In the United States, electric vehicles (EVs) are struggling in fascinating ways right now.
On the one hand, U.S. EV adoption is slowing. On the other hand, growth may resume suddenly but not surprisingly. Both the slowdown and pockets of success are playing out exactly like several innovation theories would suggest:
Disruption theory documents how new incumbents (in this case Chinese EV companies) work their way up-market. The Adoption Curve predicts the difficulty of "jumping the [adoption] chasm" between early adopters and main stream users. And The "Three Deaths" describe how impactful innovation struggles at any point and in all ways until mass adoption, not just post-launch or with users.
This one is a composite picture in two chapters, assembled from many news stories and topics.
The U.S. ho-hums over EVs, resulting in growth and profit trouble
NPR reported in February 2024 that "mainstream buyers aren't along for the [electric car] ride yet," with sales of EVs "level[ing] off around 9% of the new car market." In addition to this sales growth problem, EVs also drain car makers' profits. According to the Wall Street Journal's reporting, "Ford could get 50% more profit without EVs." Even Tesla isn't exempt. As Reuters and others called out, "rental giant Hertz [recently] dump[ed] EVs, including Teslas, for gas cars."
China is (predictably) tracking toward global EV dominance
It's not all doom and gloom in EV land.
EV growth in China and Europe has outpaced that of the U.S. since at least 2021, per Pew Research's reporting then. And Chinese manufacturer's in particular are benefiting. In fact, the Chinese government/ industrial complex is already deploying advanced, later-staged strategies to become the de facto global winner in EVs.
By now, these cars are not ho-hum. Leon Poultney at Tech Radar, for example, mentions that "the most exciting EVs are [now] coming from China." And Selena Cheng at the Wall Street Journal brings this point to the real world: "A Lamborghini-Style EV: BYD Goes Upmarket ..." with its YangWang U9 model that TopSpeed agrees "should be taken seriously." No wonder!
And it's not just about cars themselves. It's also about how they are made and distributed.
Business Insider, for example, asserts that "China can dominate the American EV market without selling a single car," thanks to its "massive, domestic EV battery supply chain," which has been in the news for a while now.
Western governments are not fond of this.
In America, President "Biden is looking beyond tariffs to keep Chinese 'Smart Cars' out" (including EVs of course), and Trump era tariffs of 25% on Chineses EVs are still in place, as Bloomberg reports. Similar concerns exist in Europe.
But neither U.S. party's attempts (nor similar European ones) are stopping these advances so far.
For one thing, other markets exist. Autoweek, for example, points out Chinese brands' growth in Mexico.
For another thing, the Chinese government is explicitly pushing global EV expansion, as Nikkei reports, especially using localization to reduce the claim that Chinese cars are "imports:"
"Nine government departments ... jointly issued [a] notice to local governments and other organizations that provide guidance to EV manufacturers.
The announcement lists 18 measures to encourage Chinese automakers to expand into overseas regions and grow sustainably.
Specifically, it calls for establishing local R&D bases and expanding cooperation with overseas research institutions. It also urges automakers to bolster against risk by quickly and appropriately responding to local laws and regulations for batteries and other areas regarding the environment, data and intellectual property."
It's not like the Americans and Europeans shouldn't have seen it coming. Wired points out that this is a simple repetition of what Japanese and Korean manufacturers achieved decades ago. And yet again, it works, despite warnings. Western incumbents haven't learned (or acted on their learnings at least). For example, Wired cites Andy Palmer, who led work on the Nissan Leaf and was CEO of Aston Martin, who has
"been cautioning anyone who would listen, 'increasingly vocally,' that China would become a threat to Western and Asian auto interests, and that letting China succeed would be folly. 'I’ve been warning about China for 15 years,' he says. 'I warned the Japanese, UK, and US governments that there was a real risk that China might get this right. And, ultimately, that has proven to be the case.'"
Chinese EV market share continues to grow, so far at least.
[Multiple sources cited throughout]
The point for doing credible innovation work
Both a summary principle and some specific tools matter here:
The summary, especially for company leaders and innovation strategists:
On the other hand, if you can find a way to apply the three patterns for your benefit, competitors will have a devil of a time to stop you–independent of other "competitive advantages" that they may theoretically have.
Which brings us to those three patterns of course, illustrated in the EV story.
The Adoption Curve, described at least as early as 1956, points out that early adopters are willing to accept products with more downsides, based on their higher needs, compared to later, mainstream adopters. Later, Geoffrey Moore refined the curve by describing the "chasm" that occurs around 14% adoption, where you run out of early adopters and need to work much harder to "cross the chasm" and reach mainstream adopters.
Here, EVs have been on a tear, decades after GM's EV1 and are now hitting the "chasm" where growth slows.
The Three Deaths expand the application of the Adoption Curve by pointing out that similar challenges as those that cause the chasm can also occur before a product even launches! Innovation teams everywhere can tell stories of promising projects getting shut down long before anyone talked about mainstream adoption. Formalized by Safi Bahcall in his book Loonshots and credits by Bahcall to Nobel Prize winner Sir James Black, the "three deaths" can come in many forms. But what they have in common is that:
"the big ideas, the ones that change the course of science or business or history, rarely arrive with blaring trumpets dazzling everyone with their brilliance. They pass through long dark tunnels of skepticism and uncertainty, crushed or neglected, their champions written off as crazy."
Bahcall doesn't label specific kinds of idea "deaths," as far as I have found. (He also points out that Black only. talked about "at least" three deaths. There can be more.)
But I see three types emerging from Bahcall's case studies:
- "Won't work:" Skepticism of the "we've tried this before" or "this is obviously dumb" varieties hounds many innovations and can reach enough momentum or power to shut down innovation efforts.
- "Can't afford:" Many innovations start out expensive, either due to premium components or due to lack of production scale. Either way, money can become a fatal blocker.
- "Won't bother:" Innovations come with many downsides and complications. Any one of them can stall an innovation program.
In the case of EVs, Hertz is pulling the plug (heh heh) on much of its EV fleet due to the "can't afford" death. And Ford, even if they persevere, could earn a lot more money right now if they axed their EV program. Not an easy case to make to shareholders.
Finally, Disruption Theory, discovered and shaped by Clayton Christensen, is in many ways the most famous concept of this bunch, though often misunderstood and mis-used. One absurdly simple description of "low-end disruption," the most common kind, is that incumbent companies often gradually give up their dominance to newcomers if those newcomers can build operating systems that can be profitable at lower prices and then gradually chip away the least attractive customer segments from incumbents, segments that were "over-served" by incumbents and can tolerate the newcomers products that may (but need not) be lower-quality at first. Over time, newcomers' quality improves, but their inherently-more-profitable business model remains and becomes insurmountable to incumbents. Disruption need not always be absolute.
In the case of EVs, Chinese (and before them Japanese and Korean) car makers are gradually taking over significant segments of the U.S. and European car markets, selling products that incumbents initially belittle but that earn enough adoption from "over-served" customers that the companies have times to work their way up to higher-priced products, including "Bugatti-like" supercars.
Organizations involved or mentioned (External links)
Bahcall, S. (2019). Loonshots. St. Martin’s Press. https://books.google.com/books/about/Loonshots.html?hl=&id=b55xDwAAQBAJ
Christensen, C. M. (2016). The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business Review Press. https://books.google.com/books/about/The_Innovator_s_Dilemma_When_New_Technol.html?hl=&id=dcjWsgEACAAJ
Moore, G. A. (2014). Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers. HarperBusiness. shttp://books.google.com/books?id=AqhCnQEACAAJ&hl=&source=gbs_api
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