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What’s the winning formula in the era of smart EVs?

On September 6 in Wolfsburg, Volkswagen AG signed an MOU with Jianghuai Automobile Co., Ltd. (JAC) for a potential partnership and a possible joint venture to make electric cars in China.

“As we aim to be at the forefront of e-mobility, Volkswagen Group is looking forward to explore all options to set up a close and mutually beneficial partnership with JAC,” said Matthias Müller, chairman of Volkswagen Group. The company is targeting sales of 1 million electric vehicles a year world-wide by 2025, according to “TOGETHER – Strategy 2025” released in June.

And not so long ago in July, Alibaba announced to team up with SAIC Motor to launch what they call the world’s first mass-produced internet car – the Roewe RX5 SUV with YunOS operating system.

So far, 2016 has witnessed significant changes in the automotive industry, both traditional automakers and tech companies are moving fast because the desire to win is relentless. There is no doubt that 2025 will usher in the age of connected, electric, autonomous and shared mobility. 

If so, what will happen? And how many of the existing vehicle brands will still remain in 2025?

The legend with great ambition will be made and fortunes won and lost as the World Wide Web experienced over the past century. The partnerships will be borne out of chance and change along the way, as there will be happy marriages and unfortunate divorces.

The likely scenario will be: several car OEM contract manufacturers + several popular OEM brands + several car OS and vehicles manufacturers + several autonomous driving solutions providers + lots of internet service providers and derivatives, and a host of business interactions in between.

Now let’s ask ourselves some questions related to the future of the smart EV market:

 

1. Do automakers still need manufacturing plants?

As both car companies and technology companies rush towards autonomous EVs, an OEM contract manufacturing model might become the new normal.

The question is: can a car built by an OEM contract manufacturer be trusted?

As we know, vehicle manufacturing requires years of designs and systems to ensure safety. A safety problem in a car could cause dangerous accidents and potentially deadly traffic situation, but a smart phone or laptop suddenly dies, it is very unlikely anyone will get hurt.

But as the vehicles become more electric and electronic in the near future, they will be replaced with electrical heart and self-driving systems (SDS), which integrates artificial intelligence with 360 degree radar, cameras and sensors, many millions of units will be developed to ensure strong security protection.

Tim Cook, CEO of Apple, recently argued that cars can be mass produced using methods more similar to electronics construction than the car assembly lines we know today.

As for now, the electric car manufacturing OEMs in China are still under development, due to the traditional joint venture car factories which are certified to produce electric cars (such as BMW’s Tiexi factory, Volvo’s Chengdu factory and Cadillac’s Shanghai factory) are most unlikely impossible to serve as OEM manufacturers for other car enterprises. If one company is looking forward to launching the product into the market quickly in a few years, then building a plant themselves will be a better choice for them to develop a new brand.

I hope car industry OEMs – the Foxconns of China’s auto industry, will come into shape rapidly.

 

2. Threat from technology companies (OS) – the automotive disruptors from Silicon Valley, what might this mean for the auto industry?

The ideal case of the future mobility service should be like this: No matter where and when we are, the services based on ecosystem will be able to identify and pick up and drop us off at our doorsteps by programing personalized data and provide on demand mobility. Our car is the third space after our home and office, now we expect a car to serve us with customized services with this technologically and socially connected platform which deliver vehicle connectivity, safety, and entrainment. 

What immediately come to mind when talk turns to internet vehicles is Google’s high profile efforts to utilize big data and develop a driverless car. The first such concept cars have already been testing and it does not rely on driver assist progression, but rather jump straight to being fully driverless. But it is still unclear what Google’s intention is: whether it will serve as a supplier to support shared autonomous mobility, or build its own hardware to be one of the players as well.

Rumors that Apple plans to create a competing vehicle have existed for months. Generally speaking, Apple is not an internet service company, but a software and services company making profit by selling hardware products. But if the inventors of the iPhone add an automobile to its list of game changers, what will the Apple car look like? Would it fundamentally change our lives the way groundbreaking Apple products have in the past? And what might this mean for the traditional carmakers as well as new players such as Tesla? Only time will tell.

 

3. Tech company teaming up with major automakers: best of both worlds or potential disaster?

China’s homegrown internet giants like Baidu, Alibaba and Tencent (BAT), LeEco, some smart EV makers and third party services companies are rapidly developing and leveraging connected mobility services as a means to make profit.

Foreign companies have an inherent disadvantage of having to access the local market, in particularly in internet service. Local technology companies such as BAT have great opportunities as they utilize existing customer relationships with technology platforms, expanding into mobility solutions and eventually vehicle technology development.

And there are already much collaboration between tech companies and carmakers. The following are some examples:

1. Cooperation between e-commerce giant Alibaba and SAIC Motor to launch the Roewe RX5 SUV featuring smart technology from Alibaba’s YunOS;

2. Daimler, BMW and Audi jointly purchased a software company HERE, the global leader of mapping and location intelligence provider;

3. Hyundai, SAIC-GM, Audi and Mercedes-Benz have teamed up with Baidu to integrate CarLife with their in vehicle systems – a system that is comparable to CarPlay from Apple or Android Auto from Google;

4. Baidu and BMW teaming up to research and develop autonomous vehicle technologies and prototypes;

5. Ford making its vehicles compatible with Tencent Chelian and enabling QQ, music, streaming video and other services to be available to Ford owners in the car; and

6. Volvo Cars and Autoliv, two of the world’s leaders in automotive safety, working together on the groundbreaking Drive Me project, the world’s first large-scale autonomous driving (AD) initiative.

In the battleground for dominance of future EV mobility, building collaborative partnerships and effective managements of multiple cooperative and competitive partners are critical to success.

 

4. Future of traditional car manufacturers: How can they disrupt themselves?

The traditional automotive business model will be greatly disrupted as the future of personal mobility through car sharing and connectivity experience associated with user’s apps. Traditional car manufacturers will be impacted by reduced sales of new cars and spare parts. And as autonomous vehicles grow in popularity, people will be freed up from sitting behind the steering wheel. Once a “driver” is released of their reasonability to drive, the demand for entertainment and connectivity will grow dramatically. The ability for people to be entertained and attain valuable connective data will become a key purchase driver. And the size and sharpness of interior screens will be a greater factor in car purchase decisions than size and drivability of the vehicle.

The time to understand the change and identify the gaps and move towards a new business model is now. How can a traditional car manufacturer disrupt itself – before others do it first? Here are three ways:

a. Team up with an internet company;

b. Transform into an OEM contract manufacturer; and

c. Transform business model. 

Some suggestions:

Business transformation often requires new organization capabilities. Traditional car manufacturers should embrace a startup mindset, which encourages innovations, trial and error experimentation and new ideas. The management and outstanding talents of the company should spend time in Silicon Valley, among other centers of innovations, to learn and to commutate with the disruptors and thinkers.

Hiring future-oriented talent from large and small technology companies and internal entrepreneurial startups. Empower these employees to inspire innovating and fresh thinking to locate new increasing point of product in the age of the internet automobile.

The new EV age of will presents great opportunities, as well as difficulties for those who are unwilling to change or not easily able to adapt. Anyone involved in the automotive industry, in particular those who invest heavily, must understand the change and have clear vision of what to do and identify risks and opportunities. As the famous scientist Charles Darwin once said: It is neither the strongest of the species nor the most intelligent that will survive. It is the one that is most adaptable to change. Only those who plan well and adapt to change will eventually reap success.

(Rewritten by Melanie Xing partly based on an article titled “The next five years for China’s smart EVs” on cheyun.com)

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