Insights for the automotive industry in the post-COVID-19 world
History repeats itself
Let me start with a story that we all might be familiar with. The story of Nokia.
Nokia was a 70 billion-dollar company in 2007/2008. It sadly fell in value to 7 billion within the span of a couple of years. It was sold after that to Microsoft then resold for a couple hundred million dollars.
Nokia was at the forefront of innovations. It was associated with things we still use at this time (app store, touch screen technology, digital cameras, etc). Nokia’s mistake was that they were a bit late to the game and bit late to realize the operational and contextual changes that were happening at the time within its environment. They moved too slowly and failed to foster a culture of innovation. For those reasons, Apple and Android were able to succeed and take their position.
Drawing parallels between the traditional automakers and the story of Nokia, we see the automotive industry coming to a similar crossroad where the future is painted as this automotive future where either the big tech companies will win or these conglomerates of car companies will win.
Current state
The automotive industry is currently facing a disruption caused by four trends: Autonomous driving, Connectivity, Electrification, & Shared.
Although these trends may pose challenges, they pave the way for great opportunities. Such opportunities are better seized now than later. So, the best advice to give the automakers is: Be optimistic and act fast!
This transformation could mean that traditional automakers would have to consider new business models as the auto industry manufacturing will be commoditized. The industry will revolve around convenience and services more than traditional manufacturing.
Here, I present a two pronged approach to address the upcoming shift: Short term options & Long term options.
Short term options
- More EVs onto the road: COVID-19 has impacted auto sales majorly. Sales are expected to recover by the end of this year as automakers will offer customers incentives similar to the Car Allowance Rebate System (CARS) program in 2009. In addition, many companies are considering the introduction of leasing and rental options. A high demand of cars is expected after the Corona pandemic is over as customers trust public transit less. However, this car shopping spree will be over after a short while. Therefore, automakers should get started already on pushing for more EV (Electric Vehicle) production. The German automakers should be the lucky ones (or NOT) in this case as their government is tightening the CO2 regulations, forcing all gas stations to provide EV charging stations, and offering subsidies for EV buyers.
- M&A opportunities: As the automotive market approaches historic lows, an opportunity opens up for companies that seek deals of acquisition.
- Shift to shared mobility: The ride sharing competition is fierce with many companies jumping in. We also see traditional auto makers taking part (e.g. Daimler and BMW create the joint venture Share Now). Overall, ride sharing will be more active in a 5-year time frame and we should expect an increase in car sharing and e-hailing businesses.
Long term options
- Compete with big tech companies: More investment into R&D and partnerships with other automakers needed if this option is chosen. The competition of driver-less car units is high and the most innovative will be the last one standing. so far, Tesla is the only automotive company that can be considered “innovative” in the car vertical.
- Collaborate with big tech companies as a provider: This option entails the automakers to step down from their hardware provider position and switch to providing specialized services to the big tech firms.
The future of traditional automakers is in their hands as their decision on which path they would take for the long term is crucial. One possible advice to give here is to follow the money!
Investors are clearly targeting the trends that would create the car of the future (Autonomous, connected, electrified, & shared). So, that is where the money is.
