For well over a century, the gasoline-powered internal combustion engine reigned supreme in the automobile industry. Over the last decade, however, electric vehicles have started to disrupt that well-established paradigm, with pioneers like Tesla garnering masses of media attention and lofty market capitalizations.
Driven by technological progress, the auto industry is undergoing a transformation on multiple fronts. The core technology is changing, with the EV’s combination of battery, motor and inverter replacing the traditional engine and transmission. The manufacturing process is also changing, with less focus on skill and know-how and more on the routine assembly of standardized parts. With automobiles increasingly seen as convenient tools for getting around rather than aspirational objects to own, value is migrating away from hardware toward services. At the same time, the function of automobiles is widening as they become an energy source as well as a means of transport.
What do all these changes mean in business terms? The switch to a new core technology threatens current incumbents and opens up the field to newcomers. The shift to an assembly-based model lowers the value of most components and the assembly process but actually elevates the value of the core technologies. (Think of the position occupied by Intel’s microprocessors in the PC business.) The perception of automobiles as fungible opens the way for a range of mobility services like ride-sharing. And finally, if aging car batteries can enjoy a second life as stationary storage batteries or parked cars can supply energy to the grid, the dividing line between the automobile, battery and power generation industries starts to blur.
Against all this upheaval, huge opportunities await innovative companies able to craft end-to-end mobility solutions covering both hardware and software/services.