BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Major Automobile Makers Like Toyota And GM Have Yet To Take Tesla's Challenge Seriously

This article is more than 8 years old.

Tesla may have been a pioneer in manufacturing fancy electric cars, and won the buzz on Main Street and Wall Street. But it may not win the race for the mass market, according to Harvard Business report.

The likely winners of this race, if there is one, will be General Motors  and Toyota Motor Corporation. For a simple reason: Scale.

Tesla isn’t as disruptive as it is broadly believed, argues the report. “Think of it this way: all-electric vehicles accounted for just 119,710 of the 16.5 million sold in the US in 20140—seven tenths of one percent of the market.”

That’s why major automobile makers like Toyota and GM have yet to take Tesla’s challenge seriously, and jump into the race.

“Established carmakers are paying little attention to EVs not because they are clueless but because so few people want EVs. (And they aren’t completely ignoring EVs; consider the all-electric Nissan Leaf and Chevy Volt, each of which outsold Tesla in 2014). Tesla is betting that preferences will change—that someday millions of people will want electric vehicles.”

That’s a big bet. But even if Tesla proves to have bet right, it may not win the electric car race -- as it is very unlikely to match the GM and Toyota scale.

Company

Revenue

Forward PE

Operating Margins

Qtrly Revenue Growth (yoy)

Toyota

$220.60B

10.09

10.10%

8.40

Tesla Motors

3.52

76.98

-6.97

51.50

GM

154.23

7.09

2.68

-4.50

Source: finance.yahoo.com

That’s what happened in the US market for Greek yogurt in recent years. In the beginning, Greek-based industry pioneer Fage didn’t cause enough disruption to the mainstream yogurt market to draw the entry of big players—Fage was selling in specialty stores in Long Island and Manhattan.

Things changed when Trader Joe’s and Whole Foods decided to carry the product. Sales jumped from $4 to 40 million. In 2007, FAGE opened its owned factory in upstate New York, across from Efratis, a feta cheese company that eventually got into the yogurt business as well -- but on a larger scale, dominating a Greek yogurt market that had turned from a market niche into a mass market.

The name of that company is Chobani. In just four years Chobani saw its sales soar, leaving Fage in the dust.

Apparently, pioneering is one of the conditions for creating a mass market. The other condition is scale. While pioneers develop a market niche, it is usually the larger players that turn it into a mass market, reaping most of the benefits that accrue from the development of a new market.

In almost every industry, market niches are developed by start-ups and turned into mass market products by merchandisers, larger established companies which have the production scale and the sales and distribution networks start-ups are lacking.

In the pharmaceutical sector, large established companies like Pfizer and Bristol Myers Squibb leverage their scale advantage and sales networks to commercialize products from small biotech companies.

In the consumer sector, large companies like P&G use their scale and marketing advantage to promote the products of smaller companies they acquire.

If history offers any guide, the odds of winning the race for the electric vehicle mass market are against Tesla and in favor of larger established companies like GM and Toyota.