Recently, the Ford Motor Co.’s new CEO outlined plans to aggressively cut costs and funnel the savings to electric, self -driving cars. The company plans on increasing its production of profitable trucks and SUVs, while de-emphasizing less profitable cars and sedans.
What a difference a few years makes in the fast-changing automobile business. Car companies all have big plans to transform from mere sellers of vehicles to businesses that touch all aspects of mobility.
There are now multiple sources of innovation in an industry that has seen relatively little change. For over a century, the business model was how many vehicles a firm sold. Now companies are looking at how to reconcile disruptive innovations with traditional products and services.
The transformation is being driven by a succession of innovations — the Internet, the cloud, big data, 3-D printing, robotics, machine learning, artificial intelligence, autonomous vehicles, connectivity, the internet of things, electric vehicle power trains, and shared mobility, as well as changing car ownership preferences. Each reinforces the others and accelerates disruption.
China, the United Kingdom, and France are talking about banning the internal combustion engine by 2030. Moreover, China’s government has implemented aggressive incentives for electric vehicles that favor local companies, which could give Chinese firms significant advantages and economies of scale in the world’s largest consumer market.
These innovations are causing automakers to rethink the way they do business. Given how central the automobile is to the economy and to people’s daily lives, it’s not a stretch to suggest that these innovations will change how Americans live.
In addition to traditional automakers, changes in mobility will impact industries such as energy, insurance, retail, public transit, and health care. For example, the National Highway Traffic Safety Administration reported earlier this month that total traffic deaths on U.S. highways rose 5.6 percent in 2016 to a decade high of 37,461. This is roughly the same number who die from breast cancer, gun deaths and opioid overdoses combined. The Centers for Disease Control and Prevention estimated that in 2010-2011 there were an average of 3.9 million annual emergency room visits caused by motor vehicle traffic injuries.
Driverless technology creates a potentially accident-free future with drivers exiled to old-fashioned leisure trips on Sunday afternoons. What are the implications for reducing health care costs as emergency rooms lose millions of patients each year and hospitals have hundred of thousands fewer patients who need to stay overnight?
Automakers face a number of existential threats. Besides traditional rivals, a wide range of players have been racing to get in on the action, including tech companies, ride hailing firms, logistics companies and auto parts suppliers. Tech companies view the car as a platform, like a cell phone body. They see the vehicle of the future as software on wheels, enabling drivers and passengers to devote their time to personal activities. As Elon Musk once said: “Tesla is a sophisticated computer on wheels.”
On the other hand, automobile companies think of it as a car with extra software. The only certainty is that it is uncertain who will come out on top: Traditional players or new entrants? The hardware or the software folksguys? Western or Asian firms? Product or service companies?
Automobile companies are making big strategic bets on autonomous technology, electric cars, and transportation services. Financial decisions have to be made in light of the need to serve two worlds; the traditional automobile industry and disruptive technology-driven trends that will ultimately take over the mobility industry. Defining the right balance will be critical.
In a pervasive modern view, the past is a burden that must be shed to give way to a new kind of life. This is the fundamental challenge facing so many industries that are being disrupted by a succession of innovations. While it is debatable when driverless cars will be available to the masses, there is no doubt that a driverless future will profoundly change society, even in ways we are not yet even considering.
Originally Published: Oct 28, 2017
