The S-curve starts to level off when the technology reaches maturity: “As you start getting to the top, you’ve picked all the low-hanging fruit,” Schilling said. “Now [you] need to spend a lot more to get further.”

It’s even possible to perpetuate the curve: Companies that reach maturity and see innovations slow relative to investments can instead plow that money into introducing a brand-new technology or product, creating a new S-curve to follow.

There’s a catch, however: S-curve-wise, the new product will always perform worse than the incumbent product at its peak. Comparing electrically powered vehicles with the internal combustion engine provides a good example: “It’s a lot harder to make an internal combustion engine a lot cheaper or more efficient, or a lot safer,” Schilling said, adding, “We’ve been at the top for a long time.”

Steel recycling mini-mills pioneered by the Japanese in the 1980s, for instance, underperformed compared to traditional integrated mills … until it started moving up the S-curve, outstripping traditional mills in making better steel faster and cheaper. “The notion is that when you introduce a new generation of technology, it often is performing poorly to where the previous generation is,” Schilling said.

But for those involved in daily business, the perfect timing is not immediately obvious. “It’s just fundamentally impossible to predict the exponential part of the manufacturing S-curve,” Musk said during Wednesday’s earnings call. “S-curve is a simplification because it’s really running through a series of constraints. … It’s like a really jagged sort of upward growth.”

The trick is to keep pumping money into a model until it can dramatically improve the process and technology — and create a new model line once a previous one reaches its peak.

Musk himself outlined this point in a 2006 blog post called “The Secret Tesla Motors Master Plan (just between you and me)”:

“Build sports car

Use that money to build an affordable car

Use that money to build an even more affordable car

While doing above, also provide zero emission electric power generation options

Don’t tell anyone.”

Facebook Comments