One of the interesting part of the FTI’s report is the one focussing on the evolution of the transportation sector that will change the status quo of manufactures as well as the value perception of the market. If you think about it, for decades the competition among manufacturers have been among similar, and they all have been addressing the same value perception of a growing market: cars were a status symbol as much as a transportation means. That pushed the offer towards more and more fanciness in cars (luxury, speed and acceleration as emotion engines) and more and more efficient cars (lower consumption, higher safety, …).
The pandemic and the lock-down has accelerated a change in value perception that had started in the second part of the last decade: as shown in the figure, by 2016 a new idea of car, and related players, started to emerge. The car was transforming its essence:
- at the mechanical level by moving to an electrical powered engine. This changes the components (reducing their number and types) affecting the manufacturing value chain. The key player in 2016 was expected to be Tesla and indeed, in 2020, Tesla was the key player with a (inflated) capital value exceeding the one of General Motors. On January 1st, 2020, the Tesla market capitalisation hit 89 billion $, 2 billion $ more than the combined market value of GM (50B$) and Ford (37B$);
- at the “driving” level, by progressively shifting to an assisted and then autonomous driving. In this area we have seen huge technology advances (smarter image recognition, AI, affordable LIDAR) that as a matter of fact would support a level 5 autonomy (full autonomous driving) but that, in practice has not been supported by regulatory acceptance (also because, let’s be honest, it has not reached the safety level -way way higher than human drivers- required to be accepted). Google was expected to lead, in a way its spin off Waymo is among the leaders (I love their tagline: “we are building the world’s most experienced driver”!). In a way Tesla is also being perceived as the company leading in autonomous driving. What we have seen, as for the case of electrical propulsion, is that most of the big car manufacturers are pouring money on autonomous driving research. The side effect has been a sharp increase in the features for assisted driving that are now, to different degrees, a standard in new models;
- at the engagement level by becoming an entertainment hub. The expectation, back in 2016, was to see Apple taking the lead. In a way they have released a number of interfaces that create a seamless continuum between the car (basic and not evolving) entertainment system and the smartphone (Android phones have followed on the iPhone trail). Several car manufacturers are now offering as an “add-on” Apple car play features (and Android features) recognising that the evolution is definitely in the hands of the Apples, Samsungs and the likes for what is personal services (they go well beyond entertainment to include navigation, information services, communications…). The perception of value provided by these services is so strong that there is a recurrent rumor of Apple entering the market of car manufacturing (so far it seems they are much more interested in reaping -indirect- revenues from their products expanding their usage within the car than investing huge money in what remains a very low margin market);
- into a transportation service. Huber (and the likes) have demonstrated in these last five years that there is a revenue opportunity in the car as a service space.So far the dent created in the overall car market has been marginal. Huber has today a market capitalisation of 1.4 B$, 0.3% of car manufacturing companies and has probably not decreased their market value. In the longer run, the confluence of self driving cars with the car as a service model is going to affect car manufacturers production volume. In this decade the production volume is expected to grow by a small 2% pulled by increasing demand from emerging markets (declining in advanced economies although sustained by a demand for cleaner vehicles). The situation will change for the worse in the following two decades where a sharper decrease in production volume can be expected. The world production of cars peaked in 2016 with 100 million vehicles, in 2019 it was down to 92 million (in 2020 it plummeted to 78 million but it is expected to recover in this year and the next ones). By 2050 the total volume may be below 60 million (more use of car as a service and longer life span of electrical cars).