For the enigmatic CEO, the skyrocketing share price has been hoisting the winning flag of Tesla’s Electric Vehicle journey. As opposed to speculating the time frame by which Tesla will be a trillion-dollar US Silicon Valley technology success story, why should we raise the question of its future? At the end of the day, proprietary technology ownership determines the winner in the uprising of a creative wave of destruction. The successes of EV’s creative wave hinges on the underlying technology core. For EV, this is the battery pack. It happens to be that the absence of having a finger on the edge in battery threatens Tesla.
Since the issuance of the patent to Carl Benz in 1886, the gasoline-powered automobile has been progressing. The prolonged journey of incremental innovations has been fueling the penetration of this highly desirable product. The scaling up of production volume from 900 in 1899 to 92 million in 2019 is remarkable indeed. Moreover, there appears to be no end to its diffusion trend.
However, its technology has been saturating. Furthermore, the emission produced by burning gasoline engines has been limiting its net Utility. Some studies suggest that the economic cost of the pollution produced by the gasoline-burning transportation sector is as high as $1.5 trillion. Hence, EV is a welcoming development. From public subsidies to stringent emission regulations, diverse measures are being taken to fuel the uprising of the EV’s creative wave of destruction. However, winners in the EV’s profit-making race are yet to be determined. Although Tesla has been so far the leader in this race, will the edge in battery threaten Tesla? Let’s look into the dynamics of EV within the context of Innovation theories for interpreting the unfolding dynamics and predicting the likely future.
The genesis of EV— Elektrowagen after running out of battery before reaching the destination changed the course of the automobile industry
In the history of the automobile, the battery-powered Electric vehicle is not new. The later part of the 19th century witnessed steep competition between EVs and gasoline-powered ones. Eventually, market forces tilted towards the Gasoline one. The internal combustion engine was found to be highly amenable to continued improvement. Although the 20th century observed utility and special purpose EVs, however, the gasoline engine was ruling the mainstream market of automobiles. In the 1990s, we witnessed a first serious attempt to change the technology core of mainstream automobiles. It began the journey by powering a couple of demonstration buses with hydrogen fuel cells. However, the fuel cell was found to be very slow to progress, preventing it to be a better substitute for polluting gasoline engines.
In the mid-1980s, the uprising of the digital camera, portable consumer electronics, and mobile phones created the demand for a high-energy-density electric battery. Japanese companies like Sony and Asahi Kasei found the lithium-ion battery as the target candidate. British and American scientists invented it in the early 1970s. With the R&D leadership of Mr. Akira Yoshino, the relentless journey of perfecting lithium-ion batteries started in Japan. Subsequently, an increasingly improved battery at a decreasing cost kept rolling out. Later, Korean companies like Samsung joined the race. Along with Panasonic’s global leadership, upon winning the Nobel prize in 2020 in the lithium-ion battery, Japan has consolidated strong business and intellectual leadership in this vital component of EV.
The emergence of the latest wave of EV
The availability of high-density electric batteries at a decreasing cost inspired Americans Martin Eberhard and Marc Tarpenning to start Tesla. This Silicon Valley startup began the journey in 2003 with the mission of using the battery as opposed to fuel cells to reign vehicle emission. Elon Musk joined Tesla in 2004 and became CEO in 2008. He also termed fuel cell as “fool cell”. As opposed to keeping developing a proprietary technology portfolio, new leadership made Tesla’s all patents publicly open.
China’s entry strategy and preparedness of Japanese companies
Upon failing to create an entry path to the matured automobile industry, China’s leadership spotted on technology discontinuity created by EV. To have an edge, they bought Japanese TDK’s battery division in 2014 and started building a patent portfolio-based CATL. Moreover, China went all the way to Africa to establish a position in the supply of precious metals like cobalt.
However, Japanese Automobile behemoths did not remain quiet, like the way Kodak behaved during the digital camera uprising. In fact, as opposed to remaining quiet and being a follower of Tesla, they were rather leaders. For example, the first fleet of Toyota’s RAV4 EV became available on a limited basis in 1997. Nissan came up with Leaf, introduced in 2010. By May 2020, Nissan already has sold globally over 470,000 Leafs. Honda, Mitsubishi, and other Japanese automobile makers are already in the race.
Past progress is the byproduct of the smartphone—the first rocket runs out of fuel, subsequently, lack of edge in battery threatens Tesla
So far, the lithium-ion battery has been fueling EVs. This battery technology relies on lithium ions moving from the negative electrode through an electrolyte to the positive electrode during discharge, and back when charging. This technology’s perfection has been found sufficient; particularly, for fueling creative waves of mobile handsets and other consumer electronics products.
This battery technology gave initial thrust to EV. However, it does not have enough hidden potential to push EV to the desired level. It’s not strong enough to make EVs a better and cheaper substitute for gasoline-powered ones. Particularly, the energy density and safety of Li-ion batteries, especially in the transport sector, is a concern. Hence, there is a need to change the technology core. The new technology core should be strong enough to let EVs get charged in less than 10 minutes and run over 500 kms.
It appears that automakers are already hitting the limits of the storage capabilities of existing liquid electrolyte-based lithium-ion battery technology. It may never hold enough power for long-distance models. Scientists in Japan, China, and the United States have been struggling to crack the code. The success hinges on how to significantly boost the amount of energy a battery cell can store and bring an EV’s driving range into line with a full tank of gas. That quest has zeroed in on solid-state technology. It’s not an incremental progression. Instead, it has been an overhaul of the battery’s internal architecture. The idea is to use solid materials instead of flammable liquids to enable charging and discharging.
Next thrust, specifically made for the automobile—essential for taking EV to the desired orbit
Replacing the liquid electrolyte (typically a Li-ion containing salt dissolved in a mixture of organic solvents, typically carbonates) with a solid electrolyte is considered the next technology core. Likely, it will offer a possible way to mitigate the safety concerns and improve the present limited energy density. However, there is a need for further progress to address its low ionic conductivity, lithium-ion migration, and diffusion for widespread commercialization.
Unlike the past, demand in mobile handsets and consumer electronics products will not be mobilizing R&D efforts. For them, the existing liquid electrolyte-based lithium-ion battery is good enough. Hence, companies having specific business interests in automobiles will be the driver. As opposed to Tesla or its battery technology partners Panasonic or CATL, it happens to be that automobile maker Toyota is in the leading position. Such reality raises the question of whether the lack of edge in battery threatens Tesla’s future.
Between 2009 and 2018, Toyota alone has had 1833 patent applications related to secondary solid-state batteries. On the contrary, the 2nd position holder had less than 300. Toyota remained the top filer with 316 published patent applications in 2018, far ahead of the second biggest filer Fujifilm having around 90 applications. Indeed, eight of the top 10 and fifteen of the top 20 filers in 2018 were Asian companies. Unfortunately, Tesla is not in this league. It underscores the concern about the lack of edge in battery threatens Tesla. However, Tesla’s recent acquisition of Maxwell technologies has yet to prove the battery edge.
The incumbent has a technology lead to fuel the creative wave of EV taking to the next level: a further concern about lack of edge in battery threatens Tesla
Despite the early demonstration of Tesla’s electric vehicle and subsidy-led initial sales, EVs must be better and cheaper than gasoline vehicles. Otherwise, this early rise will fade away. There is no doubt that EV has just uplifted halfway through to reach its desired orbit. The initial thrust given by liquid electrolyte-based lithium-ion battery is running out of its potential. It needs the next technology core for pushing EV to the target orbit. Hence, the success of EV as a creative wave causing destruction to the gasoline-powered automobile industry will be determined by the power of the next technology core of the battery pack. Unfortunately, Tesla does not have a finger on it, which threatens its future.
Unlike the uprising of the digital camera or PC, incumbents like Toyota have a far stronger foothold on the technology that EV needs to reach the orbit. And Toyota has not been out of the loop in the process of commercialization. Instead, it has been active in the game. Moreover, Toyota’s leadership in the solid-state battery technology core will not likely be accessible to Tesla. Toyota has a far bigger interest in using them in winning the EV race than helping opponents. Highly likely that the next phase of the EV journey will be dominated by Toyota and other Japanese players. They will use their strong position in Solid-state lithium battery technology. Hence, there appears to be strong ground for the concern: edge in battery threatens Tesla.
Theory of Innovation predicts the winner—absence of edge in battery threatens Tesla’s future
Hence, the theory suggests that incumbents like Toyota, instead of California’s upstart Tesla, will eventually propel the creative wave of EV to the desired orbit in destroying gasoline-powered automobiles. Unlike the past, contrary to the incumbent, upstart Tesla is rather failing to switch to the next technology core. Hence, as opposed to Toyota or other incumbent automakers, there is a good possibility that Tesla will suffer from the burn of disruption due to the uprising of the creative wave of destruction of EV. On top of it, there are Economies of Scale and scope advantages. However, we should not also rule out the possibility of fuel cells. Despite having a strong footing in battery technology, Japanese automakers are still highly active in fuel cell research.
Let’s be observant of how reality unfolds over the next decade or so. If it unfolds the other way around, we may need to revisit our Unified Theory of Innovation. jk