Automobile

3 big trends in 2020

2016.08

The 3 big trends that will reshape the car industry in the 2020s
Automobile
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The automobile industry is an industry that requires enormous capital, large-scale facilities, collaborative efforts of numerous suppliers, and a huge workforce. As a result only a handful of countries, namely Germany and Japan, have successfully mass-produced quality vehicles.

  • Example: Hyundai’s Ulsan factory. Within this 120-acre factory site (2.5 x size of Seoul’s Yeouido), there are five manufacturing plants, 30,000 plus workers (40,000 including employees from cooperating companies), 1,000 plus cooperating companies, and a wharf capable of supporting three 50,000-ton ships. Approximately 6,000 automated vehicles are being manufactured daily in this factory alone (rate of ~1 vehicle/15 seconds).
  • Some principal car manufacturers. Mercedes Benz, BMW, and Volkswagen (Germany); Toyota and Honda (Japan); GM (United States); Hyundai and Kia (S. Korea).

In the last century, pioneers of the automobile industry have distinguished themselves from competitors in terms of their 1) gas mileage/ride comfort, 2) production expenses, 3) global management, 4) branding, and 5) safety.

  • Improving gas mileage and the ride comfort - developing engines that can accelerate faster and feel smoother.
  • Reducing production expenses - achieving production scale goals, automating the production process, and reducing the unit cost.
  • Global operation - placing R&D centers and dealerships in optimal locations throughout the world, pioneering the global market, adapting to local cultures and climates, and raising productivity (e.g. by reducing costs of transport).
  • Branding - giving each car model a unique identity, raising awareness and popularity of the model, and selling the car at a premium price.
  • Safety - developing technology that maximizes the car’s ability to withstand a fatal blow.

However, the automobile industry has been transforming in the past 2-3 years due to its growth in Silicon Valley.

  • The fields that traditional motor companies excel in are becoming obsolete when compared to the vehicle-related software, tech, and services demanded by the modern day market.
  • Thus, the value of the traditional motor companies are steadily on the decline. The share prices of Hyundai, Kia, Toyota, and BMW have dropped 30-40% from what they were two years ago.
  • On the other hand, the values of companies that offer software/advanced tech/services, like Google, Apple, Uber, and Tesla, are on the rise. Uber, a car-sharing service, has reached a market cap of $100B; Tesla, a popular electric car company, has received pre-orders for approximately 500,000 units of its Model 3 vehicle (because each car costs $35,000, this adds up to $17.5B in pre-orders alone).

Businesses based in Silicon Valley have been disrupting the automobile industry in three key ways.

  • Car sharing. Uber and Lyft have been paving the way for car-sharing transportation services. These two companies charge 40-70% of standard cab fares but at the same time provide customers with an experience that is 3-4 times more enjoyable.
  • Electric vehicles. Following Tesla’s steps, such businesses as Apple, BMW, Mercedes Benz, and Toyota are relentlessly fighting for domination of the electric vehicle industry. Electricity-run cars have superior gas mileage, functionality, and design.
  • Self-driving cars. Google has taken the lead on developing self-driving cars. In hot pursuit are Tesla and Uber, as they research ways for vehicles to navigate themselves autonomously.

Car sharing makes use of idle cars and idle drivers to create a network of readily available taxis. Uber and Lyft together are now worth more than $60B.

  • Concept: a taxi service run by everyday people using their own cars.
  • Key technology: real-time matching of customers with Uber Drivers; big data-based navigation system; monitoring drivers’ service quality with a rating system.
  • Business model: high-quality transportation service at 40-70% the price of standard cabs.
  • Business impact: Uber operates in more than 400 cities across 70 nations, and sales in 2015 reached $2B. In the month of June, ‘16, Uber gave 62M rides to 10M customers.
  • Financial impact: in 2016, Uber was worth $68B, Lyft was worth $5.5B, and Didi Chuxing (a car sharing service in China) was worth $28B.
  • Social impact: car sharing reduces the number of cars during commuting hours, and it is reported that it can lower traffic in key American cities by 20-30%.
  • Next steps: the next step would be to lower the price of car sharing services to the price of riding public buses, and to make greater use of car space by using self-driving vehicles.

The field of electric vehicles is currently being led by Elon Musk’s brainchild, Tesla. Traditional car companies like BMW, Mercedes Benz, and Toyota are investing a lot of money and time into developing comparable technology.

  • Concept: develop a car that can run 100% on electricity.
  • Core technology: develop a battery that will store enough energy to sustain a car for long distances; develop technology that enables the electric vehicle to accelerate quickly; set up eco-friendly charging facilities (e.g., by using solar energy to charge the batteries); develop various software/applications.
  • Business model: to create profit by manufacturing and selling electric vehicles and offering benefits like free charging and state-government-sponsored subsidies so that electric cars become more affordable (only California has enacted this subsidy).
  • Business impact: in the case of Tesla, the company is not yet able to mass-produce the vehicles and prices are too high to be competitive in the mass market. Furthermore, of all the vehicles sold in the year 2015, only 1% was electric. However, Tesla’s latest diffusion line of electric cars demonstrated massive potential. Through the pre-order alone, 500,000 units were sold.
  • Financial impact: in the case of Tesla, the company is valued at $30B.
  • Social impact: electric vehicles greatly reduce automobile carbon emissions and are thus more environmentally friendly. One problem that may occur if more people convert to electric vehicles is that employees of standard car companies would be at greater risk of losing their jobs.
  • Next steps: 1) increase battery performance 2) make available more eco-friendly charging stations 3) expand facilities for mass-producing these vehicles 4) add more technologically advanced features, like self-driving capabilities.

The field of self-driving cars is being led by Google, but Uber, Tesla, and numerous traditional car companies are also joining in the effort to make these cars a reality.

  • Core technology: use accurate digital maps and develop software that makes accidents nearly impossible.
  • Business model: launch self-driving taxis and self-driving truck services; provide self-driving technology licenses to car manufacturers; sell self-driving software.
  • Business/financial impact: because this technology is still in its testing stages, self-driving cars have yet to be sold to everyday consumers. One update is that OTTO, a startup specializing in the development of tech for self-driving trucks, was recently purchased by Uber for $680M.
  • Social impact: we hope that these cars will lower the rate of automobile accidents and also lower the cost of transporting products. Nonetheless, this poses a problem for those in the transport industry (shipping, freight). Furthermore, there are a myriad of ethical issues with no definitive solutions (e.g., who is responsible for an automobile accident caused by a self-driving vehicle?).
  • Next steps: develop vehicles with 0% accident rates (or as close as we can get to it) and develop services that utilize self-driving cabs and self-driving trucks.

The competitive edge of car sharing/electric vehicles/self-driving vehicles is the creative use of data, technology, and service to design the future of the automobile industry.

  • Data: self-driving cars and car sharing both require accurate, real-time traffic data and using this data in the optimal way.
  • Technology: the future of self-driving cars depends on the development of software that makes accidents virtually impossible. In terms of electric vehicles, it is imperative to develop OS/applications to control the electricity.
  • Service: we need to develop a creative service that can upturn existing paradigms of transportation with self-driving cabs/trucks.

IT firms will further dominate the automobile industry if they collaborate with traditional car companies.

  • Tesla vs. IT firms + traditional car companies. Tesla has made an effort to monopolize the hardware/software market, but they may benefit greatly from collaborating with Uber and/or Google, or with any of the traditional car companies.
  • Google vs. Uber. Google and Uber started off on friendly terms, as Uber made use of Google Maps in its software. But with the rising competitiveness of the self-driving cab market, these two businesses are competing to dominate the market.

Which company do you think will be the leading business in the automobile industry? Do you think that the automobile industry may end up like the cellphone market, where software development is more essential than hardware development? What should Korean car companies do in order to take part in designing the future of the automobile industry?

Please talk to your Ringle Tutor about Tesla, Uber, and Google, and share your thoughts on the future of the automobile industry.

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