Automotive - An industry in transition: Big threats, Bigger opportunities
A massive transition – a looming imperative
The automotive industry is in the middle of a massive transition. Like any technology led transition, this transition has resulted in big risks, and sky-high opportunities.
A massive, seemingly irreversible transition is going on in the Auto industry, starting with the large, well-capitalized economies – from legacy Internal combustion (IC) Engines to Battery EV (or EV) and other less visible alternative energy auto options (hydrogen, etc.), due to a confluence of many forces:
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Adverse impact of fossil fuels on humanity’s well-being on a large scale – pollution, air-quality, grave hazards to ecologies
and humans caused by oil extraction companies and autos, which is also a key ingredient causing extreme climate uncertainty.
In 2020, the transportation sector accounted for about 20 percent of global
greenhouse-gas emissions (source: McKinsey,
McKinsey__Study-on_the-future-of-mobility)
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Resulting government actions - regulations and controls, incentives and creative policies put in place by some of the largest
global economy players and GHG
emitters - from EU to US to China, Australia, India, among others.
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Availability of suitable technologies & materials - Although technologies are still not optimal – for instance, EV battery
materials resulting in more mining, greater dependence on energy from utilities, many of which are still heavily dependent on
carbon-intensive/dirty sources, the supply-side of these materials have scaled up significantly over the last 5+ years, so has
driving range and charging availability.
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Major shift in consumer demand towards EV (and other low-carbon options), and away from the traditional IC engine auto, despite
higher prices of EVs versus ICE autos - thanks in no small part, to the pioneering efforts of Toyota (Hybrids), Nissan and Tesla,
generous government-backed loans, and the relentless efforts of Tesla’s highly visible CEO, Elon Musk.
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A major transformation underway among legacy ICE auto-makers as they wake up to the serious competitive
threat posed by the EV, a relatively new product, as a means to cut emissions, the technologically
smarter pure-play EV companies making it, and the rising public awareness around the climate impact of ICE autos;
Leading, pure-play EV makers, with their smarts in clean-sheet design in hardware, software, its integrated functioning,
among other attributes, have a sizeable lead over the legacy makers in
the engineering and manufacturing of EVs; as a veteran leader from a large, legacy automaker admitted (circa early 2023).
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Lower complexity Bill of Materials (BOM), a transformed product - Despite challenges of manufacturing EVs at scale and
attaining suitable margins, from a BOM standpoint, the EV is a simpler, and in key respects,
a superior product too - beyond being fossil fuel-free. Also, with the EV, the auto is going through a radical transformation –
from a mechanicals heavy to an electronics and software heavy product.
While the underlying EV technologies and alternatives need to evolve further, it is clear to the average, informed
consumer that they do not need a power station burning polluting fuel under the hood, as they go from point A to B - the
case with IC engines. For legacy ICE auto companies with significant direct emissions, transitioning to EVs and other low-carbon options,
is a looming imperative.
In fact, for all ICE automakers, except very few, who started on their "EV operations learning curve" a few years ago, the
transition to a cleaner automotive technology, is an existential threat, as the
inevitable shakeout takes place. This paper dives into this key question and provides 7 key takeaways:
How can the auto industry prepare itself for this transition (OEMs & Tier1s)?
(operations leaders at both legacy ICE, and pure-play EV automakers, take note)
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