Tesla’s advantage? ‘It’s the software, stupid.’

The mere mention of the man’s name in conversation is almost certain to trigger a strong response. He’s called a genius, charlatan, visionary and crackpot in equal measure. 

Without question, entrepreneur, innovator and engineer Elon Musk is a controversial figure, but there is no disputing that his first-to-market Tesla electric vehicles are not only revolutionizing the high-end driving experience, but also disrupting the automobile industry in ways that would surely impress Henry Ford and Karl Benz.

That said, there’s a great deal of speculation in the automotive press these days about Telsa’s impending comeuppance as the established luxury automakers begin shipping their own electric vehicles. The conventional wisdom is that the big brands’ legions of loyal customers will choose their electronic vehicles over Tesla. 

Fair enough. Audi, BMW and Volvo have a combined 300 years-plus of automaking and brand-building experience, so it’s hard to argue that 16-year-old Tesla shouldn’t be concerned.

What the conventional wisdom doesn’t take into account though is Tesla’s uniqueness among its better-known competitors. Tesla is a software car.  

As the incumbents hurry to catch up with Tesla, the important question to ask is will they design their electric cars based on an innovative software architecture such as the one that is driving Tesla’s success, or will they merely substitute an electric motor for the internal combustion motor? 

Famously, during the 1992 U.S. presidential campaign, Bill Clinton zeroed in on what mattered most to an electorate suffering the effects of a stagnant economy. His succinct, “It’s the economy stupid,” resonated with Americans, and he won the first of two terms.

Traditional automakers need to realize that their long-term survival requires understanding that “it’s the software, stupid.” Unless Tesla’s competitors fight software with software, they will fail. 

And If Audi’s first entry in the electronic vehicle market is any indication, Tesla needn’t worry. As an owner of both an Audi and a Tesla, I’ve been eagerly awaiting the arrival of a Tesla competitor, and I was excited to take the Audi electric for a test drive. 

My excitement was short-lived. It’s a flop; a lemon. Calling it a 21st-century Edsel is not an overstatement. The car drives okay, and although it has a much more limited range than a Tesla, it is — as advertised — a functioning electric automobile. 

What it decidedly is not is a Tesla.

In fact, it isn’t within hailing distance of Tesla. The Audi electric’s software is non-intuitive and utterly impossible to use. Its user interface is a frustrating obstacle course. Audi simply doesn’t get it. Not yet anyway. It needs to quit and start over. 

In sharp contrast, Tesla is maniacal about its software and strategically takes liberal advantage of available world-class open-source software to distinguish the company’s functionality.

In fact, every few weeks, Tesla issues updates that add remarkable new features and capabilities. Simply put, Tesla’s fundamental — and winning — strategy is to differentiate its car through software. 

Each update signals that differentiation as owners are treated to better and better software — the car can even parallel-park itself. 

I recently received a Tesla software update and spent some time exploring what was new and useful.

A great deal, it turns out:

• a significant advance in the autonomous driving feature;
• enablement of previously inactivated cameras that were in the car and that now enable me to see detail of the size and shapes of vehicles on the road passing me on either side; 
• the recent update even included a “whoopee cushion” feature that lets me have a bit of sophomoric fun with my passengers (somehow I can’t see the German automakers adding this sort of whimsical Easter egg in an update). 

For sure, Musk and Tesla are not home free. Tesla is not profitable. Musk has trouble with self-control, and he is currently in a difficult situation with the Securities and Exchange Commission.

Still, Musk and Tesla are in the driver’s seat and not just because of the game-changing software car. He is upending the entire auto industry:

• junkyarding the dreadful process of buying a car;
• disrupting the status quo of dealers making money selling what’s on the lot and then charging tons for service;
• innovating how cars are manufactured and financed; and
• streamlining supply chain issues. 

Musk is in the fast lane while the big brands lumber along.

Audi, the first legitimate competitor to Tesla, has shipped a working electric car that is a bad joke. Its failure to understand that “it’s the software stupid” has given Musk even more time to extend his competitive advantage. 

Lou Shipley is a lecturer at the MIT Sloan School of Management.