Dis­cover what keeps auto ex­ec­u­tives awake at night

Wheels (Australia) - - Contents -

EV­ERY year for the last three years, the lead­ers of the global car in­dus­try and the most se­nior fig­ures from the big­gest tech­nol­ogy com­pa­nies have met for a one-day au­to­mo­tive ver­sion of the Davos sum­mit in which they try to pre­dict the fu­ture of the car. They’re not obliged to keep the meet­ing se­cret but no­body seems to talk about it pub­licly; per­haps be­cause the dis­cus­sion is so sear­ingly hon­est and re­veal­ing that if word got out, every­one would want in.

The con­ver­sa­tion it­self is se­cret, though. To en­cour­age the CEOS to talk freely about their fears for the fu­ture, the meet­ing is held un­der the Chatham House rule, which al­lows those at­tend­ing to act upon what they learn but never to re­veal the source of an in­di­vid­ual idea or com­ment. I’m for­tu­nate enough to have at­tended all three meet­ings, so I can’t tell you who said what, but I can tell you what they re­ally think.

Firstly, elec­tric and au­ton­o­mous ve­hi­cles are old news to these guys (and it is al­most all guys). They all ac­cept that they’re hap­pen­ing and will change the car ut­terly: one del­e­gate said we will see as much change in the next 15 years as in the last hun­dred. The shift to EVS is al­ready ob­vi­ous but the con­sen­sus is that we’ll see high lev­els of autonomy by the early 2020s in ‘pioneer’ cities like Pitts­burgh and in com­mand economies – mainly China – which can just de­cide to im­ple­ment the re­quired in­fra­struc­ture.

These is­sues are old news in the sense that any sen­si­ble CEO of a main­stream car maker is now to­tally com­mit­ted to them, and progress is now largely down to their engi­neers and (in the case of higher lev­els of autonomy) the law­mak­ers. But there’s clearly a long way to go, so there’s still risk. There’s gen­eral ac­cep­tance that the mass-mar­ket brands which don’t get this right will pay with their ex­is­tence, and that there will be ca­su­al­ties. When asked what he thought of the car bosses present at the meet­ing, one young tech pioneer said they were “dead men walk­ing”.

What the bosses don’t yet know is what hap­pens once EVS and autonomy are suf­fi­ciently wide­spread to be­gin chang­ing the fun­da­men­tals of their in­dus­try. The growth of smart­phones and fast mo­bile data net­works make a per­fect anal­ogy. Like EVS and autonomy, they were an en­gi­neer­ing chal­lenge and continue to gen­er­ate huge prof­its for the com­pa­nies which got them right. But their real value lies in what we do with them. They’re the host for pre­vi­ously un­think­able phe­nom­ena like so­cial me­dia. Smart­phones changed phones, but so­cial me­dia has changed the world.

The CEOS know that some­thing sim­i­lar will hap­pen with cars. Bri­tish tech­nol­o­gist Kevin Ash­ton, who both coined the phrase and helped cre­ate ‘the In­ter­net of Things’ spoke at one of the meet­ings. (I know he doesn’t mind me re­port­ing what he said be­cause I’ve known him for 20 years and I’ve just asked him.) He urged those at­tend­ing to try to spot the un­ex­pected con­se­quences of the com­ing rev­o­lu­tion, be­cause that’s where the real value and dan­ger of such dis­rup­tion lies.

The trou­ble for the car in­dus­try is that men in suits in late mid­dle-age are ill-equipped to spot these op­por­tu­ni­ties. They’re do­ing their best, but they know they’ll have re­tired long be­fore this stuff re­ally be­comes a prob­lem. Dis­rup­tion re­quires some­thing to dis­rupt, and that gen­er­ally means

big, hide­bound or­gan­i­sa­tions which have done things the same way for gen­er­a­tions. The big car com­pa­nies have count­less bil­lions of cap­i­tal in­vest­ment tied up in plants which cast en­gines and stamp out steel bod­ies and which no bug­ger wants to take over.

So they have to keep their pro­duc­tion lines run­ning: they can’t af­ford to dis­rupt them­selves. Their share­hold­ers ex­pect them to gen­er­ate a re­turn on this in­vested cap­i­tal so they can’t take wild risks on new ideas like a start-up would. Such risks al­most al­ways end in fail­ure, but they’re nec­es­sary to truly dis­rupt. And if a car maker is lucky enough to have a clever twenty-some­thing who does have the big idea, they’re more likely to start up on their own or de­camp to Google than sur­ren­der the idea to their em­ployer for a five per­cent pay rise and pro­mo­tion to man­ager sta­tus.

The CEOS can peer a lit­tle way into the fu­ture, and they re­ally don’t like what they see. Once a car can be sum­moned, drive you to your des­ti­na­tion and then be dis­missed, the ar­gu­ment for buy­ing your own starts to look thin. So bang goes your vast dealer net­work and the very prof­itable model of sell­ing cars to in­di­vid­u­als or busi­nesses which then leave most of them stand­ing idle for most of the time. As one del­e­gate said, Uber is just an au­ton­o­mous car with a meat­based con­trol al­go­rithm, and in the cities where ride-hail­ing ser­vices are most es­tab­lished they are al­ready demon­stra­bly re­plac­ing not just con­ven­tional taxis, but car own­er­ship in gen­eral. Nor do you re­ally care who makes your Uber, or your train or your plane, so long as it’s safe, com­fort­able and re­li­able. So the abil­ity of premium brands like MercedesBe­nz and BMW to charge more for what emerges from their fac­to­ries also starts to di­min­ish.

Of course, all this re­quires some caveats. EVS are ad­vanc­ing rapidly: France and the UK plan to end sales of con­ven­tional com­bus­tion-pow­ered cars by 2040, and Nor­way in just seven years, and there’s lit­tle dis­agree­ment that the tech will be ready by that later date. But the ad­vance of autonomy is far less cer­tain. The shift to a world where the data our cars gen­er­ate and the soft­ware that con­trols them are worth more than the in­dus­try that builds them will be gov­erned by how quickly true autonomy can be im­ple­mented. We might see it at work by the early 2020s, but it will be a lot longer be­fore it’s wide­spread in even the best-reg­u­lated cities, and a re­ally long time be­fore it’s good enough to cope with down­town Delhi. And the car­mak­ers are hardly ig­no­rant of all this. They point out that they have been around for more than a cen­tury and weath­ered a few shocks in that time. They’re al­ready soft­ware com­pa­nies too, gen­er­at­ing mil­lions of lines of code each year. And if they have to, they’ll just buy the start-ups that have the best ideas: pro­vided they can af­ford them.

But it’s still wor­ry­ing that only a hand­ful of the cur­rent crop of au­to­mo­tive start-ups show the slight­est in­ter­est in ac­tu­ally mak­ing cars. What the in­dus­try fears most is that it will lose con­trol of all that is new in this brave new world, even the brains of its own cars, and that it will be re­duced to as­sem­bling white-la­bel mo­bil­ity boxes at com­mod­ity prices, prob­a­bly us­ing other firms’ bat­ter­ies and mo­tors.

Who ac­tu­ally makes the iphone? Not Ap­ple. They’re mainly as­sem­bled by two Chi­nese com­pa­nies called Fox­conn and Pe­ga­tron. They do very nicely out of it, but they’re not Ap­ple. Have you heard of them? Prob­a­bly not.



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