The Smarter Car Revolution has begun. And, the golden age of smarter cars is fueling the transition. However, the incumbent carmakers are still struggling to adapt. What could better strategies to thrive in “the brave new world”?
To adapt or not to adapt
According to a McKinsey 2017 report, carmakers are seeing more disruption in the coming 10 years than in the last 50 years, driven by: connectivity, electrification, autonomous & new mobility models. In short, it’s the best time for innovators & early adopters, and it’s the worst time for the majority & laggards. The question is to adapt or to die.
To adapt, cars have to be smarter to compete. The reality today is less about these “new smart features” that will help to sell on more cars but is more about losing customers to Tesla or other innovators.
Furthermore, it’s becoming a key “survival skill” for a carmaker. Whoever only bet on the “luck” may extinct sooner or later. For example, a software bug turned some Mustang Mach-Es into “bricks” in 2021. This happens before and will happen again even more going forward. With increasing class-action lawsuits against faulty systems in cars, carmakers are struggling to cope with the explosion of complexity. According to McKinsey’s estimation between 2010 & 2020, car software complexity grew 4x while productivity grew 1.5x. So, what may car makers do to survive better?
Build, buy, or buddy up
It’s easier to complain about a problem. It’s more difficult to make necessary changes to get to a better place. It’s even harder to take a new & unfamiliar path toward a brand new game. By now, most top carmakers have realized their products are increasing Software-Defined, but are struggling to catch up because of missing new software capability/talent. For example, one can build, buy, or buddy up.
- Volkswagen(VW) ignited its Car.Software ambition in 2019. And recently, VW invests more in the home growing strategy to fill gaps of software talent. Because VW learned that: software talent is hard to come by and even more difficult to compete with Tesla and other new & big tech players.
- Toyota plans to launch its own Arene Operating System(OS) to power everything in cars by 2025 to compete with Tesla & VW according to Nikkei. In 2021, Toyota acquired Renovo Motors, a vehicle OS developer. This acquisition-hiring could be a great boot or at least “a quick fix” for Toyota. We will see more as carmakers are becoming more desperate as the time is running out.
- Ford partners with Google to push a digital transformation forward. In Feb. 2022, Google join Ford to further invest in Detroit for more opportunities to learn digital skills, more access to computer science skills for high schoolers, and more scalable technology with Google Cloud. So, there may be more new talents from re-skilling and the new generation.
Car Software as a Service
By 2025 even the top 2 reach their ambitious goals as Toyota cars may run Arene OS & VW cars run Car.Software, they only account for less than 20%, or 20M new cars assuming a similar state as they were in 2020. The top 2 ecosystems are still too small to be attractive enough for 3rd party innovation. I know cars are different, but just for a bit of inspiration. In Q3 2021, Samsung smartwatch reached its highest quarterly shipment, taking 14% of the market share, and Wear OS becomes №2 with 17% of the smartwatch OS market share. What could be the win-win strategy making such a big change in a relatively stable smartwatch market 🤔?
On the other camp, NVIDIA DRIVE may have the ambition to be the integrated HW & SW platform provider for others who can not build their own. But, it will soon realize the difficulty to sustain if the big investment only reaches a few new cars each year. If we only do the math this way, there can hardly be “a smarter car revolution” anytime soon. Unless someone starts to consider car Software as a Service.
Your update liability is my service opportunity
If a carmaker challenges itself to see the new world, the benefit is a no-brainer. By providing 4 years of updates, a carmaker quadruples its reachable market size. And, a bigger market offers better opportunities to distribute the value of new innovation. Not to mention, the carmakers can build stronger brands by continuously delighting their customers. The winner will be the one who knows how to do so without 4x the effort. Psst, there are better ways to achieve that. Your mission, OEMs, should you choose to accept or not…
A prime of car software
Sure, not many success stories of the transformation from a car making & selling business to a service business. But because of that, there is an opportunity for business model innovation. There was a time streaming video, e.g. Netflix & subscribing to music services, e.g. Spotify was for early adaptors.
Tesla has been playing such games in their own vertical integrated way. Therefore, Tesla may become “the Amazon Prime of Self-Driving” sooner than others. Tesla is definitely not alone. In Dec. 2021, Stellantis also announce a plan to reach ~$22B annual revenues by 2030, driven by software-enabled product offerings and subscriptions. As the №6 carmaker shipping 6M cars in 2020, Stellantis has to make a bigger pool. Selling more cars will help, but a few percentage changes will not be big enough.
The “easy” way out is to aggregate the customer base across models & years. On its plan to ship fully over-the-air updatable cars from 2024, it may achieve a 32M customer base by 2030. That’s a 5 years update plan. This takes a huge commitment in delivering as even Samsung just promises 4 generations of OS upgrades from Feb. 2022. Kudos to Stellantis, who may become “Samsung of the smartphone”. Godspeed, Stellantis.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
