Why the automotive industry needs to create a mirror-image model to stay relevant

The entire business model of the car industry is based on the principle of manufacturing as many cars as possible and selling them through dealerships. A number of other business models have been built up around this basic model: the garage model, the second-hand car market model, the roadworks model, the petrol station model, the carwash model, the driving school model, etc.

What is the purpose of a car? To drive us from point A to point B – and it is a purpose that hasn’t changed during the past hundred years.  Of course, the manner in which cars are nowadays developed and constructed is state of the art. Cars are increasingly safer, more comfortable, and more economic in use. Even so, the car remains essentially a private, fossil fuel-burning stove on wheels. What’s more, your car is a closed system, which is completely self-contained. When you are not driving in your car, your investment is standing parked and unused – which is about 90% of the time. Every few thousand kilometres you take it to a garage to be serviced. And once it has reached a certain age or total mileage, you are tempted to replace it with a new one.

However, your new car is no longer a car – it is now a mobile computer. You no longer drive it from A to B; in the very near future it will be driving you instead. And when you aren’t using it, it will share its services to drive someone else from B to C.  In short, it will lend itself to others. All the time it is on the road, your new car will be collecting data, which it will then pass on to other new cars, so that traffic in general becomes safer than it has ever been. And when your new car is standing still, it will now be standing at a battery charging point for electricity. As a result, it will require little or no mechanical maintenance – although you will still need to occasionally replace the tyres. All the rest is done automatically via software updates. As a result, your car has become a shared, open system.

In 2015, Mary Barra, the chairperson and CEO of GM, wrote the following to her shareholders: ‘Across the industry and around the world, social and technological changes are transforming personal mobility. I believe the auto industry will change more in the next five years than it has in the last 50, as we develop new options and modes of transportation for moving us from point A to B.‘ The new car will transform the automobile industry root and branch. And not just the car industry, but also all the related satellite industries that orbit in the car-ecosystem. The car will become mobility and mobility will be an app. In the future, car dealers will not sell a hundred cars to a hundred different people, but just a few cars whose use will be shared by those same hundred people. Less maintenance means fewer garages. Fewer accidents mean less insurance. The likelihood that my grandson will need a driving license when he grows up is non-existent. The classic fossil fuel-burning stove on wheels will go the same way as the horse: it will either be used in poorer countries or it will become a nostalgic weekend toy for the rich and famous. If you work in the petrol or diesel industry, your business model is being wiped out right in front of your very eyes. Much the same is true for public transport, since the new car will make our private transport available to everyone!

Why will this new mobility take the world by storm? Because autonomous electrical technology has created a shift in consumer demand. People are no longer willing to accept that cars pollute our environment. They like the idea of being able to relax or work during the journey from A to B. Above all, they like the idea that the self-driving, shared car will save them time, money and a whole heap of misery.

Mary Barra of GM is one of the key figures in the car industry who has understood this. The huge German car giants are not far behind. A few years ago, they laughed at the wild plans of Elon Musk; now they are doing their best to try and catch him up. But it isn’t easy for them. Classic car manufacturers find it hard to escape from their traditional linear way of thinking. Most of them are still locked into the ‘start-hold-repeat’ mode. But whereas in the past they used to set the tone, now they are forced to follow the lead of others. Even a brand like Porsche is now working on a Tesla-killer: the Mission E. Or that, at least, is what the press is reporting. What intrigues me about this is not so much the idea of an electric Porsche, but rather what the use of words like ‘Tesla-killer’ and ‘Mission’ say about the emotions that are being stirred up in Sindelfingen, the town where the majority of Porsches are made. For the very first time, car manufacturers are being confronted with changes that they do not have under control and which, even worse, threaten to undermine their business model (and their technology, in which they have invested billions over the years).

Even so, it is noticeable that the majority of classic manufactures persist in thinking in terms of ‘das Auto‘. They build an electric car simply to replace a petrol-driven one. They develop technology to make possible the shared used of transport not from a holistic vision about mobility, but to show that their technological skills are still up to speed and that they can play the Tesla game as well as anybody else. What they are, in fact, doing is attempting to stretch the life of their existing model, rather than turning it upside down, like they ought to. Even if they succeed, their success is likely to be short-lived. At some point soon, the politicians are certain to intervene and say: ‘Fossil fuel cars can ride until such-and-such a date and no further.’ And ‘such-and-such a date’ probably means until 2030 or 2035.

The car industry still lacks the courage to see that the change is about much more than the installation of an electric motor instead of a petrol one or the creation of a car that recognizes you and allows you to choose your own preferred colour for its interior lighting.  The change is about the application of a completely new business model that mirrors the existing one, but implements it in a completely different way.

The future of the motor car is ACES. This acronym stands for Autonomous, Connected, Electric and Shared. You can already see the signals of this future wherever you look. Uber, Lyft and Waymo already have self-driving vehicles on the road. The number of hybrid and electric cars is on the rise. In contrast, diesel is on the way out – for good. Every major car brand is working on an ACES variant. Look at GM and Ford, who have set a date for the mass production of autonomous cars without a steering wheel and pedals at 2019 and 2021 respectively. And every modern city has its own policies and initiatives relating to car sharing. In the meantime, the traffic on our roads keeps on getting busier and busier, to the frustration of drivers around the world. In the near future, all these forces will combine to create an entirely new car business based on an entirely new mobility model, which will change patterns of consumer expectation almost overnight.

The old car brands fail to realize that these forces are already on the way; that a new reality is already being created on the other side of the mirror; and that more and more customers are willing to embrace this new reality. In contrast, Tesla has been working for some time with the new business and mobility models, and is helping to change consumer behaviour as a result. Each time the classic brands announce the launch of a Tesla-killer, which they expect to have in production by 2022 or later, I am struck by just how limited their thinking really is. They continue to fight Tesla with the weapons of their old world, the world of ‘the best car or nothing’, of driving pleasure and technological gimmickry. They are still living in the surface world, where the focus is on the biggest number of cars, the biggest number of models and the greatest number of sales, with customer’s buying a new variant every four, five or six years. They believe that Tesla also lives in this world and that consequently they will be able to crush Elon Musk and his dreams. ‘Just a little bit longer,’ they think, ‘and then we’ll have him’. But Tesla doesn’t live in their world. Tesla lives in the upside down underworld. Tesla breaks conventions. Tesla changes consumer behaviour. Tesla rewrites the rules of the game. In short, Tesla creates a mirror-image model for the car industry of the future.