That's some nice trading, heltok. I can't say I disagree with you. There's still been mass selling, but unless the bull(****?) case on Tesla is now completely disbelieved, moving up production plans - even if Musk flat out lied about the numbers - is a good thing. It's not like Tesla bulls had a strong connection to reality to begin with - why start now?

This company is burning through cash at an unbelievable rate. And positive cash flow is nowhere is sight, even by Musks admission. I am flabbergasted that they continue to raise equity at this valuation. This isn't Amazon 15 years ago - Amazon had customers and was building a moat. Tesla doesn't have anything going for it beyond the cool factor.

A "cool" brand is worth a lot.

A "cool" brand that's synonymous with high performance electric cars is worth a ton of money.

Interesting analysis:
http://www.autonews.com/article/2016...short-at-tesla

Compared to conventional cars, the model 3 will be quite easy to manufacture and will not require much in maintenance. The service it does require is (mostly) revenue for Tesla and they sell directly to customers, so they get to keep a larger share of the catalog price than what is common. Most of this is antithetical to the current way of the industry, which is why it is so hard for them to compete in the EV market. It would mean massive write-downs on ICE R&D and it would be a hard sell to their dealer network, which relies for a great part on after-sales service and revenue.

This implies that there is alot of inertia in the industry to align with the new paradigm, and that instead of switching overnight as soon as EV would be the better proposition, as Toothsayer claims, I expect them to only start the switch as soon as they acknowledge it is inevitable, which gives Tesla a lot of time to grow at the expense of conventional car sales.

The problem with that analysis is that Tesla is already way, way behind. Chevy has an actual car that customers will be able to actually buy and drive home that will be in showrooms by the end of the year, at the same price point. Meanwhile Tesla just keeps throwing out ridiculous timelines, none of which have ever been met. And that dealer network you reference is an asset, not a liability, for GM and others. Distribution on a large scale is hard.

Huh? Bringing the Bolt to market was arguably worse than doing nothing, since it just makes GM look incompetent and/or insincere to people who care about EVs.

The Innovator's Dilemma was published 20 years ago. I'm sure everyone in the top 20 layers of management at GM has read it. So why are they still treating EV's like an incremental innovation?

The textbook strategy would be to spin off a skunkworks that will, yes, lose money at first, but is culturally and technically aligned to compete head-to-head with Tesla and PROVE to the world that Tesla REALLY has no moat/no differentiator.

But instead Tesla remains the only company in the world that makes a production EV able to out-sell comparably-priced ICE cars. As long as that's true, there is non-zero risk on the table for the incumbents. The longer it's true, the bigger the risk becomes.

Innovator's dilemma is on a major downswing if you follow the literature.

It really doesnt help that data strongly suggests first mover advantage is overrated. The bulk of the evidence suggests second or third movers who improve/perfect the concept are more likely to become bug winners.

To put in Christensen's terms. Evidence is disruptive innovators create new markets and incremental innovators take the markets.

The discussion is incredibly muddled even in academic circles because "disruptive" has become almost synonymous with "successful." A lot of people call iPod or iPhone disruptive but they were made withoff the shelf components and existing technologies for the most part.

The Bolt also isn't exactly a comparable proposition without the supercharger infrastructure that Tesla offers.

Neither is Tesla the first to make an EV car. Now I have no clue if their current valuation is anywhere near realistic, but the notion that other manufacturers can easily corner this market if and when they wish, seems quite silly.

A desirable pure EV is the following:

1. A battery pack on the bottom (the most efficient use of space; best for weight distribution and handling) sufficient to drive good performance and long range.
2. Electric motors/drivetrains
3. Everything else as normal for an ICE car.

Tesla has no enduring advantage in #1; battery chemistry/kWh per kg is determined by vast sums of third party research money, and has nothing to do with Tesla. Tesla got there first because they lost hordes of money - billions - duct taping together cheap batteries which weren't ready for the task. But it all goes for naught as battery chemistry and design improves; once sufficient power for 0-60mph in 4 seconds can be drawn out without complications, and range is plentiful enough to make it viable, at a cheap enough price (2020?), all the money that Tesla has spent is pure waste.

2. Are basic engineering; Tesla have no advantage.

3. For everything else, the majors have crushing advantages, on everything from cost to economies of scale to deep know-how to quality and reliability of supply chains.

You could argue that Tesla's over-the-air updates and monitoring of everything is a plus, as is their giant iPad-like center screen. Perhaps consumers will love it. Perhaps others won't do the same. I have no idea, but that's a thin set of advantages to pin $30 billion on in the cutthroat car market.

Link? One of the book's main empirical contributions was documenting that being first mover has no advantage for incremental innovation, but is vital in disruptive innovation. Has that pattern reversed in the last couple decades?

I agree disruption theory doesn't apply as much to consumer markets, since brands may have more non-substitutable value to consumers. (Of course, this only makes it even riskier than disruption theory would predict to leave Tesla alone in the EV market.)

But Christensen's key insight that an organization's capacity is determined by its target cost structure seems pretty timeless.

To be generous, let's assume that switching to EV's will have zero impact on the value-add that incumbents currently provide via decades of ICE-targeted R&D and the associated manufacturing process. (Pretty generous, but ok.)

Nonetheless, Christensen is still very relevant to ICE disruption by EV's, because the gross margins for dealerships are going to be slashed by lower service costs. (Which implies incumbents will need to absorb higher cost of sales, affecting their own gross margins as well.)

I still think this is a classic disruption scenario, and am pretty amazed that none of the incumbents are moving proactively to take out the threat.

If this assumption doesn't hold, and the best-in-class battery suppliers end up creating a disproportionate % of the value-add in EVs, the manufacturers' margins will suffer in a huge way.

They will need to adapt dramatically to survive disruption in that case.

Pretty much every HBR issue in the past two years has an article or two on innovation and the number of articles contradicting Christensen's ideas has been rising quickly.

Current issue's cover is learning from failures. The article talks about how big organizations can learn from failures and "learn" from them. Other articles talked about conducting small but rapid experiments.

The issue before that (or maybe two issues before?) talked about how culture doesn't matter.

Recent literature is in part a backlash against Christensen. His historical evidence has not held up to scrutiny and his prescriptions have proven to be, more often than not, impossible to implement or financial disasters. The other part is most of what he wrote was, frankly speaking, not very useful as actual prescriptions. A whole lot of the literature now is repackaging TQM, six sigma, integrated management, and marketing as applied to... well, R&D.

Your bolded line by the way is basically a circular tautology. Of course an organization's capacity is determined by its target cost structure. That tells you nothing about the organization's ability to change its "capacity" or "cost structure."

Um...ok. I googled "hbr disruption theory". This revealed that HBR actually devotes an entire topic category to disruptive innovation. Even better, the top three hits were

1. A Dec 2015 article by Christensen et al. that explains how disruption theory has been misinterpreted, and how it continues to evolve.
2. An article from last month contending that Ford will need even more than a skunkworks project to handle supply-side disruption from EV's. (Lulz.)
3. The Zipcar founder arguing in January that the idea of disruptive innovation has even more explanatory power than Christensen has identified.

What on earth are you talking about? At this point I'd suggest you read Christensen's article I linked above, and educate yourself a bit.

Christensen's point was that it's very hard to get management to buy in to a disruptive product program with 20% margins inside a company that is structured to achieve profitability at 40% margins.

He goes into detail about the cultural and strategic reasons for this in the book (which you clearly haven't read). In any case, I don't know where you're seeing a tautology here.

1. Says tesla is not disruptive. 2 specifically says the new disruptions are not Christensen style disruptions. 3. Redefines disruption in a way 1. Specifically says not to. Part of the problem is Christensen embedded success into the definition of disruptive innovation and made "disruptive" synonymous with success.

The literature is muddled, partly because Christensen continues to insist true disruptors come from lower end of the markets. You would have realized that just by reading the search results you wanted me to read. HBR is my bathroom reading and I read a lot more business literature beyond HBR.

No, I didn't read his whole book and I never will. But I did read half of it for class. Even in early 2000s I thought to myself that the book read a lot like what my poli sci professors called "bad science"

But until this is empirically established, it's just an assumption.

Here, for example, is Tesla co-founder Marc Tarpenning answering a question about Tesla's perceived competitive advantage. He says he consulted for big car companies after leaving Tesla, and was shocked to the extent they had outsourced almost all engineering (except, crucially, for the engine).

So you're saying his original insight is what political scientists and business schools have been calling "institutional momentum."

I did look at the articles, and I realize that by Christensen's strict definition that EV's have not entered the market "disruptively" (at least so far). But the structural problems that make disruptive technologies dangerous to incumbents are all relevant to EV's.

Any business theory that after 20 years is still attracting so many critiques, refinements, and elaborations, is an extremely successful theory.

I almost never read the business literature but I thought Innovator's Dilemma was a great book. (Curiously enough, I read it the same way you do HBR; then threw it away as I do with all my bathroom reading.)

Innovator's Dilemma is a great book if you focus on the storytelling components of how some very famous tech companies became successful and the industry model of Silicon Valley startups.

As a book for prescriptions and workable framework to come up with real solutions, it's been lacking. Even Christensen himself has admitted as much, including in the article you linked.

This is not the first time I've made this point.

I think Tesla's tech moat is relatively small (it does seem to exist. Its battery density does seem better than competitors) but it has built an incredible brand.

Jaguar, even when it was near extinction in terms of volume (I think it was 50k cars?), was worth 2.5 billion. Tesla is virtually synonymous with "fast EV." Throw in Musk's charisma (or con game, whatever you want to call it), and investors have a decent (I don't think it's a good one) case that Tesla is worth a lot more than $28 billion if you give them the money to build the factories and other infrastructure.

Whatever you want to call it, apparently Christensen was the first to use it to explain why "good" management practices can actually be fatal when applied to product programs based on disruptive technology.

He certainly struck a nerve in the business literature, at least.

Well he and his co-authors concluded with: "But there is cause for hope: Empirical tests show that using disruptive theory makes us measurably and significantly more accurate in our predictions of which fledgling businesses will succeed." So I'm not sure they are quite so negative as you.

What do you consider an example of a successful business theory?

His theories (he had a lot more than just the one in the article you linked) are incoherent but he did, very successfully, create an useful set of words with which we now evaluate innovation.

Stripped down to the bare minimum, he's actually rewording an old marketing (called reverse positioning, among other names) concept that predates him. Annoyingly enough, people now refer to the same damn idea as reverse innovation (if they don't quite make the connection it's what Christensen call disruptive technology.)

I'm not familiar with the other theories you say he repackaged. But to me he seems pretty coherent, agree to disagree I guess.

I would add
4. Reliable fast charging network along major highways.

I think #4 is a big deal. Even if the bolt has a bit better range than the model 3, it still will be a much more limited vehicle due to the lack of a supercharger network.

Tesla obviously has a big head start in this department. Of course if the other car companies band together they could build a similar network quite quickly. But if each company is just dipping their toe in the electric game, they will not be able to catch up to Tesla anytime soon. My understanding is that for Tesla the limiting factor on more supercharger stations is not money, but permits other red tape. Even if other companies have plenty of money it might take them some time to build up a network.

Disclosure - I drive a Model S. I love the car, but I have doubts about the company and am not confident they will succeed in the long run...