When it comes to claims of technology revolutions, I'm reminded of The Who's song:
There's nothing in the streets /
Looks any different to me ...
Don't get fooled again!
Meet the new boss / Same as the old boss ...
I'm in the last stages of reworking a book manuscript co-authored with Peter Warrian on the auto industry viewed through the eyes of technology (we're currently rewriting each others chapters). The final chapter will examine autonomy, electric vehicles and new mobility services. I think the bottom line is encompassed by a simple question: will these raise total revenue? The answer to me is so obviously "no" that I won't spell it out, at least here. But the flip side is also clear: will it raise costs? It already has, and those costs are incurred up front: financial analysts, to your net present value calculations! But (almost?) all auto assemblers believe they must play this expensive game. We have a classic prisoners dilemma: if you don't spend money, you will lose out very big [and your board of directors will replace you]. If you spend money, your firm loses big [and you're around to receive another bonus].
...only one question matters: will industry revenue rise?...
Is there a way out? Perhaps, if OEMs can turn to suppliers to fund most of the R&D. Some of these are new entrants who are convinced it's worth paying up front to gain a seat at the table, or are soft in developing the business case (only a billion? not enough money to worry about). Or both. This is the same prisoners dilemma story, but OEMs may not have to pay the cost. However, the supply chain is also quite concentrated for such technologies, with a (global) Big Three in many sectors (eg, power control modules for electric vehicles). In my observation (backed by sitting through a smattering of internal business case presentations) these firms are more hard-nosed about funding R&D projects, hoping to recoup those that pan out (and pay for those that don't) through the high prices of early systems (which in turn are on luxury vehicles). However, they may maintain the ability to pass costs on to their OEM customers, that is, keep margins from compressing quickly. My bottom line is thus that OEM margins will get squeezed. The disappearance of the Chinese sugar daddy will accentuate that.
...OEMs are trapped in a classic prisoners dilemma: doomed if they do, really doomed if they don't...
More in teasers as the book content gets nailed in place. If all goes well it will be out in November.
For those unfamiliar with the PD (Prisoner's Dilemma) game, here's the basic 2-player layout:
|New Technology Rat Race|
|Profits Relative to Starting Point|
|Don't Join||0, 0||-10*, -2|
...OEMs are on a slippery slope, and it's started raining...