Electric vehicles have been under development for more than 120 years. All trials to have them realized failed because the required infrastructure for such vehicles always pushed back against the car maker. Tesla has managed to solve this dilemma, but as Tesla scales it will require society to make substantial changes in infrastructure: charging grid, repair and service sector, used vehicles and parts and recycling. In addition to that, competing with well-established and global automakers creates a massive stress on Tesla.
There are two well-known strategies in supply chains: “push” and “pull”. If innovation is created where the existing social and commercial networks want, such networks will pull the innovation into existence. On the other side, if innovation is pushed into society that requires extensive change from the ecosystem, the innovation will get pushed back out of the system. In this memo, I compare between Toyota and Tesla to study how each handles the economic, societal and entrepreneurship factors to have the ecosystem embraced their innovations[1].
Toyota follows the pull strategy. It has huge financial reserves. It had the ability to produce an Electric Vehicle (EV) faster and cheaper than Tesla in a very short time. But Toyota chose not to build an electric vehicle, it built “Prius”, a global hybrid vehicle, using the existing supply, sales, finance, and service networks. The result was selling more than 10,000,000 units, at a profit. Toyota supports these hybrids in the aftermarket. Their entrepreneurial question was: “Can society accept and expand electric fuel, if it as easy as gasoline fuel for everyone in the ecosystem?” Toyota was considering Prius as “social probe” where drivers experience electric driving without disturbing their gasoline fueling behavior or buying new charging systems. Prius requires very little ecosystem change, even for the battery, they chose a battery chemistry that was easier to recycle compared to Tesla’s batteries1.
Tesla follows the push strategy. As Tesla requires society to make substantial changes in infrastructure: charging grid, repair and service sector, used vehicles and parts and recycling. In terms of recycling, each model contains more than 1600 pounds of new “e-waste” for the world’s recycling systems. Tesla need new lithium for their batteries every car. This puts pressure on global lithium mining. In contrast, traditional auto parts are about 80% re-usable, and recyclable1. The biggest threat to Tesla is the ability of established makers to build EVs with remarkable precision[2]. New models from Porsche and Audi are also likely to outpace Tesla when it comes to autonomous driving features and cloud connectivity. In addition to that, Tesla is facing delays in due to the extreme production ramp. Many of Tesla’s customers order customized vehicles and the factory produces each car in the order it was purchased. Some Tesla workers say that the company’s attempts to aggressively ramp up production are actively hurting them, leading to serious injuries and medical issues. Alain Kornhauser, director of transportation program at Princeton University, noted that quality of vehicle has played a role in keeping Tesla in the good graces even with the considerable number of delays3.
[1] Tesla Cars Are Great – Their Ecosystem Strategy Not So Much. forbes.com. 2018
[2] Tesla: will the fairytale end this year? autocar.co.uk. 2018
