Did the Auto Industry’s iPhone Moment Just Happen?

I was present at the 2007 MacWorld Expo where the iPhone was announced. Ever the master marketer, Steve Jobs orchestrated a live demo, placing a call to Apple’s VP of Marketing as he was walking down the aisle of the packed auditorium. Afterward, in the large Apple booth on the exhibit floor, there were two suspended models of iPhones rotating in plexiglass cases: you couldn't touch them, you couldn't hold them, you couldn't make calls on them like Steve Jobs had done from the stage. But you could buy one, even though MacWorld was in January and the iPhone didn’t promise to ship until July.

Recall at that time the most popular type of mobile phone was a “feature phone”: the term “smartphone” had barely been coined. My acquaintances who worked in Nokia engineering claim they went to their management later that week and said: we have all the elements necessary to create an iPhone-like mobile phone already under development in-house and we can beat Apple to market -- or at least announce a similar phone and give potential iPhone buyers pause. Nokia management’s response was skepticism that Apple, a computer company with no experience in the mobile phone industry could enter the mobile phone market -- a market with existing, dominant players -- and succeed. After all: there were so many barriers to successful entry; there were regulatory hurdles to overcome, there were network operators with pre-existing relationships to negotiate with, there were numerous standards for cell phone frequencies and transmission protocols to support: in short: a highly fragmented global market that Apple would need to address and resolve. At the time Nokia was totally dominant: they had 70% of the worldwide market share for mobile phones and had just announced a record quarter for revenue and earnings.

Flash forward to today -- a meager eight years later -- and we know how the story played out, Apple is the dominant mobile phone manufacturer and Nokia is a shell of its former self and no longer offers mobile phones.

And so: could a comparable event to Apple’s January 2007 iPhone announcement have just happened in the automobile industry? On March 31, 2016, Elon Musk introduced the Tesla Model 3 with a slew of innovative features -- all electric drivetrain, emergent autonomous capability, large touchscreen display, advanced battery capacity, affordable price, etc. -- but stating the car would not start shipping until “the end of 2017.” Within a week, 325,000 people had placed advance deposits of $1000 each for a car they would not take delivery of for at least a year and a half.

Like Nokia was dismissive of Apple, existing auto manufacturers can be dismissive of Tesla: they can claim Tesla has heretofore been a niche manufacturer, having produced only hundreds of thousands of cars where even a mid-volume auto manufacturer produces millions of cars a year. Existing auto manufacturers can argue that Tesla underestimates the challenges in delivering the Model 3 at volume and will choke on their own success in pre-selling the car.

But unlike Apple, which hadn’t previously delivered any sort of mobile phone, Tesla has successfully delivered three other automobiles to customers: the Roadster, the Model S, and the Model X, all with glowing reviews and highly satisfied customers. Furthermore, Tesla inherited its main factory in Fremont, CA from a failed GM/Toyota joint venture that had a production capacity of 500,000 automobiles a year at peak production. Tesla sells direct through its own dealer network, bypassing the overhead and costs of a third-party dealer network. Tesla’s built out a network of supercharging stations that allow continuous electric driving from coast to coast. In partnership with Panasonic, Tesla’s ramping up its “Gigafactory” in Nevada to produce the battery packs for its cars. Tesla has thousands of willing Model S drivers acting as live, on-road beta testers of its autonomous driving mode, transmitting real-time data back to Tesla to improve the software as they drive.

And Tesla has a cool $325M in advance sales of the Model 3 they can use to underwrite development and ramp up production: no other car company has ever been able to build this level of demand for an upcoming automobile.

So I contend that March 31, 2016, the day Tesla announced the Model 3, is the day the auto industry changed forever. The Tesla Model 3 is the new standard that all subsequent automobiles will be compared to, the car that all auto manufacturers will, probably grudgingly, aspire to emulate.

What do you think? Please add your comments below.