As far as electric vehicle discourse is concerned, Tesla fans win. Furthermore, often, the winning statement in Tesla vs Toyota debate ends up with a kodak moment outcome; Likely, Toyota will be suffering from the Disruptive Innovation effects of Tesla. Tesla fans’ winning argument is simple—while Toyota is busy with hybrids, Tesla leads the rollout of plug-in electric vehicles (EVs).
Interestingly, both Tesla and Toyota have been on the journey to exploiting the possibilities of electric batteries for reducing emissions and increasing fuel efficiency. But they took two different routes to reach the same destination–zero-emission vehicles. Although Tesla started its EV journey in 2003, old vanguard Toyota started the journey long before.
As early as 1993, Toyota delivered a concept EV: Townace and EV version of Crown Majesta. But unlike Tesla, Toyota kept it low-key. However, although Tesla jumped on the Electric plug-in vehicle, which runs only on battery, Toyota adopted progressive exploitation of battery technology possibilities stepwise. Hence, it chose the option of releasing hybrid cars to reach EV through several intermediary steps. These are (i) mild hybrid, (ii) full hybrid, and (iii) hybrid plug-in. Consequentially, these two different routes chosen by an incumbent and a new entrant have created Tesla vs Toyota debate. Perhaps, the future outcome will give new patterns of Reinvention strategy.
Defining electric vehicles (EVs) and hybrid cars
Electric vehicle (EVs) refers to automobiles having electric battery and motor only to power the wheels and all other sub-systems. EV is the reinvention of automobiles through the change of internal combustion engine (ICE) with electric battery and motor. Instead of fueling cars in the gas stations, we charge the battery pack at home or in charging stations. As no gasoline is burned, EVs does not make any emission. But, unlike fueling the gas tanks, EVs’ battery packs need charging–taking long time.
Hybrid car innovators take advantage of both ICE and battery to improve fuel efficiency and reduce emissions. Instead of completely replacing gasoline engines (ICE), hybrid cars take advantage of batteries for augmentation or partial substitution of ICE’s role in a stepwise manner. There have been three major types of hybrids: (i) mild, (ii) full, and (iii) plug-in. Based on types, comparative dependence on these two energy sources varies.
In mild and full hybrid cars, only regenerative braking charges the battery using kinetic energy, which usually gets wasted during braking and slowing down. Regenerative braking converts a hybrid’s kinetic energy into electricity by storing it in the battery. Subsequently, energy stored in the battery is used to run the motor to augment or complement the IC’s role in powering automobiles. As a result, hybrid cars are more fuel efficient, and they produce fewer emissions. Therefore, innovators have been exploiting this possibility to meet emission regulations and offer higher fuel efficiency to consumers.
Decreasing roles of gasoline engines in a higher level of hybrids—progressive exploitation of battery
In mild hybrid cars, the battery powers the motor to augment IC during acceleration. A small electric motor is attached directly to an engine or transmission in such vehicles. Due to the accelerating boost, the load on ICs is reduced, resulting in lower fuel consumption.
The role of the motor in full hybrid is far higher than just boosting during acceleration. Full hybrids use a combustion engine and an electric motor to drive simultaneously or independently. Hence, the full hybrid has another name—parallel hybrid. Over a short distance, full hybrid cars can entirely rely on powering to motor from the battery. Notably, while you are waiting in traffic, without your knowledge, full hybrid vehicles will likely be running entirely on rotating motors with energy stored in the battery. Hence, for stop-start traffic situations like in most cities of less developed countries, a full hybrid’s electric-only mode is perfect.
Plug-in hybrid sits at the highest level of the hierarchy. In addition to charging the battery with the braking energy only, you can plug in your automobiles to grid supply. Consequentially, the plug-in hybrid offers you 30 to 50 miles of driving in cities or highways without turning on the gasoline engines. As electricity supplied by the grid is far cheaper than the energy automobiles get by burning fuel, it reduces energy costs. Hence, it gives you a further option for reducing operating costs and emissions. Once the battery runs flat, the gasoline engine takes over without the driver’s intervention. Hence, plug-in hybrids have opened the option of recovering braking energy, taking advantage of low-cost grid electricity, and turning on a gasoline engine for long-distance driving.
Higher-level hybrids demand a larger battery pack. As a result, higher-level hybrids are costlier than their lower-level cousins, increasing fuel efficiency and decreasing emissions.
Tesla’s approach–Jumping to EV through reinvention
As explained, hybrids are a stepwise progression of taking advantage of electric batteries. Many incumbent automobile makers have been after it. But unlike them, America’s Tesla embarked on the mission of completely replacing the ICE with a giant battery pack and electric motors. This is a typical reinvention approach, like how automobiles emerged with the complete removal of horses with ICEs.
Upon its establishment in 2003 with the mission of replacing gasoline vehicles with EVs, Tesla succeeded in releasing its first EV in 2009—a roadster sports car. Subsequently, Tesla released the Model S sedan in 2012, the Model X SUV in 2015, the Model 3 sedan in 2017, and the Model Y crossover in 2020.
Despite zero emission and low operating cost, the significant limitations of EVs have been high cost, scarcity of charging stations, long charging time, and limited range. As a result, EVs started the journey with a high diffusion barrier. To overcome them, Tesla went out to set up charging stations, giving subsidies and relying on the R&D done by the battery makers. Hence, from day one, Tesla’s winning strategy has been to burn investors’ money, leverage the Government’s subsidies to cover losses, and take advantage of battery makers’ R&D to reduce costs. For sure, such a subsidy-driven strategy has created a market for battery makers like CATL and Panasonic.
Unless EVs are less costly and more convenient, Tesla’s this reinvention wave will unlikely to succeed as a creative wave of destruction to gasoline vehicles.
Toyota’s route of progressive exploitation of technology possibilities—following through with hybrids for reaching the EV
Although Toyota set up an EV development division as early as 1992, in response to stringent emission control, Toyota has followed a stepwise progression, unlike Tesla. Instead of completely removing ICEs with batter and motor, Toyota has been after progressive exploitation of battery technology possibilities. In addition to steady progress in reducing emissions, Toyota has not been running this program on investors’ funds and government subsidies. Instead of a sudden jump for reinvention, it has been Toyota’s sustaining innovation strategy leading to reinvention. As Toyota has been maintaining a delicate balance between marginal fuel benefit and higher price, this strategy has been progressing at a profit.
Tesla vs Toyota approach in dealing with performance
Despite the progress of the battery, consumers have been still complaining about the long charging time and limited range of Tesla’s EVs. Customers are directly experiencing the pain of long waiting and narrow range for enjoying the benefit of low operating costs. Hence, its diffusion is limited within certain pockets.
On the other hand, for Toyota’s hybrids, customers are taking advantage of the advancement in battery technologies. But unlike Tesla users, they do not need to wait 30 minutes or so to recharge their automobiles. Furthermore, as ICs take over when the battery is flat, customers of hybrid cars are not limited by range. Hence, unlike Tesla, Toyota’s strategy in dealing with performance has been the delicate fusion of matured and emerging technology cores. Unlike EVs, battery performance issues are silently taken over by ICEs in hybrids. Hence, Tesla vs Toyota debate, Toyota outshines.
Tesla vs Toyota in dealing with technology uncertainty and recovering R&D investment
Invariably, reinvention journeys are fraught with technology uncertainties. The chosen emerging technology faces the uncertainty of crossing the threshold set by the performance of the incumbent matured one. For example, electronic image sensors faced the limit of attaining at least a 2-million-pixel resolution to be preferred over film. Similarly, transistors, LED light bulbs, LCD, and many others face performance barriers to grow a creative wave of destruction.
Despite the early potential, not all technologies are amenable to progression to overcome the barrier, risking the investment for pursuing reinvention. For example, steam cars could not take over horse wagons. Even several past attempts of electric vehicles had failed to cross the performance level set by the ICEs. Hence, managing technology uncertainty is a big challenge in pursuing a reinvention journey.
Within the context of technology uncertainty, Toyota has approached the strategy of progressive exploitation of battery technology to complement ICEs. On the contrary, Tesla’s mission of EV appears to have exposed fully to the uncertain progression of the battery pack. More importantly, instead of having strong R&D capacity internally, Tesla has been relying on outside battery suppliers to manage this critical uncertainty. Furthermore, if battery technology reaches the inflection point, it would not be much difficult for Toyota to make the battery larger and remove the ICEs for turning plug-in hybrids into EVs. Moreover, unlike Tesla, Toyota has strong internal R&D on battery technologies. Notably, in solid-state batteries, Toyota has been the global leader. Besides pursuing batteries, Toyota has also been after fuel cells for dealing with the last mile failure of the battery to grow as a powerful Creative Destruction force.
Toyota’s progressive exploitation has been recovering R&D costs from early on
As it could be imagined that there has been significant R&D cost involvement. Tesla has been supporting it by burning investors’ money. To recover it, the EV wave must cross the inflection point. Despite some predictions, it has yet to do so. Hence, Tesla is still not in a position to recover its R&D cost by generating net profit from its EV sales. On the other hand, Toyota has been recovering its R&D costs by delivering hybrid cars at a profit.
Tesla vs Toyota—likely winner
There had been intense speculation that Tesla’s EV wave would rapidly grow to take over gasoline vehicles, giving no time for Toyota and other incumbents to switch. Consequentially, incumbent automobile companies will get the burn by Tesla’s disruptive innovation effect. But such speculation has been losing its steam, as mentioned in a recent MIT Sloan forum. One of the reasons has been that battery technology is slow to grow, and Tesla does not have strong ownership of it. Instead, Tesla sources this core module from outside suppliers.
But, Toyota has been profitably exploiting the battery technology possibilities through hybrids, creating a solid option for EVs. Therefore, Toyota faces far less risk than Tesla in exploiting battery technology. Unlike many other reinvention journeys, Toyota’s barrier to switching is negligible. On the other hand, unlike Tesla, Toyota has been exploiting the possibility of profit from the beginning. Hence, it is a good possibility that Toyota will win due to its more brilliant route to the EV market. Does it mean that Tesla will fail to be a disruptive force? Such reality also raises a question: whether Tesla can repeat the strategy of Apple. Therefore, this article may shed light on the Tesla vs Toyota discourse.
...welcome to join us. We are on a mission to develop an enlightened community for making the world a better place. If you like the article, you may encourage us by sharing it through social media to enlighten others.
