Big changes for big automakers
Automakers have been making vehicles for the same markets in the same way for generations. The vast majority of cars they produce are powered by a combustion engine and driven by its owner.
Three key innovations are challenging this tried-and-true approach to mobility – electrification, ride sharing and autonomy.
Successful incumbent businesses can rarely succeed indefinitely without changes to its business model or offerings. There is a constant tension between staying with the tried and true versus making a sweeping change that will be costly, risky and often undermine their existing offering.
How can such a company introduce innovations and allow them to flourish quickly enough to offset the impact on their existing products or services? What if the change was not needed, or too soon?
Under these circumstances, companies benefit from the lean startup and design thinking principles of small trials with feedback and iterative improvements.
What if cars never break?
Tesla can sell electric cars without cannibalizing existing product lines. It has the advantage in terms of economies of scale for battery production. By going all-in, they are able to make electric cars profitably (based on cost per vehicle and sell price – Tesla as a whole is still in the red, largely due to breakneck investment in production plants and their charging network).
Tesla has no dealer network. Instead it sells directly to the consumer. The incumbents’ dealers don’t push electric cars because they need so little maintenance. Repairs, oil changes, brake repairs – these are lucrative and frequent visits from internal combustion engine cars. Electric cars, on the other hand, require very little maintenance.
If you head an incumbent car company, and even if you were convinced that electric cars would one day supplant combustion-powered cars, how would you commit to electrification knowing that it would inevitably negatively impact your bottom line?
Is car ownership no longer necessary?
Car sharing services like Zipcar and ride hailing services like Uber and Lyft are also impacting automakers.
“Car sharing reduces congestion and helps everyone get there faster. Each shared car takes about 10 private cars off the road, and thanks to Maven, car ownership in Toronto is no longer necessary.”
This is a bold statement from a company that makes its money selling private cars.
Autonomy is perfectly suited to electric cars and their long intervals without service, because they can theoretically be operated constantly (other than charge time) thanks to their tireless robotic drivers.
As private car ownership dwindles, so too will the skill of driving, and soon a generation of people will grow to rely on autonomous vehicles for hire to ferry them to their destinations.
GM has mooted a Level 5 (more on levels of autonomy in this post) version of its electric Chevrolet Bolt. This would come without driver controls and be built to drive entirely autonomously. The goal is the produce cars for ride sharing and not private ownership.
Innovate – Even When It Hurts?
All automakers are aware of the seismic changes affecting their business models.
GM in particular has been among the most progressive with electric cars, first with their ill-fated EV1, later with the Chevy Volt hybrid and now the all-electric Bolt. The automaker has also explored ride sharing/hailing projects with Lyft, Uber and its autonomous driving technology subsidiary Cruise.
All these initiatives have the potential to gut GM’s current business model of selling cars to private owners through a dealer network expecting a heavy flow of repair revenue. The alternative, it seems, is to be simply left behind.
GM is taking baby steps into the realm of electrification, autonomy and ride sharing, without investing in assembling a large base of drivers required by ride hailing services (which come with someone behind the wheel).
In the short term, Maven gives GM a dumping ground for off-lease vehicles. It is also offering its electric vehicles to Uber drivers in Austin, giving GM an opportunity to see how these cars hold up under heavy use.
An autonomous Maven-like service would not require the customer to drive – and furthermore the car would be able to “deliver itself” to the customer and return to a suitable parking/charging station unattended after use.
For whom the road tolls
I think GM’s approach is cautious but prudent. They are in a good position to sustain their current business model, while their Maven effort serves as an innovation lab, allowing them to explore new technologies. They have chosen to offer ride sharing with an open path to driverless ride hailing.
It is unlikely that driverless ride hailing will ever demand the level of automaker output that now exists. GM may be able to sustain its size and revenue by expanding its from being an automaker to a mobility provider.
Along the way it will have the expense of dismantling its dealer network and find itself with a nearly endless array of competitors, including Uber, Waymo and Lyft – who it must be said will need somebody to build their cars.
Cities will surely have an impact on the future of autonomy and car hailing. With electrification comes lost gas tax revenue. With ride sharing comes less cars with less road tax paid. Will cities be able to afford the road network these new vehicles will require? Will car registration costs be increased? Will road tolls be put in place?
Absent thoughtful policies put in place by municipalities, the sad possibility is that the future will be just as gridlocked as it is now – or more.