The Future of Electric Vehicles Is Golf Carts, Not Tesla - blogs.hbr.org (blog)

When people think of electric vehicles, they think of Tesla. But if you want to see the future of EVs it’s important to look elsewhere. Despite glowing media reports, Tesla is not disruptive, and it will have trouble scaling as it seeks to grow. However, there are disruptive EV companies out there; you just have to know where to look. Those companies are at the bottom of the market, ignored by the mainstream but thriving in applications where customers don’t need all of the features of a traditional automobile, or in specific applications where EVs perform better than traditional vehicles.

There are two categories of disruptive EVs: low-speed electric vehicles and electric utility vehicles (EUVs). Low-speed EVs are consumer vehicles built on platforms mostly derived from golf carts and all-terrain vehicles. EUVs come in a range of sizes and formats, from small, light-duty platforms to full-size, heavy-duty trucks, but all are battery-powered and driven by electric motors. Low-speed EVs and EUVs are currently inferior to their traditional counterparts in almost every way. They can’t drive very far, go very fast or haul nearly as much. At first glance, they’re vastly deficient and don’t even meet the minimum performance criteria for most customers.

But there are applications for which these vehicles are actually better suited than their traditional counterparts. Consider low-speed EVs and the golfing communities and college campuses for which they’re best known (in the United States). For short trips around a development, they are actually more desirable than cars; they don’t create tailpipe or noise pollution; they’re slow, increasing pedestrian safety; and they’re cheap to buy and charge. Range and comfort limitations aren’t important factors because they’re only used for short trips in good weather. Full-size cars would be overkill for applications like this.

Similarly, small-format EUVs are increasingly replacing full-size, combustion-powered delivery vehicles in congested cities. Large trucks are difficult to navigate on narrow streets, parking them is almost impossible, and the constant stop/start cycle dramatically shortens the life of critical components, like the starter motor. Further, major cities around the world are beginning to charge congestion taxes for access to city centers. But EUVs are small, which makes navigation and parking easier, they improve their performance in constant stop/start environments, and they are exempted from many congestion taxes because they emit no tailpipe pollution. Meanwhile their short ranges, low speeds and limited payloads don’t detract from their value because the people using these vehicles weren’t traveling very far or very fast or hauling very much to begin with.

This isn’t the first time we’ve seen this pattern of disruption; it’s been observed before in the disruption of steam shovels by hydraulic excavators and in the disruption of sailing ships by steam ships. Initially steam ships weren’t reliable or fast enough to replace sailing ships on oceanic voyages, but their ability to move against the wind, or when there was no wind, made them better for use in canals and inland waterways where low reliability wasn’t a problem because they were never far from shore. Over time, steam ships improved. They grew in size and speed, became more reliable, and eventually their performance exceeded that of the sailing ships. We’re witnessing a similar pattern develop in low-speed EVs and EUVs.

Early generations of low-speed EVs were basically golf carts that could be driven on public roads. Over time, manufacturers have added features like hard doors, stereos and even heaters and defrosters. Similarly, EUVs are growing larger, increasing hauling capacity and adding capabilities like garbage compaction and dumping mechanisms. These improvements don’t seem like much compared to the features of traditional automobiles and that’s exactly the point. Incumbents aren’t threatened by these vehicles because they are dramatically inferior, but each improvement brings the disruptive product closer to the minimum performance requirements of the least-demanding mainstream customers.

While low-speed EVs and EUVs represent low-end disruptions in developed markets, they function as new-market disruptions in emerging markets. Much has been made of Tesla’s recent performance woes in China, with many mainstream pundits declaring the Chinese market unready for EVs because of sparse infrastructure and urban congestion that exacerbates range anxiety. But these people miss the point: China is actually one of the largest EV markets in the world, if you know where to look.

In 2013 alone, Chinese consumers purchased over 200,000 low-speed EVs, almost four times Tesla’s cumulative production through 2014, from hundreds of small manufacturers. These sales are overlooked because they take place in small cities, far from the high-profile showrooms of Shanghai and Beijing, but the category is growing rapidly. Low-speed EVs typically sell for half what a comparable combustion-powered car would cost, and because they’re not considered “real” cars, they’re exempted from expensive licensing and registration fees.

The people buying these vehicles don’t mind that they offer worse performance than a traditional car because they couldn’t afford one anywayâ€"their only alternatives are mopeds, bicycles, public transit or walking, all of which are clearly inferior. The simplicity of low-speed EVs has also allowed many manufacturers to launch small operations without significant capital expenditure. This has led to rapid performance improvements with manufacturers introducing “luxury” features like power steering and air conditioning.

Disruption from electric vehicles is coming, but it won’t announce itself with high-profile product launches or flashy products. Instead, it’ll drive retirees (slowly) to and from bingo, provide cheap transport to thousands of people in emerging markets, and unceremoniously deliver packages to Londoners and New Yorkers. Over time, the products will continue to improve and features that would be unthinkable today will be standard in the future.

The critical limitation preventing EVs from disrupting the lowest end of the traditional auto market is battery performance, but battery costs are declining every day. As battery technology improves and costs continue to decrease, low end EVs will rapidly gain on their traditional competitors. Incumbents can’t be certain how or what these manufacturers will add to enter their markets, but they can know with absolute certainty that the disruptors are motivated to.