Bad Strategy Will Kill Some Carmaking Giants Soon
Feb 15, 2019 Dr Peter Harrop
Bad strategy rather than tactics, such as misjudged new models, will kill several major automotive companies. They face a perfect storm of peak car, totally new technology, totally new markets and recession.
In the past, giant corporations have successfully reinvented themselves in a remarkably short time. IBM appropriately flipped from computer box shifter to systems and services. It took write-offs and sold its laptop business. Rolls Royce in aeroengines leapt from the little car company.
Compared with that, most of today's automakers are suicidally timid right now. Those in denial about pure electric vehicles hope they are buying time with 48V mild hybrids but all too often the ones they make have diesel engines! Indeed, Jaguar Land Rover has gone from one of the world's most profitable car companies to billions of dollars in losses by trying to sell mainly diesel throughout its range, oblivious to diesel becoming a four letter word.
Some are strongly backing both pure electric and fuel cell hybrid vehicles, with billions of dollars. Will that leave their pure electric thrust underfunded compared to more focused competition? And prioritizing cars for both powertrains? Oh dear. Most seem in denial about peak car and the inevitable peak electric car that will follow.
These threats are being pulled much nearer by a host of escalating negatives, including the drop in young people getting driving licenses or being able to afford a car. As they move to cities, their disposable income vanishes into rent.
Indeed, the UK and much of Europe has already reached peak car. In 2018, echoing long term trends measured in North America, a UK Government-backed study revealed under a third of those aged 17-20 hold a driving license, down from nearly half in the early 1990s.
Car usage is also significantly down but not primarily because of increased use of public transport. Likely causes include "long-term change in the nature of employment" together with "increasing use of smartphones and computers". The driving test increases in difficulty, the cost of driving grows, and young people living with their parents for longer than they used to were also cited as possible reasons.
The tsunami builds with the US-China trade war and the US being on a sugar rush from a borrowing splurge at the top of the cycle.
Those primarily making cars should be terrified but not surprised. Both RethinkX and Barclays Research predicted global peak car as early as 2022 or so, and the new negatives make it possible they will be right, partly for new reasons.
Belatedly, investors wrote down auto company valuations by $100 billion recently. Particularly hit were ones late into robot vehicles and pure electric vehicles.
No traditional car maker is rapidly pivoting into other activities leveraging their skills. It is challenging because no emerging EV sectors are big enough to replace the huge car market: automakers have to select and win at several taken from, for instance, electric aircraft, buses and trucks, energy independent boats, solar agribots which are likely to be triple the volume of e-bikes in 2029 (according to IDTechEx Research), unmanned mining that arrived for the first time in 2018 or
mobility for the disabled including exoskeletons. Another example is electrified construction vehicles.
Much is made of Beijing being entirely on battery buses now but even the Chinese still make two internal combustion buses for every battery bus. Around 1.5 million school buses will be electrified worldwide when the price is right thanks to someone innovating with "born electric" models.
There are plenty of potential acquisitions. Look how diesel maker Cummins is urgently reinventing itself in the electrical component space with a string of acquisitions. Axletech launched a full range of e-axles in only one year, targeting heavy commercial vehicles not facing peak anything. Contrast some carmakers merging on the false premise that two turkeys make an eagle.
To survive in cars, you need to succeed in energy independent solar cars (Lightyear, Sono, Hanergy etc.) and the car derivative called the robot shuttle. You must lead in key components such as power electronics. Competitors of Tesla have struggled to match, let alone beat its powertrain efficiencies: its reinvented motors have proved tough to match. See the IDTechEx Research report, Electric Motors for Electric Vehicles Land Water Air 2019-2029.
Robot shuttles are all much the same. Where are the smart windows making electricity and displaying moving colour advertisements (see the IDTechEx report on smart glass), supercapacitor and solar bodywork to name but a few? Tesla reportedly promises a high density midi bus with no aisle. Perhaps that means one side is an enormous falcon door opening to rows of four seats each and no driver? Made out of smart glass it would not be claustrophobic. Now that would show innovation.
Seven car makers are strongly developing solar bodywork. Five Tier One suppliers have bought into advanced motors and their controls. The Chinese are buying technology companies with the appropriate fervour but strategy and courage are notably absent in most of the auto industry.
IDTechEx has long pointed out that the electric vehicle business embraces land, water and air with new sectors enjoying around $50 billion sales appearing all over the place by 2029. Some participants are entering "left field" such as Komatsu introducing massive pure electric mining trucks, supercapacitor regenerative braking of vehicles and their implements and other new electric technologies right across the construction, agriculture and mining EV sectors. Such powertrains can then be applied elsewhere. See the IDTechEx Research report, Electric Vehicles in Construction, Agriculture and Mining 2019-2029.
Making just a more luxurious version of a Tesla, Nissan, SAIC or other winning pure electric car but with shorter range is a death wish that we see played out every month nowadays.
Daimler is the world's largest truck maker. IDTechEx calculates that there are ten times as many trucks as buses in the world and the technology is just coming right for them all to be electrified. So why has Daimler let start up Nikola create the biggest orderbook for an electric Class 8 truck followed by Tesla? Daimler has lost market share in buses for years and its Mercedes division is late into autonomy and electric cars. So where are the strategy, the necessary write-offs and the bold acquisitions taking it into the future?
The IDTechEx conference Electric Vehicles: Everything is Changing, held on April 10-11 in Berlin, explores opportunities across the entire electric vehicle spectrum. The focus is the fastest-growing alternative electric vehicle segments, from boats to bicycles, as well as the technologies adding the most value as batteries become commoditized: electric motors and power electronics.
What is the tick list for a future survivor in the auto industry? Maybe a start could be:
1. Strong position in quite large EV growth markets such as construction, agriculture, mining, urban transport beyond cars, aircraft, boats, ships.
2. Speed in going 100% pure electric.
3. Autonomy leadership - creative application in new sectors as much as technology.
4. Strong balance sheet (sorry Tesla).
5. In fast growing EV sectors where China is never going to be the dominant regional market.
6. Inside the massive, protected market of China which took a rare breather in 2018 with a 3% decline in car sales, its first drop since 1990, but still 28 million units compared to 17.27 million for the USA at number two.
For more information on IDTechEx's comprehensive research on electric vehicles, off-grid energy, energy storage, materials, robotics and more contact the research team at research@IDTechEx.com or visit www.IDTechEx.com/research/ev. IDTechEx guides your strategic business decisions through its Research, Consultancy Events services, helping you profit from emerging technologies. Find out more at www.IDTechEx.com.
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