High Tech Meets the Old Auto Industry

You may not know it yet, but the automotive market is about to be transformed right before your eyes in a very similar manner to the way the iPhone transformed the mobile industry. One might argue that cars today are better than they were 5-10 years ago, but does that mean they are really innovative or competitive? The engine in an old Ford Model T from the early 1900s is incredibly similar to the engine in a 2011 Ford Fusion, since car engines today use the same basic technology of combustion of air and fuel. Yet, I doubt Alexander Graham Bell would know what to do with any smartphone.

The reason cars haven’t really changed much is because high technology is just meeting the car industry today with Tesla’s innovative electric car run by a powerful and ingenious car battery. In fact, its car is more like a software (yes, a software with a metal wrap) that people take with them for a long period of their lives and can easily upgrade to newer models, but don’t have to switch vendors or start from scratch to get the latest features, fixes, and safety measures installed.

The mobile revolution has been so life altering, so age-defining and innovation driven, that where we were less than a decade ago when Nokia was the best phone you could get is incomparable to where we are today--a mobile world that looks, thinks and acts completely different. Well, get ready because Tesla is about to put you in a time machine and completely transform the way you interact with the world around you once again.

Apple Killing Nokia Foreshadows the Future of Cars

That Tesla cars don’t require gas, are environmentally friendly, and can be purchased directly from the provider to avoid sketchy car dealerships and save money on a middleman are just some of its obvious benefits. There is another reason that Tesla cars will take over the car industry and it’s strikingly similar to the reason the iPhone took over the mobile industry: customer emotional loyalty.



Though Nokia held the ball of the mobile industry for nearly 15 years as a mobile giant with a high of $30 billion annual revenue and a massive market share (47%), it all unraveled in just six short years after Apple’s innovative phone hit the market in 2007 and made its way into the hearts of the people. At the time, with Apple’s weaker battery, Nokia refused to react to innovation and instead, like the car industry is doing to Tesla cars today, scoffed at Apple’s attempts to be so futuristic and tried weather the storm. We all know the end to that story--the blue, colorless Nokia phone is used today in pop culture as an anachronism.

When Nokia Became an Anachronism



Apple stocks surges as Nokia slows dies when the iPhone was born in 2007. Here’s a look at how the stocks behaved during that time.











Tesla As the iPhone of the Car Industry

How did Apple win the masses with an imperfect but innovative new phone? Apple understood that creating a solid product wasn’t the only thing people were looking for in the age of the Internet that encouraged globalization as well as an open market competition that made many technologies a commodity. So, Apple made the customer experience an integral aspect of their brand. The iPhone is a product designed to make customers feel like part of a distinctive, exceptional club with beautiful stores, top-notch customer service, sleek designs, and additional gadgets supporting any Apple product.



In the same way, Tesla cars have incorporated personalization and customer experience into the very fabric of the company. Tesla cars are the most highly customizable automobiles on the market with a different profile setting for each driver that adjusts the music, seat, mirrors, temperature and more. Here’s the reaction of seasoned automotive techie Tim Stevens from CNET:

Settings and options are, for the most part, logically scattered throughout multiple pages of toggles with a -- dare we say it -- iOS-like look and feel. You're rarely more than two taps away from tweaking anything.” (Engadget 2013 Model-S Review)

Also, the customer service Tesla offers is unbeatable: free upgrades to all new features and free charging at all Tesla Supercharger stations (close to 100 stations in just USA)—which can provide half a full charge in just 20 minutes. Tesla makes it clear that their cars are designed for individual people, and not the mass market. Whether or not Tesla will be able to maintain their cachet if their cars are embraced by the mass market will be a challenge, but Apple handled the same demand both gracefully and successfully.

A look how Tesla started differentiating from the car industry with a market cap very close to Fiat:

Changing the Rules to an Outdated Game

Tesla single-handedly forces the automotive industry to enter the high-tech world—a place where the rules are different: the focus is on innovation, R&D, and the customer. Combine that with open market competition means high-tech companies have to keep earning their customers’ business by improving their product and providing superb customer service. Tech companies like Tesla have been doing so by focusing on the customer experience and retaining the smartest techies as employees who have a fire in their bellies to keep ambition, innovation and user experience at an all-time high.

The entrepreneurship that Tesla brings to the game is perfectly summarized by GM’s former Vice Chairman Robert Lutz reaction to the Tesla’s technology:

All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us — and boom, along comes Tesla. So I said, ‘How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can’t?”

5 Ways Tesla Is Disrupting the Market

To answer Lutz’s question, it’s because for Tesla, it’s not about a tweaked combustion engine and it’s certainly not about finding a place in the monopolies created by the car dealership system. It’s about high technology, thinking outside the box, and disrupting the outdated rules that alienate the consumer. Here are four fundamental ways Tesla is disrupting the automotive industry:

B2C - Tesla allows customer to buy a car over the web CAAS model, and save time and money by skipping the middleman. Simple application updates - Customers can treat a Tesla car as an App that can be upgraded on the fly when bug or better algorithms are found. Personalization - Customized experience for different drivers with car seat, climate control, and other features etc.





Quality QA and R&D – As a high-tech company, Tesla is always working to create better cars. If an error is found, Tesla will pick up the customer’s car and return it the next day with the error fixed, even if it requires them to lose some money, as they did with Tesla's lightweight solution that prevents fires in the Model S. Tesla outfitted the cars with increased underbody protection an expensive titanium underbody shield and aluminum deflector plates. Open Source Technology - Very much like Google open sourced its core technologies to get more users, Tesla is doing the same to the car industry by allowing everybody to use their patents in hopes to universally raise the bar for auto technology.

Why I Love Disruptive Technology

I believe in Tesla because I believe in disruption. I say this from first-hand experience as one of the founders at SiSense, a business intelligence software company who is making waves in the big data analytics industry with disruptive technology that empowers non-technical users to analyze big data . I have always felt disruption is the only way to take big strides into the future. At SiSense we thought, well what if the typical business user with no programming skills could crunch terabytes of data on inexpensive software? And from there, we worked towards making that a reality and have revolutionized the way businesses gather and analyze information.

It may take some time for the public to relinquish preconceived limitations in order to digest what a new technology can actually do, but once there’s enough people who can wrap their brain around new and great technology, and as R&D works to perfect the technology, it’s a domino effect from there. This is similar to what we are experiencing here at SiSense as our sales are expected to tripled in 2014 as more and more users recognize how our technology is transforming the way they do business intelligence. It reminds me of this impassioned account from a first-time Tesla driver:



My mind wandered away to consider what it would have been like to test drive the Ford Model T in 1908. It would have felt like driving the future, which is exactly what driving a Tesla feels like... I admit it, I have drunk the Kool Aid” - Jamie Merrill, The Independent

The Real Cost of Driving a Gasoline Car

Cost often comes up as a major issue against Tesla cars that, at first glance, can be pricey for the average middle class buyer. By zooming out and looking at the total cost of ownership, Tesla becomes disruptive to the industry once again. Though the Tesla Model S cost $70K, which is expensive compared to the $35K car that the average American buys, taking into account money saved on gas puts drivers at a much more reasonable price point. [See interactive graph: The Real Cost of Driving a Gasoline Car]

Compare driving a diesel car and Tesla for one full year where the average American drives 15K miles per year at around $3.50 for gallon of gas: the total cost is around $4,000/year for the most popular diesel car in the U.S, a Ford F-Series 700K car. Even putting aside the fact that Tesla recently introduced free charging for life, the car electricity price will in contrast be only $375/year--saving Tesla drivers more than $3,500 a year just on gas.

With tax rebates and low maintenance cost, a Tesla driver can easily save around $20,000 every three years--which is a bit longer than the average time an American keeps one car. So how does $50K for a better product and experience sound? After all, there are millions of people who buy iPhones at a higher price just because they love the Apple experience. Projecting a bit into the future, with the latest news from Musk kitchen that Tesla is building a new battery factory, we can even expect price reduction in a few years to $35K point which would make Tesla an all-around less expensive car to buy and maintain.

Making the Monopolies Sweat

There are many people trying to keep the automotive technological revolution at bay, but I have no doubt that if government regulations don’t tamper too much with the free market, Tesla can and will break through the glass ceiling automotive dealerships have created for them.

The car industry as we know it today is not driven by innovation, environmental values, or the competition to keep the cost affordable for customers. Quite the opposite, it is much more profitable for dealerships to continue providing diesel cars with many parts that can break, need constant maintenance, and can only be purchased from a dealership--not directly from the manufacturer. Tesla’s direct-to-consumer sales model, which appeals to this generation’s preference for research online, threatens the powerful auto dealership lobby by cutting out the monopolies created by the dealership system that are built to profit a middleman.

Tesla’s electric cars have therefore faced opposition simply because car dealerships are making money the way things are right now, and they desperately want the pieces to be kept in place--even if that means embracing technological stagnation, with their internal combustion engine from the turn of the 18th century.

Can Tesla Win?



As high tech takes on the old automotive industry, innovation and competition for creating the best technology for today’s lifestyle is slowly seeping into the automotive market. Since the car industry has no better way to outsmart high tech, they are fighting it the only way they know how: state regulations. And that, in my opinion, is a cowardly way to avoid stepping up to the plate by trying to compete in a free and open market.

Never underestimate the power of the people who today universally hold a deep love, respect and value for technology in their lives. Which is why I bet on Tesla to win the war and shake up the automotive industry as we know it in the upcoming years. With the Internet, open markets, globalization and high technology, we’ve all taken a bite out of the apple of knowledge, and that’s why we won’t let any body dictate the limitations of technology in our lives.