Cars have always been sexy. But now the worlds of automotive and technology are colliding, the future of the car has become a universal obsession. While the “new, new thing” is undoubtedly driverless technology, Fidelio argues human intervention has never been more critical. Cars may be autonomous; leadership and innovation is not. The winners of this epic battle for the future of mobility will be those with the best access to exceptional talent.
Battle for the Future of Mobility
The automotive industry which has been with us in its current form for over a hundred years is now subject to extraordinary disruption. The internal combustion engine, clearly one of the enablers for automotive industrialization, is under challenge from electric vehicles. Tesla, Elon Musk’s vehicle for electric mobility, manufactures some 80,000 cars a year, and has a valuation of ca. $54 billion, which is akin to that of GM, until recently the world’s largest manufacturer, producing just shy of 10 million vehicles.
But it is not just the source of energy powering the car that is under challenge. Today’s automotive sales are targeted predominantly at the driver. In the 20th century learning to drive was a rite of passage denoting freedom and autonomy. Indeed German car manufacturers took the experience to a different level with “Fahrvergnügen”, which exists elsewhere in the world, but is sweeter in Germany with stretches of the Autobahn free from speed limits.
But Silicon Valley is much less excited by the human activity of driving, and driverless cars are the goal of a number of technology behemoths ranging from Google to Uber.
Disruption has arrived and the capital markets have seemed very happy to give the benefit of the doubt to the technology giants rather than traditional car manufacturers; witness the respective Tesla/GM valuations. But over the past 12 months greater circumspection has crept in and in this Overture we argue the outcome is less clear-cut and that, ironically in a battle for autonomous driving, the quality of human intervention will be key.
“Talent is extremely important. It’s like a sports team, the team that has the best individual player will often win, but then there’s a multiplier from how those players work together and the strategy they employ.”
Elon Musk
100 Years of Automotive History
Firstly, while the technological possibilities of a new form of mobility are tremendously exciting, there is historical precedent. Consider the transition from horse-drawn vehicles to cars powered by the combustion engine. We may well think of the combustion engine as a major contributor to global warming, but in 1894 The Times of London wrote that London would disappear under 9 feet of horse manure unless action were taken to curb this mode of transportation.
The industrialization of the manufacturing process, made possible by the introduction of Henry T Ford’s production line in 1913, led to the ascendancy of the automobile. This both addressed the horse manure question and also profoundly altered both cityscapes and behaviours. But in the early days cars looked very like carriages, just minus the horse. A visit to the Audi Museum in Ingolstadt demonstrates some of the beautifully crafted early 20th century cars, which aesthetically harked back to a horse drawn era while simultaneously heralding new engineering possibilities.
Thus we have dealt with major transitions in technology before. Most of the major car manufacturers do have historical perspective and understanding, not least because this frequently underpins the brand.
The Incumbents – Set to Fail?
While we now have a handful of global players and an extraordinarily integrated and complex global supply chain, one hundred years ago the car industry was completely fragmented. With all the new players coming on the market today, including from Silicon Valley and China, we are looking at another period of great disruption and innovation that will probably be followed by significant concentration.
The media narrative focuses on the newcomers to the automotive sector, but the incumbents have not been asleep at the wheel.
Most of the major European OEMs now have clear goals on electrification:
• BMW targeting a 50% rise in electric car sales in 2018;
• Volvo has pledged that 50% of car sales to be electric vehicles by 2025;
• Volkswagen aspiring to sell three million electric vehicles by 2025.
Indeed, this highlights a key aspect of the struggle for capturing value in the car industry of tomorrow. Autonomous driving and electric vehicles point to a brave new future but in truth much of the technology has been with us for some time.
For the past 15 years there has been much discussion in the automotive sector about driver assisted technologies and alternative power trains. Major obstacles remain legal frameworks for new technologies, as well as infrastructure, including electricity grids, that is still inadequately equipped to support large fleets of electric vehicles.
But now, almost two decades later, the political will seems to be there to tackle both legal frameworks and infrastructure challenges. This certainly creates opportunity for new players, but remember the traditional car industry has also been mulling these problems, and potentially can also bring very valid solutions to the debate.
And finally, disruption clearly has implications for jobs:
• One in seven jobs in Germany are dependent on the automotive industry;
• An estimated 5.5 million people, or almost 9% of Japan’s workforce are employed in automotive manufacturing and related industries;
• In the UK the automotive industry is a vital part of the economy too. With almost 1 million people employed across the wider automotive industry, it accounts for 12% of total UK export of goods.
Brexit will clearly impact the sector. Given the political instability we are already seeing in the major Western economies through the threat of trade wars, it is unlikely that governments will lightly allow wholesale disruption of these major sources of employment. It is more likely that at least some of the traditional players will be given scope and time to develop new technologies to secure at least a portion of employment.
So there are a number of reasons why the major automotive manufacturers should not be written off in this battle for autonomous vehicles and alternative power trains.
Incidentally we have not touched upon good old manufacturing skills, including safety standards. This is clearly a trump card for traditional manufacturers recognised by the public for strong engineering capability as well as a commitment and track record on safety; whereas some newcomers do seem to be experiencing quite significant production challenges even if the demand is there.
The Challengers – Set to Succeed?
But what technology brings to the table is agility and the ability to come up with very fresh thinking:
1) What happens if millennials lose interest in cars as a primary means of mobility?
2) What happens if China or India introduce game changing regulations in a big conurbation that catapult one technology ahead of all others?
3) And perhaps the gravest challenge of all, what happens if the real value in the automotive industry is gathering data rather than providing mobility?
The prize is very great and the battle is being hard fought. Within the automotive sector the most sought after talent is digital. We see all the major manufactures working hard to attract fresh thinking and experience from Silicon Valley. The process is not always smooth as the structures and cultures are very different but pressure has built and the car industry is very much opening itself up to being disrupted from within.
“You are cruising along, and then technology changes. You have to adapt.”
Marc Andreessen, Washington Post
Innovation + Attracting Digital Talent
Until recently digital thinking and expertise within automotive OEMs was found in small pockets of R&D and tucked away in the social media team within the Communications function. Now it is re-wiring operations and driving innovation.
The competition for digital and technology talent with the automotive industry is intense. Those with technology skills have many career and entrepreneurial opportunities. The automotive industry is not always their obvious home. This also explains why major global OEMs have been investing in and acquiring technology companies. It’s about the technology but it’s also about the talent.
And the complexity extends beyond technology. The debate that rages as to which of the five levels of autonomous driving will prevail will not be resolved by technology alone. Level 5 is complete autonomy and requires the vehicle and its programmers to address the so-called “Trolley Problem”: if the car must decide between running over children, elderly people or crashing with the passenger inside, how does it process the legal and moral choices? What right and judgement does the programmer have to predetermine these outcomes?
Technology + Leadership = Success
Technology companies are now bumping up against the moral responsibilities that have been created by technological advance. For companies to succeed as the providers of mobility in the 21st century, they will need access to the smartest and most innovative digital experience. But equally the winners will also have Boards and leadership teams that are comfortable with ambiguity, understand the importance of engaging with key stakeholders and are able to translate vision into execution and delivery.
Fidelio is focussed on building highly effective, multi-disciplinary Boards and leadership teams in the automotive sector. Get the people right and the driverless cars will drive themselves.
For further details of Fidelio’s Search, Evaluation and Development offering please contact Rebecca Davies on rdavies@fideliopartners.com.