VW Is A Symptom Of Widespread Automotive Disruption

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The VW emissions scandal isn’t an outlier, but a symptom of the reality that internal combustion cars, whether gas or diesel, have reached the limits of effective compromises that will satisfy regulators and consumers. But most car companies won’t be able to adapt and many will diminish radically or fail entirely. Electric vehicles, on the other hand, are a classic disruptive innovation that has now emerged as the obvious replacement.

Christensen and Raynor in their classic work The Innovator’s Dilemma identified the characteristics of industries about to be toppled by better disruptive innovations. In their update, The Innovator’s Solution, they identified how market leaders could survive the transition. But there’s little sign that the automotive industry is familiar with this dynamic, or if they are, they are in deep denial for the most part.

The challenge that the old manufacturers are having is that they have to cannibalize the profits of their existing lines by making completely new vehicles from the ground up to compete. So they mostly won’t. 

The future of cars is battery electric vehicles. That’s just a reality. There are a bunch of reasons for that but here are a few:

1. Electricity from generation to wheel is a lot cheaper than any of the proposed intermediaries such as hydrogen fuel cell and air carbon capture + electrolysed hydrogen fake-gas or diesel. No one is interested in spending a lot more for transportation.
2. The grid is decarbonizing, but you can’t buy carbon neutral gas or diesel. Regulators are pricing carbon.
3. The VW scandal is just making public what a lot of people already knew: it isn’t possible to make gasoline or diesel engines significantly better in the compromise space between CO2 emissions, NOx and other pollutant emissions, mileage, performance, and engine longevity. That road, amazing as it has been, has reached its end.
4. Electric cars just outperform everything else. I recently ran across a video of a 1968 Mustang fastback conversion to electric that give it 1.94 seconds to 60 mph and a top speed of 174. Teslas, obviously, are currently reaching 60 in 2.8 seconds with heavy, five- or even seven-passenger luxury sedans. The quickest two production cars in the world are gas-electric hybrids, because you can’t be fastest without electric motors these days. And the pitiful handful of fuel cell vehicles on the road are sluggish, because batteries are much more efficient at delivering electricity than fuel cells.

If you don’t believe me, how about the CEO of Aston Martin?

Palmer said it’s inevitable that the entire industry will shift over to electricity, if only because it’s the most plausible way to deliver the power drivers expect.

But to make a good electric car you have to start from the ground up and throw a bunch of stuff away:

1. You have to throw away your frames. All of them. To build an effective, long-range, high-performing electric car, you have to start with something like the Tesla power slab at or below the level of the axles.
2. You have to throw away all of your engine management software. All of the experience built up on eking amazing compromises out of an internal combustion engine is irrelevant when faced with an AC or DC motor.
3. You have to throw away your internal combustion motor. No hybrid, serial hybrid, range extender BS. You have to throw it away. And start with the assumption that you are going to achieve range, fast charging, and performance by committing to electric motors and batteries.
4. You have to throw away all of your mechanical steering and control systems. Everything is drive-by-wire. Anything else is a waste of space, weight, and time. All of those experienced engineers, all of those solutions that worked, gone. They all assume frames that you don’t have any more, and specific areas for mechanical linkages which are no longer there.
5. You have to throw away all of your traction control systems. They are all designed around the ludicrously varying power output of an internal combustion engine, which changes literally every microsecond at every change of speed and driver input because those engines have such narrow power bands. Instead, you can rely on tremendously straightforward power to your wheels which is much more finely controllable. Your actual traction control results will be much better, but all of the hacks you built up will be useless.
6. You have to throw away all of your emission controls experience and knowledge and technology and investments and branding. It’s completely unnecessary.
7. You have to throw away your entire fuel storage and delivery system. The tank, the lines, the pumps, the injection systems, all of it. It’s all obsolete.
8. You have to throw away your body panels. They all depend on the frame and the gas tank and the mechanical linkages taking up space that they don’t take up anymore.
9. You have to throw away your seat mounting systems, and possibly your seats. They expect a lot of wasted space due to motor and transmission drive shaft hump and gas tank that just aren’t there anymore. They depend on a frame which doesn’t exist anymore.

Tesla discovered this the hard way by trying to base the original Roadster on the great little Lotus Elise. They admit, somewhat ruefully, that it would have been a lot easier and cheaper to start from scratch. And they had no existing technical debt, politics, or any other barriers to making the right decision.

If you do all of that, what are the implications for an automobile manufacturer?

1. Virtually all reusability between existing models and the new models is gone. This is a complete disruption of the economics of the car industry.
2. The most powerful divisions within car companies lose almost all power.
3. Massive investment in new frames and panels is required.
4. Massive investment is required in new control systems.
5. Completely new supply chain partnerships have to be forged.
6. All of the executives and engineers who have made your company great on the back of internal combustion engines have to accept that they are back to close to zero. A lot of the engineers won’t have any role in the new world, or any way short of significant re-education and starting from junior positions to stay employed.

So what’s going to happen to the car industry?

1. Virtually all of the majors will continue to deny the reality of the situation and continue to bet on cars with traditional frames, limited batteries, limited electric range and performance and with internal combustion engines continuing to do the heavy lifting.
2. New competitors such as Tesla and Apple will kick the traditional cars to the curb in every way. More will enter as it becomes obvious to corporations outside of the automotive industry that a massive disruption is killing the traditional car companies and that they are incapable of responding to it. So traditional electronic and electric motor companies will start wrapping cars around their expertise. Motorcycle companies such as Lightning and Zero will be approached to build cars instead of bikes.

Can we see this happening already? 

Yes, BMWs strategy is exactly as pointed out above. Their two existing cars, the i8 and the i3, are both inferior to the Tesla in most ways, both require gas engines to get more than a rather pitiful distance (and space for the engines and gas tanks and lines and pumps are all set aside in the i3, so it’s not like you can do anything useful like extend the battery pack). The frames pretend to being unique but they still expect a lot of traditional crap being there which is obsolete. And their strategy of electric motor components in their entire range by 2025 still has no explicit plans for real electric cars that could compete with Tesla, just more crappy electric cars with internal combustion engines for real driving.

And BMW is one of the more innovative and adaptable traditional motor companies.

VW, the company currently most incented to change its thinking, just announced that it’s going to invest less in diesel and put some money into electric cars, mostly more hybrids, which perpetuate the problem as outlined above.

So what will be the result?

Most of the current major car companies will fail because they can’t adapt to the disruption that electrification is bringing to their industry. They will refuse to cannibalize their other products. They will refuse to shift power and money to the electric divisions. They will refuse to engineer true electric cars because the economics don’t make sense until they don’t have any money to do it anyway.

If you’re having challenges believing this, I’d suggest you read (or re-read) Christensen and Raynor’s The Innovator’s Solution. This pattern has played out innumerable times over the past 100 years. Remember RCA? Philips? Control Data? Burroughs? Kodak? These are companies that wouldn’t adapt to disruption. A bunch of familiar car companies will likely be added to the 2030 edition of their book.