The future of the car industry

I’ve blogged and lectured many times now on the future of cars, public transport, trains, and I’ve retained my view that private cars and public transport (taxis, buses and trains, apart from very high density systems like London’s Underground) will eventually be replaced by fleets of driverless pods or self-driving cars (most probably the pods in city areas and some self-driving cars for non-urban areas). It can’t happen overnight of course, and there are various routes to getting there, but now that we know Tesla is setting up a big factory in Germany, the fog has lifted a little on the near and mid-term future.

Tesla will make electric cars. They have always been the future, but efforts and laws to reduce CO2 emissions are significantly expediting the trend. For the purposes of analyzing the future of the industry, there are really three distinct parts to consider. Electric vehicles can be considered to be a chassis, that can be adapted and re-used across a wide range of vehicles, a cabin, with its more individual appeals and decor, physical comforts and luxuries, and all the electronics, intelligence, sensors, displays, comms, entertainment.

With expertise in all camps, Tesla can flourish, but its much greater global expertise in the battery industry puts it in pole position to make a few standard electric chassis models that can be marketed to other manufacturers. The existence of those standard chassis allows new small manufacturers to spring up to offer a wide range of vehicles customized for every niche. These manufacturers don’t need the range of expertise of the conventional car industry, with many decades of expertise making relatively dumb vehicles with combustion engines. They will only have to learn the skills of making the comfortable cabins to sit on those chassis. (Don’t you hate that word too, with no proper plural!)

The car industry is therefore finding that much of the value of its historic core skills is quickly evaporating while having to compete on fairly equal terms in a new market using new technology with new manufacturers.

An electric chassis can include the motors to drive each wheel, and could also be easily adapted if and when new energy delivery systems using inductive pickups from the road surface move into the market (already successfully demonstrated in buses), and if and when lithium batteries are substituted by super-capacitors. So companies like Tesla can carry on making their own high-spec electric cars/vans/lorries but also flourish in a parallel market selling chassis with built-in drives to other companies who just need to put a decent cabin on top. It’s good strategy to see competitors as a potential market. Co-opetition works too.

This could be devastating to most of the big car manufacturers. Where will their market differential lie? Basic everyday markets could use the standardized chassis. How could they differentiate a high performance car when Tesla already offer ones that go 0-60 in under 3 seconds? The various electronics and AI systems will not compete only with Tesla but with all the big IT companies who also see roles in these markets: Apple, Sony, Google already but likely Samsung, LG, Microsoft and Amazon following soon.

It is possible that some existing car manufacturers will adapt just fine. They’ve known for many years that this future was coming and those with good strategies will cope. It is very likely though that some won’t cope and that very many jobs will be lost from the existing vehicle manufacturing industry, already bleeding jobs thanks to automation. It’s certainly not an industry I’d want to invest in for a decade or so until the weaker players have been removed from the field.

The main uncertainty that remains is whether the new industry goes the self-driving vehicle route, with lots of expensive sensors and IT in every vehicle, or the dumb pod/smart infrastructure route, with cheap cabins and simple chassis powered and navigated by the infrastructure. The latter could be much cheaper in urban areas, while the former would be better outside towns. My guess is that in the far future, we’ll have both, with self-driving vehicles outside urban areas, and pod systems inside urban areas (self-driving vehicles can easily be made downwards compatible so that they can behave like pods when in town).