Why Google Is Fumbling While Tesla Is Sprinting Toward Driverless Cars

On Tuesday, Google’s parent company announced that it was shifting its self-driving car project into an independent entity—Waymo, which stands for “a new way forward in mobility.” The new name notwithstanding, Waymo’s website continues to feature a self-driving car that looks remarkably similar to the Koala—a prototype that Google launched more than two years ago. Fitted with Google’s hardware and software, the bubble-shaped two-seater was built to move with the touch of a button, with neither a steering wheel nor a brake pedal.


Adding to the confusion is news that leaked out saying Google is actually backing away from its earlier moonshot ambition. The company is set to abandon the pursuit of the full autopilot. Instead, engineers will now focus on retrofitting sensors into traditional passenger cars, with an initial collaboration with Fiat Chrysler.

The timing could not be worse. Google is pulling back at a time when Uber and Tesla are racing ahead.

Last August, Uber bought Otto, an autonomous trucking startup, for $680 million. One month later, Uber became the first to deploy self-driving taxis to ferry residents around Pittsburgh. Meanwhile, the formidable Elon Musk announced that Tesla will roll out self-driving capabilities by mid-December, just in time for the Christmas season. Model S—Telsa’s most popular sedan, and Model X—the company’s SUV family will receive incremental updates on autopilot features.

All this means that in the coming month, Tesla owners will start enjoying “exit ramp autonomy” on highways and automatic lane-changing, to auto-steering which helps cars to navigate tight and complex roads, to smart summon—having the Telsa to pick you up wherever you happen to be. All of these updates don’t require any visits to a service center. The new software will be quietly downloaded overnight.

What’s most curious, of course, is why Google managed to pioneer a new concept only to get stuck. What’s so special about Tesla and the way it pursues its strategy?

Dashed Dream, Failed Ambitions

The idea of an autonomous vehicle isn’t new. It wasn’t even started by Google. Airplanes got autopilots just a decade after the world’s first flight made by the Wright brothers near Kitty Hawk, North Carolina. And, for years autonomous harvesters have been romping around corn fields and driverless excavators have been going down mine shafts.

As early as 1939, at the New York World Fair, invited visitors to its “Highways & Horizons” pavilion that showcased a futurama ride of a then-imagined world of the 1960s. Automatic highways were in full rage. Trench-like lanes helped keep cars apart in their own “tracks”. Drivers would kick back until their designated exits. The whole system promised safety, speed, and access. More cars could share the road. Intelligent intersections minimized congestion.

What followed in the next seven decades were nothing but let-downs and delays. The grand vision was there, but GM, Ford and Chrysler fumbled. Toyota, Honda, and Nissan failed too. Even now Google, Apple, and Microsoft are lagging far behind. And if Telsa’s success has been down to the audacity and ambition of Elon Musk himself, couldn’t Steve Jobs, Bill Gates, or Sergey Brin have done the same?

The Difficulty In Coordination

In studying disruptive innovation, Harvard Business School’s Clayton Christensen noticed more than a decade ago that technology creators often struggle to commercialize promising technologies, even when the clear benefits of doing so are demonstrated. The problem gets further exacerbated when the firm needs to work with other companies down the value chain in manufacturing the finished goods.

In 1965, scientists at DuPont formulated an ultra-strong fiber called Kevlar. The endurance of the miracle fiber would have been an obvious choice for tire cord, replacing the steel-belted radial tires. But after spending $400 million on building a Kevlar cord plant, DuPont belatedly discovered an adhesion problem of the Kevlar cord with the tire rubber when manufacturing at a high volume—a problem that didn’t appear among test tires handcrafted in-house. In other words, Kevlar couldn’t be plugged directly into the existing manufacturing process among the downstream tire manufacturers such as Firestone or Michelin.

The only way to resolve such a technical issue would be for DuPont to forward-integrate and essentially become a tire manufacturer. Alternatively, DuPont could hope for a willing tire company to completely retool its manufacturing plant to take advantage of Kevlar’s unique properties. But none did.

Kevlar therefore remained a scientific curiosity until it came to be used as bulletproof fabric, thanks to its perfect compatibility with existing weaving technologies among the downstream textile manufacturers, like that of W. L. Gore.

Automakers face a similar dilemma.

The True Cost Of Global Outsourcing

Long gone were the days when Henry Ford still ran his rubber plantation, timberland, coal and iron-ore mines to feed raw materials to his Michigan factory at one end, then cranking out cars at the other. Today, almost no one makes their own windshields or upholstery or rearview mirrors. Automakers rely on foreign suppliers that span the globe. Their domestic manufacturing plants are left with only final assembly to do.

It’s not that traditional car makers don’t invest in innovation. They do. Big car companies routinely spend up to $1 billion and engage thousands of people to design a new vehicle. But they do so across a great span of geographic regions, with multiple parties, while making sure thousands of moving parts will perform to perfection.

“If Daimler wants to change the way a gauge looks, it has to contact a supplier half a world away and then wait for a series of approvals,” observed Ali Javidan, Former Head of Vehicle Prototyping and R&D at Tesla. “It would take them a year to change the way the 'P' on the instrument panel looks.”

Elon Musk won’t have any this.

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Tesla Motors CEO Elon Musk. (AP Photo/Ringo H.W. Chiu)

Let’s Build It In-House

Tesla has long realized breakthrough innovation demands the very integration of multiple disciplines. The CEO sees depending on foreign suppliers as a weakness, not smart cost containment.The company is currently building the Gigafactory in Nevada to produce batteries at a scale that far exceeds the current capacity of today’s global supply chain, aiming to drive down production cost at a level the world has not yet seen.

The company is currently building the Gigafactory in Nevada to produce batteries at a scale that far exceeds the current capacity of today’s global supply chain, aiming to drive down production cost at a level the world has not yet seen.

It wasn’t because Tesla was unwilling to work with battery suppliers like Panasonic or Samsung. It did in the beginning. But conflicting priorities and agendas among so many partners slowed things down to a crawl. Direct management and integration, rather than markets and contracting, is the most efficient coordinating mechanism across non-standardized, inter-dependent activities.

No Hands Across America

Tesla’s integration spans into software as well. After a three-year flirt with Mobileye—a Jerusalem-based maker of camera sensors and software, Tesla abruptly terminated the partnership and now does software itself. Amnon Shashua, Mobileye’s chairman and CTO accused Tesla of “pushing the envelope” with the design of its Autopilot driver-assistance system. “No matter how you spin it, (Autopilot) is not designed for that. It is a driver assistance system and not a driverless system,” Shashua explained.

But that’s exactly what Tesla sets out to do. Musk wanted an uncompromised autonomous vehicle, not some assisted hybrids. Mobileye was apparently moving too slow. So in one fell swoop, Tesla has fused together electronics, software, metal and batteries. Traditional automakers are now struggling to keep up. Before Christmas, the lucky few Tesla owners will finally experience the strategic vision that General Motors first envisaged in 1939.

These days, whenever there is a capability an organization lacks, executives often resort to using “partnerships” as a cure-all. For a company like Google, it is tempting stop short at inventing breakthrough technologies. For a traditional automaker, it is also tempting to outsource the development of autopilot software to others. And conventional wisdom would suggest that it is generally cheaper and less time-consuming than developing a proprietary solution in-house.

What Elon Musk demonstrates is: If you want something done right, do it yourself. Partnerships work great when they’re plug and play. They fair badly when deep readjustments are required by both parties. The biggest challenge for Google is not technology but the fact that it lacks the requisite manufacturing background to build cars or a network to sell them.

A colleague recently reminded me of a quote by Alan Kay: “People who are really serious about software should make their own hardware,” the great American computer scientist told the audience in 1982. Only this time the hardware is no longer a computer but a car.

To stay on top of competition, we must therefore ask ourselves:

• To what extent is our innovation trajectory now dictated by our current suppliers in the global supply chain, rather than what customers really want?

• To what extent are we integrating new capabilities critical to future success?

• As a provocative thought experiment, imagine Elon Musk were to enter your industry, what would he do differently from the others?

Howard Yu is professor of strategy and innovation at Swiss business school IMDStay connected on LinkedIn and Twitter (@howardhyu).

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