Big Auto’s Struggle with BEVs: A Case of Self-Inflicted Pain

If you’re following the electric vehicle (EV) industry, you’ve likely seen the surge of articles lamenting how legacy automakers are falling behind in the race to dominate the EV market. Recent sales data underscores this, with Tesla and BYD firmly established as the top two players. Shockingly, only three traditional automakers—Volkswagen at 3, Hyundai at 6, and BMW at 10—crack the top 10. Notably absent are the major US and Japanese auto giants.

How Did Big Auto End Up Here?

Not long ago, established car manufacturers began pouring massive investments into battery production and acquisitions. However, unlike Tesla, they developed BEVs based on existing architectures, which failed to compete. Toyota, for instance, questioned the environmental efficacy of BEVs altogether.

Historically, entrenched players have reacted to industry changes with skepticism, if not outright disdain. They ridiculed Japanese automakers in the ’60s and ’70s, only to be proven wrong. The same pattern repeated with South Korean companies, who now produce world-class vehicles. This resistance to change persisted with Tesla’s disruption, dismissing anything not originating from within as inferior or unreliable.

The Industry’s Incremental Innovation Mindset

To understand how we got to this situation, you should understand the innovation mindset of the auto industry. Let us examine this using the Henderson and Clark framework of architectural innovation.

Since the 1940s, when the monocoque structure became the standard, the core design architecture of passenger vehicles has remained largely unchanged. The auto industry has focused on incremental innovations—like automation, Just-In-Time manufacturing, and lean processes—without fundamentally altering vehicle architecture. Innovations such as hybrid cars represent modular, not transformative, changes.

Tesla broke this mold, bringing significant component technology changes—like replacing traditional engines with electric motors directly mounted on the wheels—and overhauling vehicle architecture. Their innovations include structural battery packs, advanced battery management software, giant castings for vehicle bodies, and giga factories that scale production to new heights. Tesla’s vertical integration, fast-charging infrastructure, over-the-air updates, and direct-to-consumer supply chain have redefined the industry.

Understanding the Response of Legacy Automakers

To grasp the legacy automakers’ response, we need to consider the “Three Horizons” model. While Tesla and emerging players like BYD, Lucid, and Rivian represent new paradigms, most traditional automakers are stuck in their old models, primarily relying on ICE vehicles for revenue.

Rather than innovate towards a net-zero future, Big Auto has invested heavily in lobbying against the green transition, leaving companies like Tesla to develop solutions. Despite consumer concerns about the environment, legacy automakers have largely ignored this market, assuming it was too niche to matter.

The initial response of Ford, GM, Toyota, Volkswagen etc., to Tesla, was one of disdain and ignoring it as a niche product. Success of the initial models elicited response that the product wasn't scalable. Once Tesla received popular acceptance responses have varied from outright questioning the environmental impact of battery production to rush of investments into battery technology, giga factories, acquisitions and now political lobbying for protection.

Lessons Learned and What’s Next

1. Disruption from Outsiders: Companies with no traditional auto industry background, like Tesla, Rivian, Lucid, and BYD, can disrupt the industry with innovative solutions.

2. Rapid Evolution of Disruptive Solutions: As Clayton Christensen highlighted in The Innovator’s Dilemma, disruptive technologies quickly improve in quality and reduce in cost.

3. Barriers to Innovation: Ironically, the technology, assets, and supply chains that once protected legacy automakers are now their biggest barriers to innovation.

4. Outsiders Lead in Electric Two-Wheelers: Similar to the four-wheeler market, industry outsiders in related fields are likely to drive innovation in electric motorcycles and scooters.

Legacy automakers must heed the lessons of Bower and Christensen’s work on disruptive change. Framing the challenge as a threat is essential to mobilizing resources, but the response should be built around new opportunities, a fresh business model, and staged resource commitment. Attempting to innovate within the existing framework will only result in defending the status quo.

Unfortunately, without a significant strategic shift, Big Auto will likely experience even more self-inflicted pain.

Let’s Connect!

I hope you found this article insightful. If you’d like to discuss innovation further, feel free to reach out to me at krishnan@thinkhorizonconsulting.com or connect with me on WhatsApp at +919791033967.

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