Preparing For The Great Auto War

The age of the internal combustion engine is ending. Now what?


The internal combustion engine’s days are numbered, and what comes next is going to cause one of the biggest upheavals in the history of business.

Before semiconductors and electronics, it was the auto industry that defined economies of scale. In fact, the auto industry became the model on which the entire electronics industry was built. It always was assumed that the mainframe, minicomputer, PC and smartphone markets would consolidate into two or three giants of industry, followed by lots of smaller players around the edges, just as the auto industry

A century later, it’s chips and software that are defining cars, and the traditional auto industry is trying to figure out if they can take on Tesla, NIO, and a handful of other startups using the same model that worked for them in the past with a different fuel source. Tesla, NIO, and all the rest are betting heavily they can’t.

It’s no coincidence that Tesla announced it is opening a €4 billion factory in Grünhelde, just outside of Berlin. For the majority of drivers in Germany, as well as the rest of Europe, being able to travel 300-plus miles on a single charge is probably enough to satisfy most consumers. If there are enough charging stations available, a battery electric vehicle is a very workable model.

Traditional German, American and Japanese carmakers were shocked at the rapid ascension of electric vehicles, and they remain wary of the upstart Tesla and Chinese startups. But at a time when global warming is dominating headlines everywhere, the automotive industry is under extreme pressure to rapidly clean up its act — literally. Their first foray into cleaner fuel with plug-in-hybrids was a baby step in the right direction, but it barely got commuters to and from work on an overnight charge. So when Tesla countered with its Model 3, which was priced competitively against those plug-in hybrids, panic ensued, alliances were quickly formed, and battle lines were drawn.

And this is where we are today. On one side are the battery electric vehicles. On the other are an increasing array of alliances built around fuel cells and hydrogen fueling stations and an array of plug-in hybrids. The question that hasn’t been answered yet is what consumers really want, how much they’re willing to pay for it, and which side can build out the infrastructure fast enough to support their different models.

This isn’t just about cars, either. It’s about trucks, industrial equipment, and just about anything that moves. And it’s about government subsidies, regulations, and potentially future car ownership models.

In the past, wars were fought over fuel, and they were won by those with access to that fuel. In the future, the mobility economy will be built around power, power efficiency, and communication. These are completely new building blocks from entirely new sources, and it’s not clear which model will win where.

Still, the stakes are enormous, and just because companies were successful in the past doesn’t mean they will do well in the future. It’s not even obvious that any of the companies on the automotive landscape today will survive in their current form, or that building vehicles will be the most lucrative piece of the business.

Tesla has pushed the industry into high gear. Whether the final result will ultimately look like a car or some electronic instrument developed by Google/Waymo, Apple, or some other company that still has yet to surface is unknown. But the bets being made are huge, and one miscalculation could have significant repercussions.


realjjj says:

Look at Tesla’s Cybertruck, it’s by far the best value Tesla because of the load bearing exoskeleton.
6 seats, lots of secured storage, tough skin and glass, no paint, adaptive suspension and ofc everything else Tesla vehicles offer while starting at just $40k. Same price as Model Y or Model 3 Standard Range Plus.
They got costs way down and the tough exterior lowers operating costs too. They design the powertrain for 1 million miles, the stainless steel does not rust.
What if they apply this to vehicles designed for car as a service?
They are also pushing range and charging, another 2-3 years and likely all their vehicles will offer options for 500+ miles of range.
They shine in product design, they aren’t afraid of risks and have they lead in technology. Google/Apple can’t imagine a decent phone, other car makers want to sell ICE for another 30 years by keeping EV range and charging at low levels and spending little on R&D by abusing Gov subs.
Show me a large car maker ready for 1 TWh of battery cell production in 2025 and I’ll take them seriously. They are not afraid of what’s ahead yet, they are hoping for a slow ramp and minimal disruption. They need 2-3 more years before they start to freak out and begin to accept reality.

Gilles CDN says:

The history of the automotive industry is almost the same than the one of Kodak…

Fred says:

Question: where do all the used tesla batteries go for recycling? disposal?
Answer: Into a warehouse for now because it is technically impossible to recycle them or they become hazardous waste needing containment for 10,000 yrs (current US law).
If you build that cost into their cars (which the consumer will pay) they are $100k golf carts.

Marc-David Levenson says:

Remember that most electricity today is made by burning SOMETHING, somewhere. Doing it in a hybrid car may well be the most ecologically sensible thing to do – except possibly for the fuel manufacturing and distribution problem. But if the tanker trucks are electrical or hybrid….

Ryan says:

Nice article Ed, and much food for thought.

Michael Mingliang Liu says:

Glanced at Tesla’s stock price recently and began wondering if its EPS curve would tell a story that resembles Amazon’s (circa. 2008-2018).

Elon Musk has definitely pushed the automotive industry into high gear, especially with that risky (but still, successful) production ramp of the “Model III”.

Not sure about the Great Auto War, though. Unless Jeff Bezos would enter this arena riding his Amazon Engine.


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