Shift to electric, autonomous driving a matter of survival for car companies

Sweeping technological and regulatory changes, including the development of electric cars and autonomous self-driving vehicles, are disrupting the automotive industry worldwide.

The emergence of climate change as a potent political issue, plus worsening air quality in major cities have changed public perception of cars, even as the World Bank has confirmed that one-fifth of carbon dioxide emissions worldwide comes from transportation.

Ironically, even as governments around the world are forcing carmakers to improve fuel efficiency and cut carbon dioxide emissions, consumers continue to demand thirsty sport utility vehicles (SUVs).

Nonetheless, the internal combustion engine is under attack. Regulators and a growing number of environmentally conscious car buyers are pushing the internal combustion engine toward obsolescence, and countries led by China, Britain and France aim to phase out cars that burn gasoline or diesel by 2040. Norway is trying to convert entirely to electric vehicles by 2025.

Car ownership is becoming a luxury rather than a necessity, especially in urban areas where people can avoid fuel, parking, maintenance and insurance costs by relying on ride services like Grab or Uber.

ECONOMIC CATALYST. Last year, global car sales slipped for the first time since 2009, even in China, which could signal the onset of a global recession because the auto industry is such an important economic catalyst.

If auto sales continue to decline, millions of people worldwide who work directly for auto manufacturers and for companies that supply brakes, tires, sensors and other components, stand to lose their jobs.

John Elkann, chair of Fiat Chrysler Automobiles who tried but failed to negotiate a global merger with Renault and the latter’s Japanese partners, Nissan Motor and Mitsubishi Motors, has said: “The next 20 years for the automotive industry, like its first 20 years, are set to witness a greater level of change than during the intervening 100.”

“It’s going to be the biggest change we’ve seen in the last 100 years, and it’s going to be really expensive for the biggest companies,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business said.

The major auto companies will spend well over $400 billion during the next five years developing electric vehicles (EVs) equipped with technology that automates much of the driving, according to Alix Partners, a consulting firm. They must retool factories, retrain workers, reorganize their supplier networks, and rethink the whole idea of car ownership.

MATTER OF SURVIVAL. For these auto manufacturers, this upfront investment is a matter of survival. If they don’t adapt, they could become obsolete. Yet no one knows when or how their investments will pay off, whether consumers are willing to pay for the technology, and whether it will ever earn a profit, especially as a global slowdown in car sales and concerns over trade wars cloud the horizon.

Some carmakers have joined forces to cope with the investment requirements of new technology. Aside from the failed Fiat Chrysler-Renault merger, Ford and Volkswagen have agreed to work together on pickup trucks and commercial vans, and are in talks about combining their efforts to develop self-driving cars.

But despite their size, automakers like Fiat Chrysler, Ford or Volkswagen are at a disadvantage to newcomers like Uber or Dyson, the vacuum cleaner maker, which is developing an electric car. The traditional carmakers still earn most of their revenue from cars with internal combustion engines, and must maintain factory networks that quickly become a financial drain when not running at capacity.

Meanwhile, this year’s annual meeting of the World Economic Forum (WEF) in Davos, Switzerland focused attention on the seismic changes occurring in world transport, the future of mobility, and the provision of safe and accessible transport as a driver of economic and social well-being.

The WEF recognized that it is a time of significant upheaval in the mobility sector, as new technology redefines what mobility means, and as the automotive sector transitions to alternative energies while confronting worsening public opinion in the wake of “Dieselgate.”

It is also a time of escalating carnage on the world’s roads where, despite the positive outcomes of the United Nations Decade of Action for Road Safety, casualties continued to rise to some 1.35 million road deaths and 50 million injuries each year.

INTEGRATION. One session in Davos centered on the reality that new technology, such as driverless cars, takes a surprisingly long time to introduce and integrate. The meeting accepted that autonomous vehicles were initially likely to be rapidly accepted by industry rather than consumers, and that integration may be driven by public bodies and large-scale private enterprise.

Rapid adoption of electric vehicles is hampered by a scenario in which infrastructure bodies await sufficient consumer adoption to invest in charging facilities, while consumers await infrastructure changes to feel secure in purchasing a battery-powered vehicle.

The WEF’s Autonomous Governors group, made up of major motor manufacturers, suppliers and global transport providers, acknowledged that the automotive industry is facing a dramatic transformation. Industry leaders noted the importance of the coming wave of autonomous mobility and recognized the need for advanced public-private cooperation in order to advance self-driving applications for people and goods.

Sources: The New York Times, Nikkei Asian Review, Auto International Journal of the FIA Issue #26