Who has the upper hand in the auto industry of the future, startups or established companies?
CES and the North American Auto Show are fading from view. As expected, both events generated media coverage about jockeying among traditional tier 1/2 suppliers and tech companies for supremacy in the new auto supply chain, being turned upside down by the pursuit of autonomous vehicles, electrified powertrains and the like. And while there were some interesting early 2017 announcements (Amazon’s Alexa coming to Ford and Volkswagen stands out), one of the biggest auto tech stories of the last several months remains the Bolt EV, which famously beat Elon Musk and Tesla to the affordable long-range punch.
Kudos to GM for the achievement, which earned the sorts of accolades and positive earned media that amount to unicorn events in the realm of marketing. (You can’t buy New York Times headlines like this: “How Did G.M. Create Tesla’s First Dream Car?”) Surely one conclusion is that the Bolt is a triumph of GM’s size and operational efficiency honed over decades, which none of the upstarts, Tesla or otherwise, will be able to match anytime soon. But there’s another perspective, one likely to cause consternation in downtown Detroit — the Bolt and the lineup of electric vehicles coming from most of the big automakers may be impressive engineering achievements that simultaneously reflect just how hard it is to deliver on customer preferences, very different today than even a few years ago when work on the Bolt started.
Just how you see the Bolt says a lot about what you think is happening in the auto industry today, and who has the upper hand for the future.
At least some of the attention the Bolt has received is due to schadenfreude about Musk, endlessly fascinating to the press. For years the billionaire wunderkind has single-handedly outdone the marketing departments of the world’s big automakers though may also have established a pattern of overpromising and under-delivering, at least according to critics. Back in 2006 with GM facing financial crisis, Musk blogged about his plans to eventually build affordably priced family cars. A decade later it was a post-bankruptcy and very profitable GM that got there first, while Tesla faced headwinds ranging from issues in the supply chain to balance sheet woes to the first Autopilot accidents.
GM is not alone in the embrace of electrics. Most of the big OEMs have well publicized plans to add electric vehicles to their product mix. Before Volkswagen’s Alexa announcement in Vegas came word it would produce 20 new models of electric cars by 2020. Indeed, pick nearly any major automaker, do some Googling and it won’t take long to land on promises of big slates of EVs coming soon.
There are any number of electric vehicle newcomers, as well. I recently blogged about EV startup activity around the world, momentum that’s also apparent when considering the many billions of dollars of venture capital and private equity chasing clean energy deals, especially EVs and storage. And there are even a handful of established companies with roots in entirely different industries that have found the electrified religion.
Swiss watchmaker Swatch is considering entering the EV market with new battery technology developed by its Balenos Clean Power subsidiary and British vacuum cleaner manufacturer Dyson has secured government funding to develop a new electric vehicle at its headquarters. (One of my marketing staffers with young children wonders if Dyson’s vehicles will ship with self-vacuuming carseats.) It’s not hard to locate the impetus for electrics. One is better/cheaper battery technology that is fourfold cheaper than in 2008 and expected to fall further. Another are global targets for reducing carbon emissions.
In December 2015, the UN Paris climate deal was adopted by consensus by 195 countries, including the U.S. and China. An October 2016 PWC analyst note declared that, in response to the Paris goal for a carbon-neutral economy by 2050, “national regulators and vehicle manufacturers are beginning to align their strategies.” Granted, this conclusion may need revision in light of subsequent political developments, notably the U.S. election.
Still, the PWC forecasts — shipments of vehicles with various types of electric powertrains to increase by more than 500% between 2015-2020 — suggest a trend that may defy gravity, or at least nationalist political movements and Twitter rants. Also noteworthy are anecdotes from rich European countries like Finland, where a fully a third of all new vehicles are electric. (Finland, most stories about its EV leadership note, relishing the irony, is also one of the world’s leading oil producers.)
The bottom line, at least when it comes to EVs, is that it’s no longer a question of whether electrics will ever enter the mainstream but rather how rapidly EVs will be adopted by global markets.
Potentially more worrying to GM than all the EV competition is the bigger and much more obvious way the auto tech narrative has changed in the last decade. When the Roadster was introduced in 2006, reviewers focused mostly on speed and performance, likely influenced by a long tradition in advertising by car companies. As just one example, check out the lead from a July 19, 2006 introduction of the Roadster by Matthew Wald in The New York Times:
“In a new approach to making the electric car a mass-market product, a California company will unveil on Wednesday a model that is very specialized, very expensive and very, very fast…[The Roadster] goes from zero to 60 miles an hour in four seconds, ‘wicked fast,’ said the company’s chairman, Martin Eberhard. Because it is an electric, the driver does not have to shift into second gear until the car hits 65, he said.”
The only question bandied about back then, on Musk’s blog or in the Times, was whether prices would drop enough due to innovation so that an electric vehicle that was affordable, convenient and with reasonable range could be built/sold for the mass market.
Looking at the unending stream of auto tech stories from CES, one can only conclude that the question today is who will figure how to best deliver on promises concerning electric powertrains PLUS a whole lot more besides — like advanced IVI systems, ADAS and eventually autonomous vehicles, and mobility services. In fact, I can’t remember the last time I read an analysis focusing solely on whether electrics might be eventually a reasonable substitute for internal combustion powered vehicles.
The new meme is apparent everywhere, including in the way GM is marketing the Bolt. Yes, the copywriters paid ample attention to the all-electric technology (fast charging, recapturing energy by braking, location-based charging), but as I read it there’s as much or more information on other technologies mostly unrelated to electrification (collision/blind zone alerts, cameras, tablet-like display, etc.)
I live in a high-density neighborhood in downtown Portland. Fred Armisen and Portlandia clips aside, the hipsters, cyclists and vegans are mostly found in other parts of town. Yes, I see more and more electric vehicles and charging stations, including in my building’s parking garage. However a much more apparent trend is the explosion of car sharing and mobility services. car2go, Zipcar and Getaround have long been fixtures here. The most prominent newcomer is Reach Now, which offers short-term rentals of BMWs via smartphone.
Reach arguably flips Musk’s luxury waterfall approach on its head. Musk famously promised that his first high-margin, premium-brand vehicles would fund the more affordable mass-market nameplates that followed. In contrast, Reach is taking a model originally aimed mostly at relatively low-income 20-somethings — hourly rentals of tiny, inexpensive Smart cars — and moving it upmarket to those who demand a nicer set of wheels, including BMW 3 series sedans. Of course there is the ubiquity of Uber and Lyft, which together have trained close-in Portlanders that a low-cost ride is rarely more than five minutes away.
When my director of auto marketing, Andy Macleod, is in town from Austin, Tex., he routinely tells me he’ll “just Uber” to our downtown dinners, verbification that demonstrates the brand’s power. (If our customers, when facing a complex problem in automotive E/E design, say “let’s just Mentor it,” I’ll know Andy is having real success.)
In October, even as GM continued to stack up glowing reviews about the Bolt, Tesla announced that all new vehicles will be equipped with hardware to allow them to be driverless. “Tesla just made it a lot harder to justify buying the Chevy Bolt,” read the Oct. 23 Business Insider headline. The new development — as usual in the case of Musk, faithfully reported by tech media around the world — illustrates a major challenge for traditional automakers, one that goes far beyond marketing. Namely, will they be able to keep pace with customer expectations more likely to be shaped by Silicon Valley than Detroit?
Already there is no shortage of evidence about consumers expressing a preference for lots of car tech over traditionally important features like design finishes. The rub for carmakers is that delivering these new features is difficult, also that problems like buggy infotainment systems can be a major source of frustration for consumers, thus damaging a brand’s reputation built over years or decades.
Beyond the technical challenge of implementing increasingly complex E/E systems looms the cautionary tale of the recent history of IT and the internet. The first wave of these technologies mostly boosted productivity of established companies, but generally didn’t change basic business models. But the next wave was about owning the consumer entry point and commoditizing whatever was supplied from there, first media, then an increasing array of consumer goods and services.
Auto execs are plainly aware of the threat. Among the standout takeaways from KPMG’s 2016 global automotive executive survey is the stunning year over year drop in confidence that automakers will be able to continue to dominate the customer relationship in the age of the connected car: in 2015, 72% of surveyed execs said OEMs “could defend the valuable customer interface against third party competitors from the Information Communication & Technology (ICT) sector”; in 2016, just 33% said the same. A good January 8 overview in The Oregonian of Daimler’s tech investments here in Portland includes this quote by Jorg Lamparter, chief executive of Daimler subsidiary Moovel Group: “If you take these all into consideration this is a pretty tragic picture for auto manufacturers.”
So what is the biggest challenge in auto tech today and does the Bolt address it? Is the main story the race to build an electric vehicle that achieves price parity with comparable mass market gasoline-powered vehicles? If so, then GM is clearly out ahead and the established OEMs are likely well positioned, too. But if the endgame is owning the customer, who increasingly is pondering a whole range of substitutes to affordable internal combustion engine vehicles, and likely doing so through a smartphone screen, then the Bolt’s legacy might be something else altogether.