More than 100 years after the petrol-powered car passed go for the first time – and despite worldwide sales at a record high in 2018 – stress fractures are starting to appear.
Tesla is on track to outsell both BMW and Mercedes-Benz in the US, car sales in China are declining for the first time in decades, and several automakers have issued profit warnings in recent months. Indeed, the industry is facing unprecedented change across a number of fronts.
People’s expectations of mobility are changing – they increasingly value the concept of sustainable living, and are embracing a pay-per-use and sharing economy. As a result, car ownership continues to fall in cities around the world. Instead, they are using ride-hailing services, scooters, and bikes offered by the likes of Uber and Bird.
Last year saw over half a billion people use some kind of ride-hailing service, providing the autotech sector with its most prominent successes: Uber and Chinese firm DiDi both reached valuations of over $50bn.
At a political level, governments are increasingly concerned with the wellbeing and protection of vehicle occupants and vulnerable road users. At the same time, pressure to limit the environmental impact of road transport is mounting, as illustrated by the introduction of emission targets, ICE bans, and subsidies for electrified vehicles.
The real revolution, however, is driven by tremendous progress in terms of enabling technologies, which are providing the foundation for connected, autonomous, shared, and electric driving platforms.
These technologies have involved huge advances in artificial intelligence, computer vision, and sheer computational power.
Over the next 10 to 15 years, these trends are set to converge and potentially change the industry forever. Profits will be redirected to areas where carmakers lack prior knowledge and experience, while investment will be routed towards new technology. On top of this, Boston Consulting Group estimates that the average profitability of classic components – the key offering of car manufacturers – will only increase by three per cent to 2035, while on-demand mobility is set to increase 76 per cent over the same period, and data and connectivity by 27 per cent.
Meanwhile, of the 56 companies who obtained a permit to conduct autonomous vehicle tests in the state of California, an astonishing 71 per cent are tech native companies, from the FAANGs to innovative startups such as Drive.ai, Zoox, and Pony.ai. The tech giants have begun to establish themselves in the automotive space, and much like the bank versus fintech battle of the past decade, tensions are building between traditional car manufacturers and tech companies.
However, don’t write the automakers off just yet. Especially in the luxury car segment, their hold on the end customer remains powerful, and so is the cost advantage that they derive from a century of experience with mass production. They’ve reacted with energy: investing billions in research and development; restructuring and breaking up operations; spinning off their mobility units; taking stakes in upcoming players; and engaging in full-scale acquisitions. They have also proven increasingly adept at partnerships and alliances, willing to relinquish a portion of their value chain in order to keep their essential control of the consumer and their own brands.
More than anything, success will depend upon the ability of the incumbents to effectively change corporate culture. They must create a brand and working environment that attracts top software talent who are otherwise destined to join the Googles, Facebooks, and Amazons of this world.
If they do this, the mother of all tech battles may not unfold, but one thing is certain: we are about to see the most fundamental change in terrestrial transportation since combustion engine vehicles replaced horse carts.
Fasten your seat belts.