Disruptors in the Auto Industry? Where?

Transcription

1 Disruptors in the Auto Industry? Where? Implications for corporate strategy and public policy Michael Smitka, Economics Washington and Lee University

2 Title Different 125 Years requires a book Peter Warrian and I do have one out the end of December Very personal Graduated Detroit Public Schools, today dysfunctional 30 years of visiting suppliers: PhD research in Japan, Automotive News PACE Awards Now participate in roundtables for investment banks & analysts Knowledge Japanese, Chinese, NAFTA industries now EU GERPISA research network (Giulio Calabrese edits our journal)

3 Three Purported Disruptors (Battery) Electric Vehicles Tesla held up as an example New technology allowing new entrants who will kick ass Mobility 2.0: Monetizing $3 trillion in idle assets Uber, Lyft, Zipcar and Autolib as examples Vehicles sitting parked 22 hours a day = Will do away with personal cars Autonomy Google car Eliminate accidents but also congestion helping do away with personal cars BEVs mesh with Mobility 2.0 which meshes with Autonomy

4 wrong, WRONG, WRONG Step one: define disruption Step two: quantify rollout process for new (automotive) technologies Step three: lay out relevant technology details Technically feasible? Timeframe? Substitutes? [Complements?] Commercialization strategies? For OEMs and suppliers Step four: so what? Prisoners dilemma: invest today, reap no gains tomorrow Public policy: governments may be able to sway R&D location

5 Step Four: So What? (Part I: Firm Level) Prisoner s Dilemma OEMs invests today Reaps NO benefits tomorrow None dare hold back After all, everyone s doing it And parts manufacturers may fare OK Why a PD? New technologies will not allow higher margins Everyone is in the game No one will gain a competitive advantage New technologies will incur higher costs See announcements this month from VW, Ford, and Daimler All play, and all see profits fall

6 Step Four: So What? (Part II: Regional Level) BEVs and Autonomy requires years of additional R&D Where will R&D take place? Where will battery production locate? consumer electronics base à core = China (#1), Korea, Japan NOT Italy NOT Auto Alley in US/Canada Auto firms setting up Silicon Valley listening posts Silicon Valley is setting up R&D facilities in Michigan and Ontario Can government further encourage May pit the Midwest against the West Coast: regional not national interest Example Connected car research facilities M-City adjacent to UMTRI in Ann Arbor, Michigan an extensive testing program in Ontario

7 Step Four: So What? (Dismal Science) Manufacturing productivity Despite higher output Factory jobs Policies that focus on standard blue-collar jobs will not work

8 Step II: Disruption New beats old??? need objective criteria of strategic and policy relevance not peer review impact factors Will new entrants comprise 25% of an industry within x years? For the auto industry, 2 platform cycles = years Will profits shift to losses for an industry segment within x years? For the auto industry, 2 platform cycles = years Does not preclude technology providing consumers with new sources of value or sources of industry revenue that are new to the industry

9 Disruption: quick reality check Piston manufacturers continue to invest in R&D for technologies that will not come to market until the mid-2020s Piston manufacturers continue to invest in new capacity that they expect will remain in production in 2030 at which time they will be making more not fewer pistons In sum, players who will be affected by BEVs (battery electric vehicles) are not yet changing their behavior

10 Technology rollout in the automotive industry New technologies must be built into actual cars Cars are only redesigned once every 4 years Unless they flop in the marketplace Major redesigns based on new platforms are every other cycle BEVs allow very different weight distributions, so full benefits depend on platform redesigns Example: Toyota s operation in Ann Arbor will work on one new car a year on a rolling basis [many others in Nagoya] Example: Ford F-150 redesigns are even less frequent: 6-10 years Ford now working on F-250 and Superduty

11 Logistics Curve Technologies go through a long evolution from Initial development to Early commercialization to Improved commercial productions to Widespread diffusion Seminal work: Zvi Grilliches (1957) on hybrid corn adoption A few early adopters A few of their neighbors follow their lead More join in Eventually 100% diffusion Results proved robust across types of technology rollout (eg Xerox)

12 90% 80% 70% Logistic Function with 80% as Maximum 60% 50% 40% 30% 20% 10% 0%

13 MOTOR VEHICLE TECHNOLOGY ROLLOUT SIMULATION new BEV share BEV output BEV in vehicle stock stock BEV stock % 1 0% % 2 1% % 6 1% % 15 3% % 25 5% % 38 7% % 55 11% % 73 15% % 89 20% % % % % % %

14 Sum The very nature of the car as a complex assembled product makes disruption unlikely

15 Step Three (A): Battery Electric Vehicles below: Chevy Bolt: Interior, Guts

16

17

18

19 BEVs Chevy Bolt battery pack 960 lbs for 200 mile range Chevy Cruze gas tank 120 lbs for 400 mile range And batteries alone are 23% of Bolt costs or (guesstimate) $6000 Electric motors and especial inverters remain expensive, too No value proposition for consumers Absent $7500 tax credit in US, $8000 cash subsidy in China And for Tesla in California selling Zero Emission Vehicle credits to other firms = Compliance Cars NO successful new entrant (Tesla bleeds money) New automotive business for consumer electronics Li-ion battery cell producers New business for automotive electronics firms (Delphi, Bosch, Denso, Continental, others) But they were already capturing

20 Step Three (B): New Mobility Uber, Lyft, Autolib, ZipCar: All are about profitably managing a fleet of vehicles Car companies have tried this Their conclusion: They were bad at it They didn t have to own fleets to sell to fleets Leave it to Enterprise Car Rental, best in industry No disruption here Except to government-supported cartels such as NYC Yellow Cabs

21

22 Step Three (C): Autonomy Utopian conclusion to 40 year rollout of passive and active safety Complemented by vehicle electrification done for other reasons Engines run by Engine Control Unit microprocessors [not micro today!] esteerinstead of hydraulic steering Electrically controlled braking Active cruise control / radar (GM purchase of military contractor Hughes Electronics in 1985) Elements first introduced in luxury vehicles Then when they find consumer acceptance are migrated downmarket Virtuous circle of higher volumes leading to lower costs and wider adoption So (A) already here While (B) full autonomy (SAE Levels IV-V) faces huge technological barriers Absent breakthroughs will be only for good roads, good weather Human interface issues limit commercialization outside narrow geofenced usage So in either case NOT disruptive

23 Provisos and points to ponder further Will a standard shared design develop for BEV drivetrains? No, multiple players for all components so no need to do so Economies of scale sufficient that no need to do so Package styling performance interactions and engineering know-how accumulation all favor firm-specific designs Car makers continue to dream of post-sales revenue streams A pipe dream fueled by something other than tobacco?? Tried and failed many times: organizational fit money just not there Printed cars (Local Motors) Disruptive to supercar business? Maybe not, prestige not personalization