Tesla isn't disrupting anything (tsla)

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If there's one word that's routinely used when talking about Tesla, it's "disruption."

The message is that the advent of a relatively successful (if not yet profitable) all-electric car company means that the balance of power in transportation will decisively shift.

So long, gas-powered cars. Hello, fueled by electrons!

This is CEO Elon Musk's overarching strategic goal with Tesla: not to sell a lot of electric cars and call it a day, but to sell a lot of electric cars to accelerate humanity's transition from the fossil-fuel era.

"Tesla is disruptive" sounds great to say and is a common refrain among analysts who follow the automaker as a a hybrid of a tech firm and an automaker. Dougherty & Co. Analyst Andrea James did just that on Bloomberg TV on Tuesday, after enjoying a test drive in Tesla's new Model X SUV. 

"The presence of the product on the market disrupts the market," she said. "And fundamentally changes that market or changes human behavior." (James has a $355 per share target price for Tesla and a buy rating; the stock is down 16% year-to-date, but in the past 30 days, it's rallied by almost 40% from lows in the $140 range.)

Bloomberg's Alix Steel quickly pointed out that even if Tesla achieves Musk's ambitions, by 2020 it will be delivering 500,000 vehicles annually, while General Motors in 2016 sold well over 3 million. But that didn't tamp down the disruption discussion.

And there's a problem with that — a big problem: Tesla isn't disrupting anything. 

The auto market is old school

To be sure, Tesla has been a catalyst for innovation, or more accurately, the hastening of innovation. Self-driving technologies and over-the-air software updates, for example, or the replacement of a lot of vehicle controls with a massive touchscreen between the front seats. Tesla is setting the pace on these fronts, beyond what it had already achieved with battery designs.

However, the auto industry globally and particularly in the US isn't really under any disruptive pressure at all. What compelling reasons are there to proactively deviate from business as usual? Gas is cheap, credit is abundant, and everybody wants to buy profitable trucks and SUVs again. A record was set for US sales last year, as 17.5 million vehicles rolled off dealer lots. There are trouble spots — Latin America and Russia — and growth is China has slowed. 

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But the vast majority of vehicles sold in 2015, and for that matter the preceding 100 years, have been designed and built the old-fashioned way. They might have more technology features than they did in 1940, but they still have four wheels and are fueled by pulling up to a gas pump for ten minutes.

If the US government weren't insisting on higher fuel economy standards, in the current sales environment it would be difficult to see anyone besides Tesla advancing the cause of electric cars. GM has made a splash with the Bolt EV, which will arrive later this year, but it's an open question as to whether it will sell all that well, at least initially. Electric cars from Honda, Nissan, and others are gathering negligible market share compared with traditional vehicles.

Tesla has noted that its Model S sedan is outselling many luxury models. But there are several problems with seeing that as evidence that Tesla is shaking up the luxury market and displacing gas-powered cars. For starters, all Tesla can do is compare the Model S to similar sedans. But of course BMW and Mercedes and Audi all sell a far greater variety of vehicles.

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Buying Teslas because they're Teslas

Additionally, people buy Teslas because they're Teslas. Plenty of sophisticated and well-heeled consumers are preoccupied with Teslas because the vehicles are futuristic. And their buying patterns aren't moving the needle even slightly in just the US market. Less than 0.5% of all vehicles sold in 2015 carried a Tesla badge. That doesn't make Tesla a niche brand — that makes it a hyper-niche brand.

It also means that Tesla is having no meaningful impact on the auto market. The story is incredibly impressive — there hasn't been a new American car company since Chrysler in 1925. And the vehicles are splendid. I've driven everything Tesla's got, from the original Roadster to the Model X, and I've been uniformly impressed.

But as far as EVs go, Tesla has the space to itself (something that Musk isn't necessarily happy about). Industry leaders are skeptical about taking the deeper EV plunge. Fiat Chrysler Automobiles CEO Sergio Marchionne, for one, doesn't think electric cars make any sort of market sense. 

"I will sell the (minimum) of what I need to sell and not one more," Marchionne said in 2014, speaking of the Fiat 500e, a car that at the time he claimed to lose $14,000 on for every sale.

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We are not going electric

It's also quite clear that nearly all car buyers are completely uninterested in electric cars. There are critical reasons for this, not least of which is that EVs require some home-infrastructure investment to be practical: fast-charging stations in garages mean you don't have to plug into a wall socket and wait 12 hours to re-juice your ride. But that requires a garage.

This could all change, but it will be consumer demand that drives it, not disruptive intentions.

And I think Musk and his team are abundantly aware of this. If you asked Musk if disruption were his goal, he'd probably say no. His vision for Tesla is as a first step in transformation — as a proof-of-concept, a demonstration that electric cars can serve up an experience that matches a traditional gas-powered car, even if they don't wind up converting a huge number of buyers.

So beware when you hear the disruptive case being made for Tesla. The facts don't back it up.

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