Yearend Thoughts On the OEMs’ Path to New Mobility

A couple of days ago, while maintaining my website, I realized that I hadn’t written a new blog post for over two months. It’s not that I haven’t been writing. I published several invited pieces relating to my new book and am currently working on a piece about the European automotive industry. But I haven’t had the time for the free-thinking the blog affords me. With the approaching year’s end, I consider where OEMs go next with new mobility (this post) and assess enterprise AI (next post).

Challenges

The automotive industry’s path to new mobility has been slow and full of challenges, many created by the automakers themselves, that will not disappear in the new year or even the near future. Many of these challenges emerged in the last couple of years, while the impact of others that existed longer was only recently understood and appreciated. Geopolitics, tariffs, new regulations, labor unrest, increasing competition from Chinese automakers, and decreasing sales, including in China, make up the list.

Even though battery electric and hybrid vehicles are a bright sales spot, they are below the initial projections. Non-Chinese battery electric and hybrid vehicles remain expensive. Combined with high interest rates, they become affordable for a smaller-than-expected market segment. Software-defined new energy vehicles are proving harder to develop and more expensive to produce and bring to market than originally expected. They provide several advantages to their users. For example, they are configurable, upgradable over-the-air, and can offer a personalized customer experience, as described in The Flagship Experience. Automakers don’t adequately communicate these advantages. As a result, prospective buyers cannot appreciate them. These vehicles are now sold in many countries where the infrastructure is still under development and below the consumers’ comfort level.

In the meantime, in Europe, Latin America, Australia, and SE Asia, Chinese automakers demonstrate what is possible in new mobility. They produce innovative and less expensive software-defined vehicles based on platforms that are used across their entire model lineup. Their innovation cycle is 18 months, compared to the incumbents’ 40. Their consumers are rapidly adopting these vehicles and continue to look for new technology features.

The responses are typical

Incumbents are responding to the challenges by increasing the marketing incentives to move vehicles off the dealers’ lots, announcing layoffs and plant closures to address overcapacity and improve margins, and eliminating programs that were originally established to generate new revenue streams and in part fund the transition to new mobility. During just the last couple of months, VW and Hyundai announced plant closures, Ford, GM, Stellantis, and Nissan announced significant layoffs, GM stated its intent to sell one of its newly built battery plants to LG and closed its Cruise robotaxi business, which, along with Brightdrop, were going to provide it with new revenue streams. And there are rumors of a potential merger of Honda with Nissan.

Incumbent automakers also failed to achieve their goal of being viewed and valued as high-tech companies during their transition to new mobility. Many tried unsuccessfully to position themselves as innovators who can effectively utilize software and AI technologies. At a time when Waymo expands aggressively both in terms of the number of rides it offers weekly, and the number of cities where its service is, or will soon be, available, including Tokyo, its first international market, GM closes Cruise. China’s Baidu is expanding nationally its Apollo Go autonomous vehicle program. The company will also start entering foreign markets. Other Chinese autonomous vehicle companies, though smaller, are also expanding aggressively within China.

Unorthodox partnerships

Against this backdrop, the industry needs to think radically differently and consider unorthodox partnerships. I define an “unorthodox partnership” as one that is either between competitors or between two companies that are outside an existing supply chain. VW may be pointing the way to an unorthodox partnership of the first type. After several tries and many billions spent on its Cariad organization, VW recently partnered with Rivian to develop scalable software-defined vehicle platforms and with XPeng to produce software-defined new energy vehicles with high levels of driving automation for the Chinese market. In these partnerships, VW brings its manufacturing prowess and global distribution capability, whereas Rivian and XPeng bring their software-defined vehicle technology strengths. GM’s recently announced partnership with Hyundai also falls in this category. It calls for the two companies to work together on raw materials sourcing, supply chain management, and new vehicle designs. The industry’s past attempts at partnerships of this type have not been successful, e.g., GM-Toyota, Ford-VW, etc. However, the pressures the industry faces today may cause the automakers to be more collaborative and willing to change their ways as they try to succeed and, in some cases, survive.

An example of the second type of unorthodox partnership is the one announced between Hyundai and Amazon. Customers will be able to buy a Hyundai car directly from Amazon. This initial partnership is not as radical as the 2007 partnership between Apple and Corning to incorporate the Gorilla Glass into the iPhone, or the partnership between AWS and Dominion Energy to develop small nuclear reactors to power AWS data centers, but it’s a start.

Next year, automakers and their suppliers will continue to experience slow growth, which will negatively impact their ongoing transition to new mobility. I hope they will start thinking radically differently and accelerate the establishment of more unorthodox partnerships. Business as usual with typical defensive measures that worked in the past won’t cut it this time if this important industry is to have a future.