The pandemic wasn’t planned for.  The Russian invasion of Ukraine wasn’t planned for.  Even though we knew Brexit was coming, not enough planning took place for it.  All these events have a massive impact on the economy generally – and on businesses and their strategies specifically.

The automotive industry is very close to my heart. Having led Porsche, BMW and Lamborghini early in my career, I am currently part of the team that is behind Radical Motorsport.  The changes that have taken place in the last decade and have picked up momentum in the past few years mean that the sector is being challenged as never before.

The effects of recent events have altered the entire process of designing and manufacturing cars. All operational areas have been disrupted. Supply chains have shifted dramatically from the streamlined ‘just in time’ model, that is economical in relation to cost and logistics, to a longer cycle to allow for extended lead times, disrupted delivery, geopolitical events and other actions.  One global manufacturer I spoke to recently has moved from a two-day just-in-time stock level to a 28-day just-in-case stock holding.

On top of this series of external impacts the industry is now facing significant disruption from its biggest regulatory shift in 120 years. Governments have regulated that vehicles powered by the internal combustion engine (petrol/diesel) may not be sold as new cars after 2030. This is an incredibly tight timetable in an industry which normally takes five years plus to develop a new model range, even with familiar technology.

It’s all about the environment  

One of the biggest concerns around transport is its environmental impact. The widely spoken view is that there are significant ecological benefits to driving electric or battery operated vehicles (BEVs).  However, I would argue that it’s not as simple as the press would have us believe.  There have been concerns about the environmental sustainability of batteries that use Lithium, Cobalt, Neodymium and other resources that are globally available in strictly limited quantities.  This is only the tip of the iceberg, there are significant supply issues over the sourcing of rare earths, precious metals and other components that are used to manufacture BEVs. And that’s before we get into the ethical concerns of the primitive and dangerous mining processes widely used to extract these materials from the earth.

The cost of electric vehicles

The cost of manufacture of the running gear, suspension and chassis is consistent whether it’s a BEV or an internal combustion engine car – but the big difference is the cost of the battery. One well-known manufacturer calculates that the cost of the battery is six times the cost of an internal combustion engine.

Although the price of EV battery cells has declined in recent years as production has risen around the world and, in the short-term is likely to reduce further, they’re still expensive compared to the petrol/diesel driven vehicles.  The greater manufacturing cost of a BEV presents manufacturers with the challenge of persuading customers to pay higher prices for the vehicle while being uncertain about the life span of the battery and the whole life servicing costs.

As well as the challenge of building a stable and ethical supply chain to support the new technology of BEVs, the industry is having to consider a different commercial model. The traditional car dealer network is being transformed as more cars are bought online and the customer moves to a lease or hire purchase finance arrangement. While this trend to new purchase models is not new, the parallel process of dealing with a completely new product technology and new purchase trends is taxing even the best operators.

A different approach

Electric cars enable new vehicle architecture – there is no need to have fixed positions for an engine, drivetrain or gearbox – which means modular vehicles with easily exchanged components will become common. When a vehicle is built using modular construction it allows component switching rather than repair.

This could mean BEV service and repair costs will remain the same or potentially reduce.  The role of a technician will change as, in addition to working on a high voltage vehicle, the information systems built in to the BEV will mean they will need to gain expertise on data management, data security and all the regulation around GDPR.

With the capability to upgrade the software and upgrade the drive technology, you’ve potentially got a vehicle that can go on and on.  A number of manufacturers are talking about the million-mile car: a vehicle you use for this period of time may well become a utility, rather than a pride of ownership experience.

This will further encourage the next generation of car users to move away from buying a replacement vehicle to just using one – for life. With subscription, rental, time usage and car-share models already growing as a percentage of the market, quite how that will shape the future of the car ownership experience it is too early to tell.

What will it mean for vehicle manufacturers if the new car change cycle moves from today’s 30 months average to potentially double, triple or many times longer than that? Again, its too early to say but I anticipate significant changes in ownership to cascade through the sector.

Staying on the road

For BEV users, one of the main challenges will be the electricity charging infrastructure, particularly for those who live in cities and do not have off-street parking.

It’s not practical for all electric car owners to charge at home, so the limitation will be the charging infrastructure and how convenient it is to access.  The network of charging stations is spreading, but not fast enough to encourage owners to switch, even if vehicle cost is not a consideration. And if the country can build the necessary charging infrastructure by 2030 does the country have the electricity generating capacity to power it? At the moment, the answer to that question is certainly no.

At this stage no one can predict with certainty what will happen in the global automotive sector over the next ten years. What I can predict is that it’s going to be disruptive. And disruptive always creates opportunities for agile leaders and their organisations. If you would like to discuss how I can help you to prepare for the future, please get in touch.

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