The world is changing. It always is, but the change is particularly dramatic right now in certain technology sectors. To a normal person’s eyes, changes in the auto industry may seem only incremental. Cars are getting a bit more “connected,” more people are using 21st century taxis from Uber and Lyft (please don’t call this ridesharing), and some people are driving electric cars. But we ain’t seen nothing yet.
We’re on the precipice of two massive shifts in the auto industry — massive shifts. These are not incremental shifts in the market like hybridization and SUV/CUV obsession. These are shifts that, unlike those, essentially kill the biggest competitive advantages of conventional auto companies.
Robotaxis / Robocabs
Basically, the highlight in that chart is that Roland Berger expects private car ownership to plunge by 2030 and the use of robotaxis to surge.
Large auto companies can buy the leading startups in self-driving cars (and try to buy Lyft, Uber, etc.), but it doesn’t change that there’s expected to be a massive drop in the number of cars sold each year. I don’t think people who have invested in Volkswagen, GM, Toyota, BMW, Ford, Nissan, etc., would be excited to see such a massive drop in the production of cars — I assume once signs of this transition become more obvious, many will bail and leave the auto giants to fend for themselves among the remaining scraps.
As the two links above show, GM has been quick to go after this market with big money, and that was probably the smartest thing it could do up till now. BMW, Volkswagen, Ford, and others have been making their moves as well.
Ford has predicted that self-driving cars will be produced in high volume by 2021. Mobileye + Delphi are aiming for 2019. Tesla CEO Elon Musk recently said this future was coming a “hell of a lot faster” than you think. If that’s the case, I think large automakers need to pivot much faster, and I’ll explain what I mean after the section on electrification.
First, though, why is this a massive shift in the market, not just an incremental improvement? It’s massive if what Elon Musk is targeting comes to fruition (bolding added by me):
When true self-driving is approved by regulators, it will mean that you will be able to summon your Tesla from pretty much anywhere. Once it picks you up, you will be able to sleep, read or do anything else enroute to your destination.
You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. This dramatically lowers the true cost of ownership to the point where almost anyone could own a Tesla. Since most cars are only in use by their owner for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.
In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are.
Let’s just be absolutely clear what Elon said there:
- With a self-driving Tesla, you could potentially make more money letting other people ride in it as a robotaxi (when you aren’t using it) than it actually costs you to pay the monthly lease/loan.
- As such, almost anyone could afford it. (If you can’t qualify for a lease/loan and don’t have the money for an upfront purchase, it seems you’ll be out of luck.)
- This will make the car so much more valuable than a normal car that (I think) it is likely to eat up the normal-car market as quickly as production of these vehicles can be scaled up.
So, there’s that.
Electric cars have numerous advantages over gasoline cars, but upfront costs, lack of consumer awareness & experience, and limited public charging have all been barriers to widespread adoption. These things have all been changing fast, and we are on the edge of this kind of a breaking point, imho:
The Tesla Model 3 got >100,000 reservations sight unseen and now ~400,000 reservations >1 year before production for a reason … or 30.
The auto industry can ignore that for a short time longer, as its competing models’ sales drop and depreciation increases, but the delay tactics won’t work well for these companies for much longer, and they better be ready to pivot.
However, as I think I explained well enough a couple of weeks ago, these auto giants are basically sandwiched between jumping off a cliff and falling into a volcano. I understand that some people disagree and think that targets like this from Volkswagen are good enough. Maybe, but I think that is basically the “get ready to jump off a cliff” approach. What will happen when consumers realize that those electric cars are actually much, much better than the gasoline and diesel cars Volkswagen offers? What will happen when the inflection point highlighted in the chart above makes electric car sales not climb slowly from 10% to 25% of its sales but surge quickly to 50% of sales? What will happen to the finances of these auto giants, who aren’t yet ready to write off their legacy engine factories, engine expertise, and other sunk costs?
What will happen to the companies that are even less prepared for a disruptive shift to much better electric cars?
The Only Solution I See
For both of these dilemmas, the situation reminds me very much of what we have seen in the German electricity sector, except I think it’s even more disruptive to the established industry.
Just 5 years ago, if you asked an industry insider, “How will RWE & E.ON survive the growth of distributed solar power?,” the response would probably be something like, “What are you talking about? They’ll be fine.” These utility giants, however, weren’t fine. In 2015, E.ON and RWE were in internal crisis and announced that they were spinning off companies that would be focused on renewables and prosumers. Or, put another way, they were spinning off the fossil- and nuclear-dependent parts of their businesses, planning a divestment exit strategy, and ready to let them die a slow (or not so slow) cancerous death.
Tesla is basically lined up to sell millions of Tesla Model 3, Tesla Model Y, Tesla Model S, and Tesla Model X electric vehicles per year in a handful of years. It survived the Startup Valley of Death. Those millions of vehicles are going to come from somewhere. Other outsiders are also moving into your market with billions of dollars backing them. How else are you going to maintain corporate viability and become a leader in the self-driving EV market while trying to prevent a terminal dirty car industry from impending death?
I’ll try a little metaphor: Imagine you have a great little home office where you are starting to do some cool work, but your house is on fire. Do you assume a magic force field will protect your home office from the fire, and you can just continue working there as your house turns into ashes? No, you get yourself and the valuables out of the house as quickly as possible and start a new home office. Putting more insulation in the walls of the original home office (ahem, BMW i) and hoping everything will work out fine just doesn’t cut it.
In my opinion, the fire is just beginning. These executives at these auto giants should be aware of it, but maybe they aren’t. If they’re aware of it, I think they have one strong solution in front of them. Spin off the EV and self-driving car portions of their companies. Create an exit strategy from the currently functioning portions of the home that will in short order get burned to ashes by a quickly transitioning market. Try to make sure your spinoff has everything it needs to compete with the likes of Tesla Motors, Apple iCars, Google Bubbles, Faraday Future Pods, Samsung EVs, LG Cars, etc. Get back to the cutting edge as quickly as possible and hope for the best.
It’s easier to deal with the transition when the fire is small rather than when the fire is already hitting your home office.
That’s my advice. Consider it free. (Though, we do accept advertising money if you’re genuinely helping to speed up the cleantech transition.)