Blog
September 1, 2020

Will the current automotive industry make it to the finish line?

Martijn Lammers

,

Chief Strategy — Co-founder

Will the current automotive industry make it to the finish line?

Then, a couple of weeks ago, I moved to another house, which took up all the extra time that I had used to spend riding my bike. Once the paint had dried, the furniture was in place and the process of moving was finally complete, and I got back on my bike ready to punch out those kilometres at a decent average speed. I noticed that that was significantly harder than just a few weeks earlier.

Now I don’t want to use this column to talk about my fitness goals, but the analogy to companies got stuck in my mind. Getting and staying fit is a continuous process, not a one-time effort, and it also applies to companies.

Industry without innovation: the road to complacency

Of course not staying fit doesn't necessarily mean getting fat when looking at a company, instead it means becoming complacent, underestimating new technologies and missing opportunities.

Once a company establishes itself, it often gets ‘comfy’ or pulled away from the innovativeness that led it to become successful in the first place. Instead, they develop tunnel vision around the one innovation that led them to success and stick to sustaining that innovation.

Innovations in other technologies that seem small at first get overlooked and their potential neglected. Whilst they can often be recombined and applied, initially in a much smaller market segment than the status quo at that point.

And, when they finally realise their ‘mistake’, it’s often already too late. You don’t start training for a marathon the week before: if you want to win, it's a lifestyle that you have to follow.

Lightyear one

Dealing with change: The innovator’s dilemma

The biggest challenge that many firms face is dealing with change: how do you respond to an emerging market when your customer base and their needs are changing?

The computer hard drive industry showcases this perfectly: established companies such as IBM were making products for B2B customers and ignored the potential of the B2C market. When they woke up to the new reality, it was already too late, and they were beaten by the market.

And while there are more examples in the book: The Innovator's Dilemma, you can argue that the same thing is currently happening with the automotive industry. Electric cars were an afterthought for most manufacturers until recently when Tesla’s dominance finally kicked them into action.

These companies lost ‘their fitness’ and are now in the starting block for a marathon that they haven’t trained for in decades.

A blessing for new players

At the same time, the innovator’s dilemma provides smaller firms with an opportunity for new players to enter the market.

In a way similar to evolution, every time the world changes, some firms fail, others adapt and new ones are born. Success is about staying fit and conserving that momentum to stay at the top of your game. Eventually, if a small firm can do that, it will grow into a bigger firm while others will flounder.

We’re seeing just that with electrification: the most successful car manufacturers who jumped on the bandwagon early and committed to the innovation. At the same time, companies should focus on the next wave of innovation for the automotive industry which will define the new standard for fitness: efficiency. With that we mean: getting the lowest energy use per driven kilometre.

Having an efficient vehicle directly improves the customer value of an (electric) vehicle. It gets you further, takes less time and money to fill up/charge, needs a smaller battery which reduces purchasing price and enables solar integration which reduces usage costs.

Ignoring this trend would be a mistake, and unfortunately it is what a lot of car manufacturers are doing: bragging about ‘having the largest battery pack’ without asking if it’s necessary to have it in the first place?

This is an echo of what defined the conversation around petrol cars: who has the most horsepower and the loudest engine. It is a philosophy that leads to waste, and at the end of the day lower value for the customer.

Companies that are focussed merely on electrifying instead of innovating are training for the wrong marathon.

(For further reading, you can read more about this in this Dutch article in which Lex, my co-founder and Lightyear’s CEO, talks about superforecasting).

During this period of digital commuting, I have put a lot of attention on my "Corona kilometres" instead of the more popular "corona kilos" metric. This basically means that I've been riding my bike a lot and over the course of 2 months, I became significantly fitter. Though I have to say, it took me quite some time to build up this capacity to cycle further and faster (What was it people say about leg day?)

More inspiration