Tesla's steep price cuts could crash the electric-vehicle market colonizers, the traditional automakers invading a market Elon Musk's company pioneered.

For years, Tesla didn't face any competition in the EV market, as traditional automakers were hesitant to embrace the electric revolution for a couple of reasons.

First, business strategists downplayed Tesla's prospects of turning the niche electric vehicle market into a mass market. A Harvard Business report argued that Tesla isn't as disruptive as Wall Street believes it to be.

"Think of it this way: all-electric vehicles accounted for just 119,710 of the 16.5 million sold in the U.S. in 2014 -- seven-tenths of one percent of the market," noted the report's authors.

The small size of the EV market made it a risky proposition for traditional automakers to give serious consideration to making the transition to electric.

"Established carmakers are paying little attention to EVs not because they are clueless but because few people want EVs," the Harvard Business Report said. "And they aren't completely ignoring EVs; consider the all-electric Nissan Leaf and Chevy Volt, each of which outsold Tesla in 2014). However, Tesla is betting that preferences will change -- that someday millions of people will want electric vehicles."

Second, traditional automakers faced the "innovator's dilemma," where companies must decide whether to continue focusing on their existing products and markets or to invest in new technologies that may disrupt their current business model but offer long-term growth potential.

The situation has changed in recent years. Tesla began winning the hearts and wallets of consumers in droves. As a result, traditional automakers like General Motors, Ford, and Volkswagen, are invading the electric market.

These automakers have the manufacturing knowledge and the distribution networks to scale up EV production and reach the "tipping point" of bringing EVs to the masses. As a result, they could end up reaping most of the benefits of the EV market without taking the risks of pioneering it.

But Tesla is fighting back with price cuts that could lead to higher demand for electric vehicles, especially among price-sensitive consumers. These price cuts could also pressure other EV automakers to lower prices to remain competitive. The trouble is that traditional automakers must have Tesla's EV manufacturing scale and margins to survive a price war.

"Tesla has developed a 'purpose-built' EV manufacturing process and continues to pioneer it (e.g., "unboxed" manufacturing process, moving to 48V vehicle architecture, using 4860 large cylindrical cells as part of vehicle structure)," Alex Pischalnikov, automotive industry expert at Arthur D. Little (ADL) told International Business Times. "The legacy OEMs are tasked with retooling and new CapEx investments for dedicated plants in concert with running their ICE assembly plants. So in the near to medium term, Tesla wins here."

Nonetheless, Pischalnikov still sees traditional automakers challenging Tesla on the distribution side, where they enjoy a competitive advantage thanks to a network of dealerships.

"Their captive dealer networks will be a huge advantage due to their scale and how it plays into "learned behavior" by automotive customers," he explained. "Ford's mandatory EV dealer program also requires dealers to invest in charging infrastructure, which is brilliant, in my opinion. It's like building a Ford branded fast charging network without spending the CapEx or having to operate them."

Meanwhile, Nick Zamanov, Director of Business Development at Cyber Switching, sees Tesla's price cuts helping the company's stock in the long run.

"Even though a price cut would shrink Tesla's profit, it helps Tesla to meet their sales expectations," he told IBT. "Tesla's stock price will take a hit and go down in the short run, but in the long run, the stock price will recover and go up. It's important to remember Tesla has a much higher profit margin than any other EV maker, so they have a bit more wiggle room for moves like this."

Alex Liegl, CEO and founder of Tenet, agrees. "By enacting ongoing price cuts, Tesla is making its EVs available to a wider range of audiences, enabling increased car sales. Reduced prices will cause the company to make less revenue in the short run," he told IBT. "However, by making its cars more affordable, the company will price out its competitors, leading to better stock performance in the long term."

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