Compared to traditional manufacturing, Silicon Valley has one enormous advantage.
Products that flow out of the hyper-growth of its tech startups have street credibility, a cachet with youth and more importantly, they have a social media-driven marketing machine. Everyone knows, for example, what an iPhone can do whether or not they’ve ever held one in their hands.
I believe that’s one of the key reasons for Tesla’s phenomenal success in marketing its electric cars.
I’ve never seen so much media attention for such a low volume of automotive product, let alone one that is only affordable for a very small, affluent slice of the car-buying public. Nonetheless, mass market media has declared Tesla to be the leader in automotive electric car technology.
But will it always be this way?
One school of thought says that major automakers have been quietly running R&D in the background, watching Tesla’s innovative marketing machine and interesting products while waiting for the technology to mature to the point where mass produced, affordable vehicles are ready to go.
I suspect this is the case and recent announcements by Ford appear to back this up.
Ford has announced that the firm will invest $4.5 billion in electric vehicle technology by 2020, including a new electric Focus with a very fast charging capability.
This is a key technology and according to the company, it will deliver 80 percent of its charge capacity in 30 minutes with a projected 100-mile range. By 2020 Ford expects to add 13 new electric vehicles, with more than 40 percent of Ford’s global nameplates also available in electric versions by then.
So what happens to Tesla when heavyweights like Toyota, General Motors, Volkswagen and Ford build electric vehicles?
One possibility is that Google, Apple – or some other IoT/software developer that wants to integrate vertically in the autonomous vehicle business – buys Tesla and adds autonomous driving capability.
The other possibility is that Tesla becomes a version of big names like Porsche or Ferrari for the electric car industry, a specialty builder of high-end luxury sport vehicles for affluent consumers.
Here’s what Tesla won’t become: a major builder of low-cost, mainstream cars and light trucks. Why? Two reasons.
First: it’s much more difficult to build vehicles on a mass scale than most people realize.
It’s a highly competitive industry that’s been evolving for over a century. It’s highly unlikely that the Bay Area Internet community is going to find a better way to mass-produce automobiles than the tens of thousands of automotive engineers at heavyweights like Toyota, Volkswagen or GM.
This doesn’t mean that independents like Tesla can’t build a market for specialized, high-value products, but it does mean that true paradigm-shifting innovation (like practical electric cars everyone can afford) will come from a mainstream automaker.
I believe this is a major reason for Tesla’s shift to the battery megafactory. Storage is an area where Tesla can become as big as Toyota.
Second: automaking is only partly about machines.
The majority of the business is about sales, financing, service, regulatory compliance, marketing and dealer relations. Conventional carmaking is a tight-margin business; it’s far more difficult to engineer and sell a $15,000 car than a $150,000 one.
With major new models costing nearly a billion dollars to develop, every single one has to be a winner.
The notion that industry outsiders can kick down the door and upset a stolid, conservative industry is a romantic one, but in reality, companies like Toyota don’t become billion-dollar corporations by staying vulnerable to upstarts.
In the battery business, however, it’s virgin territory - so look for Tesla to make a major push there.