An Industry at a Crossroads – Reinventing the Automotive Company, Business News
New technologies – autonomous, connected, electrified, shared (ACES) – are introduced that will make drivers obsolete; while new competitors have entered the industry with Midas-type resources and accustomed to a constant upheaval in the business model. Don’t underestimate the huge effect both have on consumer behavior and their demand for cars.
Frankly, for OEMs it is too expensive to design and build cars the traditional way. The shift in the market from internal combustion engine (ICE) cars to electric vehicles (EVs) only exacerbates the cost differential.
It is clear that new thinking is needed if traditional car brands are to survive this tsunami. Listen to the tastes of consumers and be able to optimize the match between products and the market. But also to implement flexible manufacturing technologies knowing that tastes will be inconstant.
Product lifecycles will be shorter in the future than ever before. Forget the industry rule of thumb that a product can last 6-8 years with a little facelift in the middle. Apple unveils a vastly improved smartphone almost every year, along with even more frequent improvements to the operating system – and this has trained consumers to have completely different expectations.
What is the solution then? OEMs must be prepared to partner and embrace Engineering Services Outsourcing (ESO) for functions more critical to Category Specialists than ever before. It is simply not possible for a single automaker to excel in all the capabilities required, from R&D to design, autonomous driving software, EV platform and battery development, component manufacturing and value chain.
The electric vehicle market is approaching its inflection point. ICE-EV price parity should be reached over the next few years. Indeed, more and more countries and cities – including China, the UK and the EU – have pledged to phase out new ICE cars by 2030 or 2035, at the latest.
Last year, even as the pandemic raged, more than 3.2 million electric vehicles were sold around the world, an increase of more than 40% year-over-year. For the first time, electric vehicles accounted for over 4% of all new vehicle sales. Customers are ready to accept electric vehicles as cars. Improved charging infrastructure has reduced range anxiety. The fact that there are more models to choose from – whether micro-urban cars or high-performance and luxury models – has also increased their appeal to buyers.
But despite all the consumer excitement, the formula for profitability of electric vehicles is clouded by a persistent price differential between electric cars and ICE cars. While the complexity of an EV is significantly less than that of an ICE car, the higher cost of battery cells means that profit margins are slim at best or, more likely, negative for the next several years to come. what the price of batteries drops. any further.
This puts even more pressure on OEMs to be operationally smarter. The trick is to throw away the so-called proven traditional methods of building cars and embrace new, optimized methods that make better economic sense in the new paradigm.
A recent McKinsey study suggested a few possible options for OEMs to consider; these include removing expensive equipment to create viable products at lower cost, installing smaller battery packs to optimize range for urban distances rather than chasing Tesla’s super-long-range offerings, and , more importantly, the aggressive outsourcing of capital expenditures, even those that would have been considered essential in the past.
The latter, for example, is the strategy pursued by the Volkswagen Group, which has partnered with Ideenion Design and other ESOs for engineering, design and prototyping.
There is great pressure to implement the change. The disruption of electric vehicles has already happened, but much more is to come.
So far, we’ve only talked about electric vehicles in the context of ACES, but connectivity is already there in terms of satellite navigation and cloud applications, whether for entertainment or diagnostics. Tesla cars can automatically update their software over 4G / 5G networks like your cell phone or laptop, eventually all cars will.
Apple’s market capitalization is some $ 2.4 trillion and has some $ 200 billion in cash. In comparison, that’s enough money to buy Ford Motor Co almost 4 times as much, or about two-thirds of Toyota. That’s a lot of power that OEMs have to try to overtake.
What does this mean for the future of the automotive industry? Some people believe that with the advent of autonomous driving, we will be able to share cars and no longer need to own them ourselves. I do not believe that will be the case.
Cars have become an extension of our personality; along with our clothes and accessories, they are how we project our self-image to the world. Granted, there will be a market for autonomous ridesharing services, but it may not be much larger than that of public transport today.
Cars are much more likely to become like our smartphones. Personalized, always connected. But, just like our smartphones, the new Big Tech-derived automakers will move them on a much faster product cycle.
Eventually, the business model will expand beyond just selling a new car every two years. What will it be? I don’t have a crystal ball, so I couldn’t tell you. But it will be as different as my old Nokia phone was from the last iPhone in my pocket.
And that’s a good warning to OEMs, if they don’t want to be the next Nokia.
Source: Financial Licorne
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