The auto industry is under immense pressure to adapt as customers demand convenient, reliable and safe transportation. Most automotive original equipment manufacturers (OEMs) are manufacturing companies that build cars, and they have been this way since the 1800s. We are in a phase of the industry where convenience, entertainment and safety are valued more than the drive trains and other things under the hood that make cars move.
The old way of doing things is not working. The automotive industry as a whole is under existential threat for the first time in 140 years. Tesla, the new kid on the block, is the barbarian at the gate that’s not following any rules. I believe this disruption is a huge wake-up call.
If the auto industry wants to survive, it will need to intercept the market soon and adapt. Even if the automakers get there, the market may not be kind, but it may afford them a chance to change the rules back again. While this sounds simple, it is far from it. Several technical hurdles need to be dealt with before anyone gets into the lead situation and starts rewriting the rules. And it all must be done at a price point consumers are willing to pay.
The Tesla Way
Tesla has taken a multipronged approach to mete out its assault on the auto industry. First, the company built an electric-powered car that is fun to drive, and then it gave the driver a user experience that almost feels like a smartphone.
Second, Tesla is essentially a software company. While the old auto industry is playing catch-up to the new user interface, Tesla is taking the fight to them with autonomous vehicles. The company is miles ahead of the rest of the industry (no pun intended), both from a technology and a marketing perspective. It is ironic to look at this giant industry from this perspective, but it’s necessary.[
An electronic, technology-centric approach to making a car is the disruption the auto industry needs to survive. Tesla is a technology company that makes cars. The company is driving innovation at an exponential rate with periodic remote software updates that change the personality of these cars. Other companies are manufacturing firms that make cars but don’t understand technology as Tesla does. The market is continuously evolving, and the impetus to migrate to autonomous vehicles is on the industry as a whole. The significant promise of autonomous cars is safety. The electric-powered autonomous vehicle will alter the way we drive today and will provide a safer and more efficient use of the infrastructure.
Some Signs Of Change
OEMs are responding by acquiring and investing in technology companies that augment their portfolios. For example, in 2016, GM bought Cruise Automation, a self-driving technology startup to help expand its footprint in Silicon Valley while taking a hands-off approach.
Also, consider Toyota’s announcement at CES 2020. The company plans to build its own smart city (the “Woven City) with only autonomous cars, for testing purposes. Roughly 2,000 people will live and work at the 175-acre proving ground.
Also at CES 2020, Mercedes-Benz unveiled a concept car influenced by the 2009 blockbuster movie Avatar. The car is both sustainable and autonomous, and it features an electric motor and no steering wheel, as the car’s center console will recognize “the human driver’s heartbeat and breath so man and machine literally merge into a fully intuitive experience,” according to a Mercedes press release.
And BMW Group’s autonomous driving campus outside of Munich showcases the company’s move to be a tech company.
Others are investing heavily in building large software development teams. Still, electronics technology is not their core competency, and just throwing a large team at the issue will not solve the problem. These companies need to make a bet on the right partnerships. Either the companies go completely vertical, similar to Tesla, and develop the entire technology stack themselves — which will be difficult for the incumbents given their manufacturing DNA — or they go horizontal and source “best of breed” technology from various entities and integrate them intelligently. The second approach will enable automotive OEMs to leapfrog Tesla altogether.
The key question is who has the vision in the automotive OEM companies. What I saw recently at CES 2020 gives me hope. I met several CTOs of automotive OEMs and tier-one parts suppliers who have the vision and want to beat Tesla by going horizontal. Some of these CTOs have realized that this is the only way to survive this huge transition and not be marginalized. Only time will tell how influential (or successful) they are in making this huge cultural shift.
Looking Ahead
Daimler announced in September of this year the company would stop developing internal combustion engines to focus on electric cars. This is big for the industry. Let this sink in: The company credited with inventing “the prototype of the modern gasoline engine recently released its latest generation internal combustion engine and it might be its last.”
The internal combustion engine remains a crucial pillar of mobility, and its sales finance the development of electric drive systems and autonomous cars. The disruption is real, and I believe very few automobile companies will survive in the U.S. and Europe. Over the next several years, it will be interesting to watch the auto industry as a whole, especially GM. While everyone is hedging with investments in third-party technology as well as internal development, GM is taking a contrarian approach with an all-in bet on Cruise.
On a side note, we will undoubtedly see cheaper and more fuel-efficient cars coming from Japan and Europe as gas prices continue to increase. But the real story will be who adapts and delivers the first autonomous vehicle. This is fascinating, and my odds are on companies that transform or adapt fast. They will absolutely survive and will be positioned well to rewrite the rules back again.
Source: FORBES
