Facing Competition Can Tesla the Disruptor Prevail?
Last Friday Elon Musk made an announcement that the whole world was anxiously awaiting – the launch of the new Tesla Model 3. It’s an exciting new offering by the electric vehicle pioneers who aim to challenge the already crowded market of affordable vehicles. But their offering is different. It’s 100% electric. And Tesla is the disruptor in this segment which has been dominated by century old players such as Ford, GM, Mercedes and BMW. Tesla continues to mesmerize consumers with its vehicles. With the Model 3 it can leap out from its niche market (to which it offered and Model S and X) to the world of the masses.
Unfortunately, though, if you own Tesla shares you’re not going to be too thrilled. Sure it’s a great sign that they’re finally launching a much anticipated model that consumers have waited over a year for. But share prices haven’t been quite what many expected them to be.
What Just Happened?
At its peak, Tesla’s market capitalization in June this year was at $63 billion which made it the most valued automobile manufacturer in the US. It beat giants like GM ($53bn) and Ford ($44bn) which dominated most of the past half century. To further highlight the magnitude of what Tesla had done consider the production numbers of 2015 – GM produced 10 million cars compared to Tesla’s 84,000. That’s a significant achievement from a relatively small company that’s barely profitable!
Today, however, things aren’t looking so pretty for Tesla. It’s share price dropped 13% in the past week – Friday’s announcement had little or no impact to save it – and its market cap fell $12bn. Ouch!
Part of the reason for this dive could be the timing of Volvo’s declaration to have five electric models in its lineup by 2021 and that all of its new models will either be hybrid or fully electric from 2019. That’s a massive blow to Tesla whose core competency lies in electric vehicles. And let’s not forget that GM also sells its Chevrolet Bolt which is an affordable electric vehicle. Basically, while Tesla may have disrupted the automobile industry with its electric vehicles, it’s not the only one doing it anymore. And it’s being cornered by competitors who are bigger, more experienced and with deeper pockets.
Isn’t Disruption the Key To Success?
Yes it is. It’s the basis of evolution driven by innovation and creativity. But it’s not going to be your company’s saving grace. Tesla has their work cut out for them. They have the demand for their products but are struggling to live up to their supply promises. And then there’s the fierce competition that’s increasing with the likes of GM, Volvo (and soon VW). If Tesla isn’t able to shake things up it’s going to be the end of that fairy tale.
Tesla isn’t the only disruptor that’s faced this issue and challenge. In 1995, Philips developed the Tornado electricity-saving bulbs which disrupted the widely used fluorescent light bulbs predominately produced by GE. However, it took just two decades for Philips to be dethroned by LED bulbs which are far more efficient, cheaper and longer lasting. Apple disrupted and wiped out the CDs and records industry with iTunes, only to be disrupted itself by streaming music like Spotify. Basically, if Tesla isn’t careful, the disruption it stirred up could be the cause of its glory and untimely death.
Why All This Matters To You?
If you don’t own Tesla shares you’re safe and all of this would be gibberish. Well, not really. There’s a bigger learning here than just share prices and market capitalization which should mean a lot to you as a business owner and exponential leader.
You could have a product or service that disrupts the market. You could even experience exponential growth and enjoy mass acceptance of your brand. But all that could just be your 15 minutes of fame (figuratively speaking) if you don’t follow it up with something substantial and sustainable. Having the first mover advantage is only as good while you’re the only player in the market. Once you’ve got competitors you no longer have that edge, command and control.
While you’re still ahead and still holding on to a sizable market share, work on strategies that’ll maintain your dominance. In essence, what Tesla needs to do, and probably you as well, is to disrupt itself. That means you have to re-challenge yourself to be even more innovative and disruptive so that you’re able to build upon your successes with yet more success. In short, once you’ve disrupted the market, you need to disrupt your own business model to continue existing. Last week Tesla also signed a deal with South Australia promising to make the world’s largest lithium ion battery. That’s one way of re-challenging yourself. Will it be enough for Tesla? Let’s wait and see.
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