I took a 13-year time-out from my 40+-year career in autos to run a tech company. (With impeccable timing: I joined the company in December of 1999 …)
In that position, I spent countless hours pondering how the industry might evolve—especially the result of new entrants with new business models, and how we might stay ahead of the curve. (Or better yet, be the ones driving change.)
Historical Disruption in the Automotive Industry
Compared to tech, the automotive industry traditionally seems to be an island of stability with just a few periods of rapid change. For example, early in the last century, Henry Ford introduced mass production and the Model T. This vehicle was offered at a dramatically lower price than competitors’ vehicles, and a vast new market was created.
A more recent example: In the 1970s, oil shocks, a wave of aggressive safety and emissions regulations, and persistent inflation left the “Big Three” American manufacturers flat-footed. The Japanese manufacturers did not waste this opportunity.
Fortunately for automakers, these types of marketplace disturbances have been few and far between, but this may be changing.
Modern Disruption in the Automotive Industry
Once again, we are going through a period of accelerating change. As in the ’70s, we’re facing oil price shocks, aggressive regulation, and inflation. Unlike the ’70s, we’re also contending with a war in Europe, a global pandemic, and emerging technologies that may well (mostly) replace the internal combustion engine (ICE).
Core to this technology change is the introduction of electric powertrains, which are vastly simpler than ICEs to manufacture—and service. With regulatory support and (sometimes) tax subsidies for these technologies, new manufacturers have been encouraged to enter the market. Many of these hail from the tech world and, along with their very different cultures and mindsets, see the marketplace in novel ways.
Tesla has been the best example. Each of its models is a tech platform that happens to provide transportation. Tesla provides performance updates when ready as over-the-air (OTA) software patches and often introduces entirely new features. Wanting to deliver an integrated customer experience—shopping (mostly online), delivery, and ownership—Tesla has gone to great to lengths to control the experience both online and in person.
Rewriting the Rules of Disruption from the Business Model
From a marketing perspective, Tesla is an Internet native. It has no PR department, and its marketing budget is minimal. Like Apple, Tesla leverages the hype around product introductions (and maybe its co-founder’s public persona) to maintain customer interest.
In fact, if we were to brainstorm how Apple might enter the auto business, the model we would describe would probably look very much like Tesla; except Apple is not a manufacturer. It researches and designs a product and controls the customer experience but doesn’t manufacture anything.
So it’s interesting that Sony (arguably the Apple of the ’80s) has announced its Vision-S: an electric vehicle that will actually be built by Honda. And Foxconn—already a major manufacturing partner for Apple—is taking steps to be ready to build vehicles.
In this emerging world, critical skills that yield brand differentiation are more about software-supported experiences and design. Manufacturing, not so much.
Legacy vehicle manufacturers are not oblivious to these challenges, and they benefit from some inherent advantages: lots of experience in manufacturing complex products in a heavily regulated marketplace, a demonstrated history of profitability and the ability to raise capital when needed, large R&D budgets, long histories building storied nameplates, and large retail footprints.
But it would be a mistake for them to sit back and wait for the new entrants to self-destruct. (Although even Tesla could hit a wall.) Technology is changing rapidly and along with it, consumer preferences. This will be true even if these newer businesses fail.
For legacy automakers—even with their advantages—the threat is real. After all, they have built entire organizations around developing, supporting, and profiting from a particular business model. Ideas that haven’t supported this model get killed.
Yet many of these nonconforming ideas are now precisely the ones that need to be taken seriously.
Support, however, will be hard to garner. As Machiavelli noted in his famous remark, proponents of change have tepid support whilst enemies are fierce and widespread. (I have simplified the quote for brevity. The original is much longer and more eloquent.)
Having pointed this out, there are many cases of “legacy” companies that faced the threat of change head on and went on to achieve new levels of success. I’ll look at key examples, then analyze the steps they took and what it all means for automakers in future blog posts.
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