An exciting place to be right now, or a nightmare of unmanageable change?
I don’t think there can be any industry facing as much change on as many fronts as car manufacturing. It’s not just the change from the internal combustion engine to electric drive trains, from cars that we drive to autonomous vehicles, and from self-contained boxes on roads to totally connected cars. If all that isn’t enough simultaneous revolutionary change, don’t forget you also have to factor in a completely new consumption model, where car ownership is no longer the staple model and on-demand mobility is what is now for sale.
What this all means for the current giants of the automotive sector, for countries reliant on these OEMs for jobs and tax revenues, for transport safety, for the environment, for consumer spending priorities – I could go on – will become clearer in 2019.
Choices for the manufacturers
In the past, investment priorities for manufacturers were largely about building a better car. But that’s no longer true. Better engines, higher fuel consumption, accelerating to 100km/h more quickly – these are concerns of yesterday. The biggest problem right now for manufacturers is timing: all these changes are coming at once, so where should they prioritize?
The market is separating into three layers. The first is platform manufacture, pure and simple. By this I mean electric drive trains on which other players will build the second layer, a product that allows mobility. From now on, there will be electric (possibly hydrogen), autonomous vehicles. The third layer is pure mobility: get me from here to there, now – currently represented by companies such as Uber and Waymo, but where we can expect to see a proliferation of new players.
Manufacturers need to decide which of these layers they are going to play in. Are they going to create the platforms for new, asset-light players to build on? Are they going to combine their core manufacturing skills of platform development with an integration play in the middle layer? Or are they going to move one level higher and focus on becoming a mobility provider? The main challenges here are that few of them have any depth of experience of direct contact with the end user market, which has historically been handled at arms’ length, through franchised dealerships.
These are the areas where customers – both existing manufacturers and new players – are coming to Fujitsu for ideas. Our advice is that flexibility is the key factor. It’s not possible to predict with certainty when the big changes will take hold, so this is a process of consulting and discussion. There are no easy solutions and for each participant the scenarios are unique.
Making money in the autonomous future
Given that autonomous cars, by all reports, will be very reliable, where are sustainable revenues going to come from?
One vision of the autonomous future focuses on the mobility aspect, where people just want to get from A to B and envisions vehicles more or less as busses. In this scenario, the current luxury brands will struggle. Options include emphasizing safety features based on AI and added value derived from connectivity.
But this could be the old way of thinking reasserting itself. Given the radical scale of change involved, it’s perhaps time to put on a completely new hat and think like someone from a different industry. The driving experience itself – as in holding a wheel and pressing pedals and buttons – is now irrelevant. How will people actually spend time going from A to B? Is the car now actually an office, meeting space or perhaps a children’s play space? Can we provide bespoke services for the passengers? Answers to these questions will determine where monetization will come from.
Auto manufacturers are not unaware of their limitations with the end user customer marketing and all of them have created start-ups to address this in the new mobility space. Indeed, some started a while back and we are already into phase two, with mergers between, for example, Daimler’s car2go/ Moovel and BMW’s DriveNow / ReachNow, announced in March 2018 and recently approved by the EU competition authorities. Whether moves like these enable the OEMs to defend their large market shares in the future, only time will tell.
Winners and losers
What are the implications of change for global leading manufacturers’ position in the automotive industry?
The trends here are clear. The Tesla way of selling is winning out in the USA, despite their manufacturing difficulties. Current leading manufacturers understand this and, as we have seen with the end user mobility marketing startups, are changing their approach.
So, who will win? Current manufacturers will still be strong in the future automotive dispensation, but not as strong as before. New American and Chinese players will become very strong in the platform business, and we can already see winning strategies from these countries in the mobility layer of the market.
The autonomous market will probably tend towards becoming a commodity, that is, if people decide it doesn’t really matter how you go from A to B. The luxury market, where German OEMs are strongest, will remain a significant market for those consumers for whom a bit of style remains important.
Yes, you can expect to see new players from new countries but to look at this in terms of national champions is actually last-century thinking. The new market will be serviced by an ecosystem of partners from multiple countries, where the provenance of the mobility provided is irrelevant.
The end of the combustion engine?
The internal combustion engine is on the way out. The future is electric or hydrogen. But one important question for the current manufacturers is whether there will be a hard stop deadline imposed by national or supra-national governments. Will there be legislation, and will the manufacturers meet the deadlines?
The question of national legislation depends on whether the country in question has an important manufacturing industry or not. Those without will decide on fast deadlines, for example, China is going massively for electric vehicles. Countries with major car makers will be more careful.
But make no mistake – China will drive the market and somewhere between 2030 and 2040, we will see the end of the internal combustion engine.