The winds are changing in the world of cars

February 10, 2017
Holger G. Weiss

We live in turbulent times, and I’m not just referring to politics. It’s quite remarkable how fast things move these days. It’s an era of disruption and uncertainty in almost every business, and innovation seems the only way to stay afloat. But what does it mean to be truly innovative in the automotive industry?

Last week, I was invited to the New Year's Reception of VDA, the association of the German automotive industry. I’m not exaggerating when I say that what these people think and do can shape the economic future of the whole country. The Automotive Industry is undeniably a powerhouse for the German and European economy. To better understand just how crucial the industry is, let’s take a look at some numbers. With more than $1 trillion in revenue the automotive contributes a whopping 6.5% of the total GDP of European Union. It is also a source of employment  for a massive 12.1 million people across the continent. What will happen to these car manufacturers as the industry begins to change? It’s not only the problem of their shareholders – it’s the problem of the whole economy. Right now the business is thriving, but what does the future hold?

Paperwork is done

Matthias Wissmann, president of VDA, said in his speech that since 2010 more than half of all patents in the field of connected or autonomous driving have been filled in Germany. That is impressive and it puts in perspective the recent call for more innovation and ways of thinking outside the box on the subject. But does it mean that there is no reason to worry about the ability of German carmakers to compete with their American and Chinese rivals?

Good ol’ industry in the brave new digital world

The simple answer on the question above is a firm “no”. Innovation is not just the number of patents registered or the level of technological excellence achieved. Take Kodak for example, they were a world leading supplier for films and what happened to them? The digital age will challenge entrepreneurs and corporations on so many levels, not just technology. It’s no longer good enough just to have a great product.

Disruption now

Just like any product, the real challenge is how to sell it. In short, how to move with the market to develop new versions and to find a business model that will connect all the dots. We already are beginning to see a disruption of the automotive business. Electric cars and autonomous driving are blooming industries, with everyone from Google to Uber trying to get ahead in the race. But it’s not only that. Mobility as a service (car-sharing, ride-hailing) is predicted to create an additional value of 30% of the total revenue in 2030 – that’s $1.5 billion. Who will be quick and clever enough to grab the biggest slice of that cake?

Sharing is caring

Traditional industries file patents and spend a lot of money to protect them. However it’s no longer a valid way to protect yourself from the competition anymore. It took only seven years for Uber to achieve bigger valuation than General Motors, which is 100 years old. And suddenly it’s not GM, but Uber showing the direction of progress with their autonomous car program.There is also another approach to innovation. What will happen when instead of protecting its patents, the company suddenly decides to make them publicly available? Sounds crazy, but it’s extremely smart. This is what recently happened with Tesla and a number of their patents in electrical mobility. Elon Musk understands that in order to  be one step ahead in the industry, it’s necessary to accelerate the creation of a new ecosystem. And to benefit from it as the frontrunner.

The big guys still have a leap

Final thoughts. We shouldn't underestimate the traditional companies and their power to innovate and further shape the industry, even in the digital age. BMW, Daimler, Toyota and other car manufacturers have already proved that they are flexible enough to accommodate this new environment effectively. The barriers are high in the automotive industry, but what would happen when the rules change how to build cars, how to sell and how to use them? We see big companies entering like Google. Will the old guard be ready...

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