Electric Cars: A Wide-Open Race

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Along with fellow chipmaker Texas Instruments (TXN), Intel was once an early entrant in a very different industry: electronic wrist watches. Like the car industry today, the watch industry went through a profound technological change in the 1970s, from watches powered by mechanical movements to those powered by a battery and integrated circuits. Intel and TI briefly attempted to be players in watches but realized rather quickly that, while semiconductors and wristwatches had now become related businesses, they are very different.

Consider now the case of Toyota (TM). Within a few decades, Toyota has emerged as the undisputed leader in the global auto industry. People who have analyzed Toyota give many explanations as to why it has achieved this dominance—a long-term orientation, world-class operating systems and processes, a culture of continuous improvement, partner-like rather than adversarial relationships with suppliers, and so forth. However, no serious observer has argued that either Toyota's dominance—or GM's weakening position—in the car business has much to do with those companies' global positions in engine technology.

Simply put, a car is much more than just an engine or a stack of batteries. Winning or losing in the car business depends on many factors—performance, safety, reliability, comfort, styling, dealership network, service quality, and price, to name just a few. Yes, engine (or battery) technology is important, but it's just one of many factors.

The Limits of the First-Mover Advantage

Toyota was not the first company to introduce an automobile. IBM (IBM), Dell (DELL), and HP (HPQ) were not the first companies to launch a PC. Microsoft (MSFT) did not launch the first Internet browser. Neither Sony (SNE) nor Matsushita was the first to introduce the compact disk. And Google (GOOG) was not the first company to bring forth an algorithm-based search technology. Yet, over various time periods, these companies became the global leaders in their respective industries. Clearly, there are severe limits to the universal salience of a first-mover advantage.

Yes, a first-mover advantage can sometimes play a deciding role. However, for this to happen, the industry needs to exhibit at least two properties. First, it must be susceptible to rapid scale-up so that later entrants do not have the luxury of time to play catch-up. Second, other complementary features, components, products, and services must play a relatively insignificant role in the customer's buying decision for this particular product. As Intel and TI learned, most customers view a wristwatch as not just a time-telling instrument but also as a piece of jewelry. Similarly, a PC is much more than a piece of plastic wrapped around a microprocessor.

Even the most optimistic projections indicate that electric cars may constitute just 20% of all auto sales by 2020. This will give almost every car company plenty of time to catch up. Equally important, the great battery race will make sure that there will be several large companies that specialize in the design and manufacture of batteries for cars. Thus, in-house leadership in battery technology will become increasingly unimportant for leadership in the car business. Just as a car is much more than an engine, it will remain much more than a stack of batteries. Thus, winning or losing the electric-car race will depend on many factors besides battery technology.

Anil K. Gupta (agupta@rhsmith.umd.edu) holds the Michael Dingman chair in global strategy and entrepreneurship at Smith Business School at the University of Maryland. Haiyan Wang (hwang@chinaindiainstitute.com) is a managing partner at the China India Institute. They are coauthors of Getting China and India Right (Jossey-Bass/Wiley, February 2009) and The Quest for Global Dominance (John Wiley, 2008).

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