we truly don’t have time for that anymore. Whilst shifting to EV’s might feel like a revolution to some – it is not.… Read more »