The "Tesla Provocation" or the Auto Industry going upside down.


Few weeks ago in a previous post, we described the Tesla Provocation from two perspectives.

  • From the consumers: a Tesla customer will be charging at a Tesla Supercharging station and all of his/her activities will be managed through a Tesla app;

  • From the disruptive energy approach: charging a vehicle does not require a separate supply chain between turning the lights on and fueling your car; hence simplification.

As the weeks go by, while analysts keep discussing the sustainability of the Tesla business endeavor, the Provocation is generating multiple ripple effects, which have the potential of turning the Automotive industry upside down.

The EV battle

During the launch of the Model Y, Elon Musk stated that "one of Tesla's goal was to get the rest of the car industry to go electric" (min 28.00).

Indeed it is happening, but it is taking some convoluted developments.

Let's take a look at the strategies of the 2 largest automakers: Volkswagen and Toyota.

The latter has been very aggressive to push a ZEV model into California after ending the partnership with Tesla. Leveraging the Japanese ecosystem the chosen path forward was Fuel Cell Electric: "the powertrain for the next 100 years".

The technology is extremely interesting because it offers various comfortable advantages over the Battery Electric (e.g. range, refill/recharge/refuel time) leveraging the properties of Compressed Hydrogen to generate power through a Fuel Cell. Furthermore, the only by-product would be water.

On the other hand, though, this solution will require a tremendous logistic efforts and would not be an answer to the two points raised by the Provocation.

Interestingly enough, the Hydrogen movement is mainly concentrated in Japan (Primer Minister Abe launched the Hydrogen Economy vision and plan in 2015), California and Germany.

While in Germany a partnership of industry leaders is pushing for the Hydrogen adoption, Volkswagen decided to go fully Battery Electric. This decision is extremely disruptive and in the eye of some leading industry analysts abrupt and reactive. Indeed the Dieselgate scandal pushed VW to taking action, but this action can impact one of the main elements of the German industry. For the sake of numbers an Internal Combustion Engine vehicle comprises of more than 1400 elements (e.g. a "simple" gasoline injector is composed of 130 elements) while an electric vehicle requires approximately 200. This means redesigning the complete OEM world, beside their own plants and processes!!!

But why would VW go BEV while Toyota goes FCEV? Can they both be right? Are they both going to remain on top of the auto industry? Are they betting against each other? What hedging are they taking?

As for Toyota, last week announcement of a partnership with Suzuki for a BEV model is in this direction. While VW announced at the beginning of the year a partnership with Ford for a shared BEV program in the US.

If we take into account the words of the past Sergio Marchionne, FCA CEO, "an automaker needs to produce and sell minimum 6 million vehicles a year to maintain its operations".

Would these numbers be higher or lower for EV's? How the new powertrain will shape alliances and partnerships?

The Mobility Providers

Is the battle only on the powertrain that will replace ICE? Other features and business models are impacting the markets.

The new "buzz word" is Mobility Providers. Following the Uber and Lyft examples, we are daily exposed to the Mobility as a Service (MAAS) model.

When we move from car ownership to MAAS all the historical business models and client-brands relationships are altered.

Ford announced at CES 2019 they their new mission is not to sell to us cars but to become our Mobility Provider through their subsidiary "Ford Smart Mobility".

Just last week, in Houston, during a CTO conversation at Rice University, as part of the Energy and Environment Initiative, Dr. Wolfgang Warnecke, Shell Chief Mobility Scientist, presented, to a selected group of Faculty, Graduate Students and Entrepreneurs, Shell vision for the future of Mobility.

He walked us through all the various powertrains associated to the Total Cost of Ownership of the vehicles in various segments from the short-distance urban commutes to the large container ships.

Two specific points mentioned during the presentation stuck with me as a reflection:

  1. Shell is interested in the engagement with the end-users as clients ("As a driver, you probably visit a gas station once a week, and I hope it is a Shell one; while the car dealer you bought your car from is lucky if it sees you once a year for the annual checks" (cfr: new piece of Tesla Provocation)

  2. Shell is broadening their market focus ("Whatever the scenario in the future, we, at Shell, want to be your mobility provider")

At this point, a clash, broader than expected, is building up and the arena is the world post-ICE: Automakers, O&G Companies, Ride Hailing Companies, Tech Giants; Utilities, Transportation Companies, Logistic companies...whom else?

By the way, it goes without saying that the 2 key geographies are the United States and China.

Who will be the winners? Who will be the first one to be disrupted? How many "hybrid" consolidation movements will occur? How autonomous vehicle technology will impact the markets? What other technologies (e.g. Additive Manufacturing) and business model (e.g. Nexus by Bell Flight and Uber) will destabilize the statu quo?

Once again Sergio Marchionne, during a Bloomberg interview following Ferrari (RACE) listing, he was asked if automakers would end up being like Foxconn or Flextronics (min 0.48) who produce for all the relevant brands and have no client-brand engagement of their own: his answer was all about the experience a driver has with the brand and the consequent brand loyalty!

How many brands will lose the "mobility providers" battle?

The Game Shifters

Taking into account the two largest automotive markets in the World and their appetite for innovation and disruption, in our scenario we forecast very complex times for European players.

It goes without saying, though, that Europe offers the most challenging markets for its density of population, culture and language differences, regulations and requirements. Furthermore, the European population has been pushed to accepting "clean Diesel" as the perfect automotive solution: a silver bullet for everything. Hence a challenge with the public is to explain the changes (cfr: Italian survey about engine contamination)

At the same time, the US and China might take different paths and the scenario forecasting two different Internets might well apply to two different integral mobility concepts.

The game shifters might hence come from a completely different angle. For example logistic companies might more easily than others bring "your work" to you. Can you not see Amazon designing a model as such, leveraging the power of AWS and of its logistics?

What about the city planners and architects? Their formation is certainly human-centered and would be keener to integrating solutions that traditional players might disregard.

At the same time, developing countries could be the cradle of new players that might propose novel solutions by leapfrogging all the hurdles that the developed countries went through.

Solving mobility in Lagos or in Mumbai, for example, would be the ultimate challenge!

We at Bridging Value keep looking after key signals into the global markets to scout and aggregate those willing to take on these challenges.

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