What first attracted my attention was that the car seemed to be completely covered by garbage bags.
I was on a highway in Detroit when the car – it looked like an SUV of some sort – glided onto the freeway next to our car. Every part of the car, except the windows and side mirrors, was covered in black plastic and tape.
“That’s what the auto manufacturers do when they’re testing their prototypes on the road,” my friend said. I was visiting him and he had just picked me up from the airport. He is a Detroit native and said it’s a common sight on the highways there. It shields new models from sight so that competitors can’t get a good look until the vehicle is officially launched.
[featured-image single_newwindow=”false”]Photo courtesy of Brian Snelson[/featured-image]
The traditional auto manufacturers’ penchant for confidentiality, as evidenced by the black plastic-and-tape car, lies in stark contrast to the startling announcement made last week by Tesla that they were freely offering their patents for use by their competitors in the automotive industry. In a blog post on their corporate site, Tesla, the electric vehicle manufacturer headquartered in Palo Alto, California, announced that they would not enforce their patents to keep rivals from copying Tesla’s technology. Although the wording was vague, and even though there is plenty of self-interest behind the move, the announcement sent a much-needed jolt through the electric car market.
What is fascinating to me about Tesla, when comparing them to their traditional auto rivals, is the degree to which they are not an auto manufacturer specializing in technology, but a technology company specializing in autos. It’s helpful to keep the distinction in mind when you consider how they behave, and how their competitors respond.
Although competition in technology markets is famously vigorous, there is a tradition of sharing assets via open source communities, in which software assets are made generally available for the benefit of the community. These communities, and other forms of collaboration among ecosystem participants, enable innovation to happen and markets to grow – which is exactly what Tesla, the technology company, is betting on in the nascent electric car market.
But as much as Tesla is trying to make nice with the existing oligopoly in the automobile business, it appears to be a one-sided romance at the moment. Like many other industries, the auto industry likes innovation when it comes from within, but is less welcoming when it pulls into their driveway with a young inventor from the Silicon Valley behind the wheel.
Tesla, and its founder, Elon Musk, has had their hands full with a series of fights initiated by the National Automobile Dealers Association (NADA) in various states. In one case, NADA was successful in getting New Jersey to pass legislation barring any automobiles from being sold outside of the traditional dealership structure, which would make it pretty difficult for a state resident to actually buy a Tesla. This is a perfect example of “rent seeking”, which is a popular economic behavior among powerful corporate interests who use their influence in government to block new entrants from competition.
Unsurprisingly, when told that their helpful local legislators were busy devising ways to prevent them from purchasing an automobile they might want to purchase some day, consumers were not thankful. When pressed to defend the indefensible, NADA spokespeople ran in the opposite direction of whatever news crew was nearby and are now releasing YouTube videos which, as near as I can figure, makes Tesla out as a rapacious industry behemoth rather than a start-up saddled with debt.
To be sure, there will be many other battles in other states. And Tesla, for it’s part, has some room for improvement in how they structure their customer contracts, which make it difficult for dissatisfied owners to seek retribution under state lemon laws.
But the real battle here is a battle we’ve seen before, and assuming Tesla survives the next few years, we know that just as video rental and book purchasing were forever altered by new entrants, so too will the gasoline-powered automotive world. And although I’m generally confident that auto dealers provide enough value to withstand new distribution models in the foreseeable future, that survival will likely require a culture of openness that will be new and uncomfortable.
Black plastic can obscure what’s coming on the freeways in Detroit, but it cannot obscure the changes that are in store for auto manufacturers, their dealers, and their customers.