The disruption of Detroit has a name, and it’s Tesla Motors Inc.
At last count, Elon Musk’s electric-car company had booked some 325,000 pre-orders for its Model 3. It promises to deliver more than 200 miles on a single charge and to recast perceptions of what an electric car can do and be in a market dominated by gasoline.
At last count, General Motors Co. had booked exactly zero pre-orders for its Chevrolet Bolt electric car. It promises to deliver more than 200 miles on a single charge, to reshape perceptions of what a Detroit-built electric car can do and be — and to get to market at least a year sooner than Tesla, assuming Musk can hit deadlines he is notorious for missing.
Talk about a double standard. Here we have essentially the same idea (an affordable electric car with extended range) with the same aspirations and the same price seeking the same market. But reactions could not be more different, freighted as they are with the reality of Detroit’s uncomfortable history of mediocrity and Silicon Valley’s record of the opposite.
You want evidence the Detroit vs. Silicon Valley war is real? Look no further than Musk’s unveiling of the Model 3, a mainstream electric-car entry whose pre-orders (if converted into actual sales) would come close to rivaling all the electric cars sold so far in the United States.
That’s disruption, and it may have a real market. That’s a tech company hitting the global auto industry where it lives. That’s evidence the steadily rising barriers to entry that eliminated automakers through mergers and acquisitions over the decades are falling, vaunted by technology that isn’t taking on Detroit at its own game. It’s playing a new one and daring Big Auto to keep up.
Can it? Technically, it can. GM and Ford Motor Co., the Japanese and German heavyweights, are the “haves” in the industry. They possess the capital, strategic foresight and engineering capacity to field compelling electric and hybrid vehicles into a present awash in cheap gas.
Culturally? That remains to be seen. The global financial meltdown, the bankruptcies of GM and Chrysler Group LLC, the private-sector restructuring of Ford produced leaner, smarter companies led by people attuned to the world as it is, not as they want it to be.
The likes of Musk, of Apple and Google, of Uber and Lyft pose a new kind of threat. They prize speed over deliberation and risk-taking over careful calculation. They show a willingness to flout convention (see Tesla’s plan to sell cars directly to customers instead of through franchised dealers) over toeing the line just because that’s the way it’s always been done.
Despite the Palo Alto-based company’s continuing losses, missed deliveries and a quality rep that would slay lesser rivals, Tesla’s Model 3 over the past week has been greeted with a fervor more reminiscent of Steve Jobs introducing an iPhone than GM CEO Mary Barra describing GM’s entry into next-gen mobility at the Detroit auto show.
I asked a ranking GM executive this week about the apparent double standard. He sighed, mumbled something about Tesla being a tech company dabbling in autos instead of an auto company dabbling in tech, and added that there’s “no justifiable reason” for Tesla’s valuation.
Maybe, maybe not. In the first quarter, Tesla sold 7,550 cars, according to Autodata Inc., compared to nearly 684,000 for GM. But as of Thursday’s market close, the market capitalization of Tesla totaled just over $36 billion. GM? Just over $46 billion.
Tesla is the new new thing, not a reimagined and restructured GM led by a path-breaking CEO willing to make tough calls her predecessors avoided. Musk, a quixotic entrepreneur, is what my colleague Henry Payne calls “the boldest auto entrepreneur since Henry Ford” — emphasis, mine, on the bold part.
Musk gets the benefit of the doubt from investors, customers, even a skeptical media. GM? Not so much, which should be not at all surprising given its long history of mediocrity, of false promises, of playing a more conservative game than it talks.
The only way that changes is with results, with a successful Bolt that sets quality standards for the Model 3, with hard evidence it is intuiting speed and innovation from its forays into Silicon Valley. Yet for decades to come, the financial core of the global auto industry will remain deeply rooted in traditional cars and trucks, a cyclical business with comparatively lower margins than tech stalwarts.
Future growth will be increasingly tied to emerging spaces in electrics, autonomous vehicles and ride- and car-sharing. Those are places where Silicon Valley can and will play — and Detroit should, too, but it will need to move as quickly as the new competition.