Electric vehicles, driverless cars, ridesharing, changing patterns of vehicle ownership and use, and the recognition that climate change poses an existential threat are just a few of the major disruptions that may force automakers to modify their current business models.
Climate scientists contend that electric vehicles are one of the best ways to reduce greenhouse gas emissions, most of which come from cars and trucks. In the United States, the transportation sector is the largest source of emissions, and the automobile industry is under great pressure to meet regulatory emissions targets and do its bit for the planet. Automobile firms, their suppliers. and other mobility players must adapt to an emerging future that threatens their existing business models.
For example, car sharing may undermine the pattern of single-family ownership that has been fundamental to automobile firms’ business model for over a century. If a ride sharing company such as Lyft or Uber is able to send a fully self-driving vehicle to customers’ doors and take them wherever they want to go on command, those customers may be most closely connected to that service, not the automaker.
Electric vehicles will also impact the traditional business model. For starters, there is a dramatic increase in new entrants into the market, and sales and distribution channels are moving from physical dealerships to online stores. Service requirements for electric vehicles are less than for the gas-powered internal combustion engine because of their simplicity, and gross margins may shrink due to much higher competition and lower pricing for electric vehicles over time. In addition, policy makers in Washington will continue to promote and support faster electric vehicle adoption to deal with climate change.
Increasing electric vehicle ownership is at the heart of the Biden administration’s $2.3 trillion infrastructure package. It would provide $174 billion to spur development and adoption of electric vehicles including incentives to buy them and to get more EV charging stations installed across the country – 500,000 of them by 2030 – so people will feel confident they won’t run out of juice. There are currently about 41,000 charging stations in the U.S., compared to more than 136,000 gas stations.
Surveys indicate that while consumers’ appetite for electric vehicles has grown significantly, they remain concerned about the price of battery-powered cars, which can cost up to $10,000 more than conventional vehicles. But total operating costs for electric vehicles may well be less than for conventional ones. Fewer maintenance and charging costs may offset the higher upfront price over time. Electric vehicles also have fewer moving parts and they don’t require oil changes.
The hope is that federal largesse will push the growth of electric vehicles, which currently make up just 2 percent of the new car market and 1 percent of all cars, sport-utility vehicles, vans, and pickup trucks on the road, according to the Department of Energy.
Autonomous or fully self-driving vehicles represent perhaps even greater disruption for the automotive industry, although there remains considerable uncertainty around fully self-driving vehicles, despite considerable investment in them. It is difficult for potential customers to imagine what a community in which these are a viable transportation option would look like.
Even once fully self-driving cars are available, it is extremely difficult to predict their rate of proliferation. It remains unclear whether they are five, 10, or 15 years away. In any case, they may lead to declining traditional car sales.
All these factors are significantly altering the auto manufacturing landscape. Incumbents will be forced to change their business model, leading to wholesale modifications in their manufacturing base, the closure of current facilities, adjustments to their dealership network and fundamental changes to their overall cost structure. This kind of disruption does not come easy to large, mature companies.
One thing is certain: How people move from one location to another affects numerous aspects of daily life along with hundreds of related industries, and it will be changing in the near future.
