LI - Disruption And EVs: Tesla GM Wuling And BYD In China

2024-02-04 23:50:06 ET

Summary

• Disruption as defined by Clayton Christensen is when a firm enters a market from the bottom with a less expensive, de-contented product, and then moves upmarket. Tesla is not disruptive.
• In contrast, GM Wuling's Hongguang Mini EV is the quintessential disruptive product. It effectively established a new segment, and GM Wuling is now moving upmarket. However, it has yet to.
• A 3rd pattern is BYD's full-court press. It had 8 models with 2023 sales of over 100,000 in six segments: A0 SUV, A sedan, A SUV, B SUV, C, and MPV.
• Entry from below is a common pattern in automotive. But it took 2 tries for Toyota and Hyundai to enter the US, aided by an oligopoly pricing umbrella. Despite that GM remains the leader, and Toyota holds its current #2 position by a full-court press.
• BYD, like GM Wuling, isn't disruptive. It's merely very successful. The idea that Tesla will "kill" others (or that product X or firm Y will be a Tesla "killer") is silly, a misunderstanding of market dynamics.

I. Introduction

Disruption and disruptive are now part of the business vocabulary but are so widely applied as to be almost meaningless. Clayton Christensen, who was a Harvard Business School strategy professor, made the term central to his PhD thesis turned best-seller, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (1997). He defined it as "an attack from below" where a new technology allows a small player to compete against a dominant firm with a cheaper product that initially has lower performance along one or more dimensions but has some new attribute that allows it to find buyers. Over time the disruptor is able to improve on weaker features and move upmarket, disrupting the dominant firm.

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