INSUBCONTINENT EXCLUSIVE:
Chandrasekar Iyer
Contributor
Chandrasekar Iyer is a visiting research fellow at the Clayton Christensen
Institute from Tata Consultancy Services and author of Driving Disruption: Catching the Next Wave of Growth in Electric Vehicles.
Tesla
made its ambition for world domination known when it announced its intention to build a factory in China
The move makes sense — China is the world largest automotive market
But it might be shortsighted.
By continuing to go after the higher tiers of an established market, Tesla will engage in a zero-sum game for
market share instead of forging a new market of unparalleled size
Competition will be fierce as incumbents, like BMW and Audi, which are determined to hold on to their more profitable customers, respond in
kind.
Instead, the larger opportunity for any automaker is to grow the overall market by way of disruptive innovation — and not in the
Silicon-Valley-hype sense of the term
The architect of disruptive innovation, Harvard Business School Professor Clayton Christensen, explains that disruption happens at thelow
endof the market — not the end adorned with high-tech features and flashy designs.
Disruptive innovations succeed by transforming
complicated and expensive products into simple and affordable ones, thereby enabling a much larger population to benefit from the offerings
And since they, by their very nature, expand the market, they constitute a wellspring of new growth.
Rather than take a page out of the
disruptive playbook, Tesla is engaging insustaining innovation
The company plans to use thenew factoryto build Model 3 and Model Y cars
Assuming that Tesla continues with its current positioning, these cars, like Tesla other models, will enter an established market to compete
along existing measures of performance, like acceleration, style and luxury.
Sustaining innovations are important in that they advance an
industry, but they offer little net growth, as not all consumers are able to access them
Andbecause sustaining innovations target an industry more profitable consumers, we can expect leading automakers to fight tooth and nail to
retain their core customers
Alternatively, a disruptive strategy offers a much easier way to tap into the Chinese market — and it already happening right under the
noses of Tesla and other leading automakers.
Disruption happens at thelow endof the market.
Chinese manufacturers of
low-speed electric vehicles (LSEVs) — small vehicles that typically top out around 45 mph, have a limited driving range, and sell for as
little as$2,000 — are creating a market where none existed, by primarily selling cars to people in rural China who have never owned one
We call these customersnonconsumersof cars
The measures of performance that matter most to nonconsumers aren&t speed, style or comfort, but rather affordability, accessibility and
So, as long as LSEVs meet these criteria, nonconsumers will generally be willing to buy them
After all, having a car that can&t travel very far or very fast is much better than the alternatives: bicycles, motorcycles or farm
vehicles.
By targeting nonconsumers, LSEV manufacturers have steered clear of direct competition with incumbent automakers — who have at
their disposal far more resources, such as capital, factories and relationships with suppliers — and effectively established a foothold
that allows them to steadily move upmarket.
Taking the disruptive route has enabled LSEV manufacturers to unleash a new wave of growth that
Tesla and other automakers should covet
During the decade that LSEVs have been available in China, sales have soared
According to the International Energy Agency &Global EV Outlook 2017& report, between 1.2 million and 1.5 million units were sold in China
in 2016 — overshadowing the number of battery and plug-in hybrid electric cars sold globally that same year
Undoubtedly, further growth potential for LSEVs in China is immense — more thanhalf a billionChinese lived in rural areas in 2016.
Whether
LSEV manufacturers manage to profitably march upmarket into higher-performance tiers of the market remains to be seen
What we can say for sure is that there is enormous untapped potential to be discovered — both in China and in other emerging markets.
