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A tale of two automotive industries

30 January, 2019

Walking through the North Hall at the Las Vegas Convention Center for the 2018 CES show, it’s easy to imagine a not too distant future where everyday life is more efficient, enjoyable and safer. Fully autonomous vehicles, integrated systems that can provide users any type of data or service in near real-time, with safety and (cyber) security an overriding priority, all wrapped up in a streamlined and seamless offering. However, just a few humbling reminders like a day of rain in the desert or a power outage remind us that the world is a pretty complicated place, and there’s never a straight line for innovation. The unexpected rain on day one of CES (the first in nearly four months, I was told) highlighted both the need for, and current shortcomings of, next-gen mobility. Some autonomous demonstrations had to be delayed or canceled because of the inclement weather.

When automotive manufacturers and suppliers began increasing their presence at CES several years ago, they came with the goal of challenging traditional technology companies in the next-gen mobility space and to steal some of the thunder with significant announcements of their own. This year there wasn’t any jaw dropping news, but rather a continued refinement of the vision and capabilities of companies and where they intend to compete within the mobility ecosystem of the future.

Fast forward a week to the North American International Auto Show in Detroit. While there was an exhibit space dedicated to many of the technologies showcased at CES, this show was very much about the present…a present dominated by pickups, crossovers and SUVs. And why not? In 2017, nearly two-thirds (64%) of all new vehicle sales in the US were light trucks, a result of increased consumer demand for utility in an era of great interest rates, economic growth and low fuel prices. The industry has responded by giving consumers what they want…roughly 80% of the introductions were of the light truck variety, while the handful of passenger car reveals received a lukewarm response.

This highlights a difficult task for automotive manufacturers and suppliers. How do you simultaneously compete in the automotive industry of today, while investing and preparing for the disruptive industry of the future that includes autonomous and connected cars, electrification, and new mobility models? It’s not an easy answer. The automotive industry is in a very healthy, and profitable, place at the moment. The revenue being generated has allowed companies to invest heavily in both current products and future technology, but at some point belts will need to be tightened as sales decline. Our Strategy& team recently published a paper titled How to overcome five myths that are distracting your auto company. In it, they outline some of the common misconceptions around next-gen mobility and the idea that it is right around the corner. They offer advice on some of the things companies can do today in order to maximize their business while preparing for the future.

To be clear, there is no doubt that the technologies related to next-gen mobility are coming; it’s just that there are plenty of hurdles to clear before we see them dominating the streets. The challenges that most immediately come to mind are cost reduction, technological breakthroughs, infrastructure investment, regulatory considerations, and (most importantly) consumer trust. Give credit to the industry, billions of dollars have been invested to-date to address these issues, which will go a long way in accelerating the pace of innovation and rate of adoption. However, until that day comes, we will continue to see two very distinct automotive industries, with companies trying to decide if they want to play in one or both of them.