New Technology Threat To Traditional Auto Industry.
“The challenge this time is no longer financial or operational. New entrants are posing an existential question”
While auto industry chiefs bragged to the Detroit Auto Show about how wonderful are the industry prospects in general, and their new cars and SUVs in particular, German consultants Roland Berger warns of the gathering storm building in the West.
Roland Berger Senior Partner Thomas Wendt said the auto industry and its suppliers faced a life threatening challenge, again. After being blind-sided by the financial crisis of 2007, now it is the threat from Silicon Valley technology giants about to pounce.
“Looking back to 2007, it is hard to avoid a sense of déjà vu – the industry is clearly not “playing safe” any longer and though it may not recognize the fact, it’s (yet again) on the verge of a life-threatening challenge,” Wendt said in a report.
“The challenge this time is no longer financial or operational in nature. New entrants and disruptive technologies are posing an existential question regarding the business model of incumbent suppliers,” Wendt said.
Wendt said disruption from automated driving, connectivity and new mobility are converging, shaking up the automotive landscape and traditional value chains. At the same time, technology companies which have disrupted many industries over the last 10 years are now knocking at the doors of the automotive industry, he said.
Morgan Stanley auto analyst Adam Jonas has returned from the Consumer Electronics Show (CES) in Las Vegas with some disturbing thoughts about how “deep technological changes” will transform the automotive business model. But he does see some opportunities for a few winners amongst traditional incumbents.
Jonas said traditional auto firms who see the new technology dangers may be in danger of making panicky, ill-thought through investments. Others, given that they have nearly 100 per cent of their human, intellectual and physical capital devoted to a 100 year old model of human driving, private ownership and internal combustion engines, by partnering with non-traditional and software players might actually stimulate what could be fatal disruption.
“Surely not everyone can win. The question in our minds is, can anyone win,” Jonas said.
These were some of Jonas’s conclusions from CES –
- The race to develop an electric car is intensifying despite the drop in fuel prices, highlighted by GMs announcement its affordable, claimed 200-mile range Chevrolet Bolt will reach market about the same time as the Tesla Model 3.
- GM and Volkswagen’s deal with mapper Mobileye shows more evidence the industry model is shifting from units sold to miles travelled.
- The Connected car has overtaken Infotainment as an industry focus.
- Active safety, autonomous, and connected car developments will have a extra pay off by cutting costs and raising fuel efficiency.
BMI Research, in its daily industry report, cited General Motors long-term deal with ride-sharing company Lyft as an example of the kind of deals to be expected.
“We believe this recent agreement is symbolic of future mobility operations. Automakers need to tap alternative mobility markets given that failing, or at least plateauing, ownership rates across the developed world will continue to limit opportunities for expanding sales through traditional market channels,” BMW said.
GM and Lyft, in theory, will eventually introduce fleets of on-demand autonomous vehicles.
Roland Berger’s Wendt said technology giants are innovating at 10 times the speed of the automotive industry, creating new expectations for customers.
“While an average vehicle goes through one lifecycle, a smartphone typically cycles through up to 10 generations. With players from Silicon Valley increasingly active in the automotive space, the question arises whether there is a meaningful future role for traditional auto suppliers at all,” he said.
So are automotive leaders in Detroit guilty of replaying their version of Emperor Nero fiddling while Rome burns?
“Fortunately, for traditional players there is still time to “reset” and start from a clean slate. The challenges ahead are manageable – but only with the ambition to go beyond traditional dynamics and behaviour,” Wendt said.