Tesla and Uber: Disruptive Tech Fights the Old Guard

Jim Motavalli

Jim Motavalli | Sep 05, 2014

The problem with disruptive technology—which everybody wants these days—is that when it’s truly disruptive, the old guard will get in the way. Two companies are learning this lesson the hard way, the smartphone-dispatched ride service Uber and electric carmaker Tesla.

Calling for a ride challenges long-established taxi models. (Uber photo) Uber’s main enemy is what company CEO Travis Kalanick calls “an asshole named taxi.” The industry, which sees Uber, Lyft and the others as stealing its business, has been pulling out the stops to prevent Uber’s ascendancy. Its latest battlegrounds are Maryland and Germany, which just banned the service. Maryland merely ruled that it’s not a mere app, but a “common carrier,” which means its UberBLACK and UberSUV services will have to jump through all the hoops normal taxi and limo companies go through.

Uber is still operating in Maryland as it appeals, and spokesman Taylor Bennet says what the state did is like calling Expedia or Travelocity “airlines” because they book flights. “We don’t hire, drivers own those vehicles,” he said. “We partner with existing transportation companies.” Taxi operator Yellow Transportation in Baltimore counters that Uber is a potential threat to public safety, and is using drivers it “got rid of” for not meeting standards.

Last month a Frankfurt court imposed the temporary German ban, which carries a potential fine of up to $330,000 for violators, but UberPop (the lowest cost option, putting car owners together with fares) continued to operate. Again, it was the local taxi lobby that brought Uber to court. There have also been Europe-wide protests by taxi drivers, and court problems in both Britain and Belgium.

Nice taxi you got there . . . it would be a shame if something were to happen to it. (Uber photo)Uber is part of what author and thinker Jeremy Rifkin calls in his new book the “Zero Marginal Cost Society.” He thinks Uber is seen as a threat in Europe (and elsewhere) because it undercuts the higher fixed costs of conventional businesses. Meanwhile, car-sharing services like France’s Autolib’(which has given Parisians five million rides in electric cars since 2011) are changing the way people are getting around. “Uber and other carsharing services represent a fundamental shift in how a younger generation views mobility,” said Rifkin, who thinks we’re on the verge of a golden age of cheap and available transportation.

Same thing for Tesla, which is undercutting the conventional model of selling cars. In the traditional U.S. model, automakers are not in the business of selling cars, but instead farm this duty out to third-party dealers. The practice, perhaps motivated by noble antitrust ideals, has allowed auto sales to become a very lucrative field for dealership owners. Tesla had the nerve to flaunt the rules and open its own “stores” around the country, with the fig leaf in place that it didn’t actually sell them there, but referred customers to online purchases.

Tesla’s model is in a state-by-state battle, and for taxi drivers substitute auto dealers associations. In Massachusetts, for instance, the fight went all the way to the Massachusetts Supreme Judicial Court, which heard arguments last May in a challenge to the company’s direct-to-consumers model. Texas, New Jersey and Arizona have also banned Tesla, New York and Ohio have imposed restrictions on the company.

Tesla's "stores" (like this one in Westchester County, New York) aren't really sales outlets, the company says. Auto dealers disagree--in court. (Jim Motavalli photo)In the New Jersey case, Tesla opined, ““Franchise dealers have an inherent conflict of interest in selling electric vehicles. In order to do so effectively, they would need to enthusiastically tout the reasons why electric vehicles are superior to gasoline vehicles. This is not something that they are going to do since gasoline vehicles represent virtually all of their revenue.”

Tesla is no shrinking violet when it comes to fighting back against its challengers. Among its tactics is a petition to the White House, signed by 138,000 proclaiming, “States should not be allowed to prevent Tesla Motors from selling cars directly to customers. The state legislators are trying to unfairly protect automobile dealers in their states from competition. Tesla is providing competition, which is good for consumers.”

The fact of the matter is that people like Tesla and Uber. Neither is going away, and both will ultimately prevail because their way of doing business has momentum and public support. In some ways, what’s happening here reminds me of the laws enacted in the dawn of the auto age, no doubt with horse breeders’ enthusiastic backing, that required cars to move at a snail’s pace, with someone carrying a red flag or lantern leading the way. It didn’t stop the horseless carriage from triumph in the marketplace.

On video, here's more on Uber's fight in the state of Maryland:

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