Consider the rapid disruption that has occurred in the mobile phone market this century. Apple and Samsung have gone from not having handset businesses in 2000 to be the #1 and #2 producers today. Understanding this sector is a good start for considering the likely rate of electric vehicle (EV) penetration in the auto market, and putting some numbers on the future disruption to oil demand.
What happened in the mobile phone market? Firstly, the rise of the ‘smart’ phone with wireless internet connectivity caught established industry players off guard. Secondly, as consumers turn over their handsets relatively quickly based on their carrier contracts, the majority of the stock of handsets turns over every few years, which offers the potential for an ‘overnight’ shift in consumer preferences to repay innovators. Third, smart phones are a network technology, as the value of owning one is enhanced by the number of other people that do. This characteristic is a crucial element in the rapid dissemination of a consumer technology. Fourth, smart phones leveraged existing technology and infrastructure, so there was no start-up capital cost required to accommodate their rapid rise.
The laws of technological disruption potential comes through very clearly from the smart phone case study:
- Behaviour of incumbents
- Turnover rates or product lifecycles
- Network characteristics
- Infrastructure and innovation requirements
So how do EVs compare with smart phones in this framework? First of all, traditional automakers are all investing heavily in EV (and hybrid) technology, although a few very prominent start-ups exist. Second, the world car fleet turns over roughly once every 10-15 years, not every two to three years. Third, cars are not a network technology. In fact, the more cars that are out on the roads, the more congested the roads, and the less enjoyment experienced by each individual driver. Four, EVs require plug-in infrastructure to be built to accommodate their dissemination; and battery technology must advance considerably before both cost and range become competitive with traditional internal combustion engines (ICEs) and hybrids.
This comparison highlights that there are impediments to a smart phone-like takeover by EVs, but their long run disruptive potential remains clear.
Read more on our projected electric vehicle penetration rates