The automotive industry is undergoing a revolution. With over one billion cars on the road, the automobile has ingrained itself into cultures across the globe. As cars continue to become more ubiquitous, growing concern about their environmental impact is triggering a string of increasingly stringent regulations to improve fuel economy and emission standards.

In response, automakers are embracing a number of measures. One of these strategies—electrification—has rightly generated a lot of buzz. Over the coming years, automakers are expected to invest at least $90 billion USD in order to electrify their lineups. Such a move may help them stay ahead of regulation, but with the entire industry undergoing this shift, where are the most promising opportunities for growth, and what will it take to be competitive in the long run?

Although many may assume that flashy, high-end options such as the Tesla Model S will blaze the path for electric vehicles (EVs), the Theory of Disruptive Innovation indicates a far less assuming frontrunner: low-speed electric vehicles (LSEVs). Their shortcomings—low top speed and limited driving range—are actually hallmarks of disruption and, like all Disruptive Innovations, they compete on new measures of performance such as simplicity, convenience, and affordability that appeal to nontraditional consumers.

LSEVs have found particular success in China, where they are primarily targeting nonconsumers—customers who cannot afford a more traditional car, and are therefore happy to embrace a low-end alternative. A careful assessment of LSEV makers’ business model, deployment of technology, and competitive landscape underscores their disruptive potential.

LSEV manufacturers have positioned themselves within a coherent network of suppliers and are targeting the low end of the market with a small-scale, low-cost business model. In doing so, they are well placed to earn profits at low price points, while also having the opportunity to make improvements as they obtain customer feedback and explore new practices.

For LSEVs to be disruptive, they’ll eventually need to migrate towards higher-performance, higher profit-margin tiers of the market. Improvements in manufacturing processes, battery, and motor technologies should enable this upmarket march. However, continual innovation will be vital in order to preserve their cost advantage as they aim to appeal to more demanding customers.

Incumbent automakers in China appear to be largely uninterested in competing head-on with LSEVs and show no signs of changing their tune. So long as they remain focused on their traditional customers, LSEV makers’ predominant competition will be nonconsumption.

While LSEVs may not pose an immediate threat to mainstream automakers given their initial focus on the low end of the market, their early moves indicate that they soon will—in China and beyond. To that end, both incumbents and new entrant automakers should not dismiss the disruptive potential of LSEVs, but rather chart their own disruptive paths accordingly. By launching their own low-end EVs in China and selectively exploring other emerging markets, forward-thinking automakers stand to not only stay a step ahead of regulation, but also avoid sowing the seeds for their own disruption while capturing the next wave of growth.


  • Chandrasekar Iyer
    Chandrasekar Iyer