Will the next generation lose their virginity in autonomous cars? The real threat to automotive brands! – Part 1
October 5, 2020
Brands fulfill more than needs
I recently talked with Mario Herger, author of the book The Last Driver’s License Holder Has Already Been Born, which claims future generations will not need, or even want to own cars.
Mario is an innovation researcher and consultant based in Silicon Valley. His former employer, SAP, is located next to Tesla, so he witnessed the rise of automotive innovation firsthand. Several other companies besides Tesla have permits to test autonomous vehicles on public roads in California. Most of this testing is done in Silicon Valley, so Mario sees autonomous cars on a daily basis.
Mario takes issue with the purpose of a car being to get you from point A to point B. As a brand strategist I get this. I am often telling my clients their brand value is mostly emotional, based on loyalty, experience, status, and shared values. Some people may go to a fine restaurant because they need to eat. But most choose their favorite restaurant for reasons that have nothing to do with hunger. It may be for romance, or to celebrate a special occasion.
Mario points out that we have a very emotional connection to cars. We see this in movies based solely on cars, like Fast and Furious. We see it in the status they give us, with brands such as Mercedes. We see it in the sense of independence cars create for teenagers, who can finally get out of the house and meet up with friends outside their neighborhood. Cars reflect your personality and can make you more attractive to potential lovers. And, of course, the car was where a lot of the post-war generation were probably conceived!
‘But all that is changing’, Mario says. ‘We’ve seen already with millennials that not only is car ownership down, but also driver’s licenses. I talked to driving school instructors in Germany, Austria and in the U.S. and they all say the same.’
‘So what’s the purpose of a car actually? It’s not about mobility. It’s about connecting people to places and to other people. I want to connect with other people. I want to connect with goods and places. And the biggest competitor today for that is what you have in your pocket. You can order goods with your smart phone. You can connect with experiences without being physically there. And you see that when you have young people today in the car, or even older people, they are constantly on their cell phone. If you wanted to punish a 15 year old in the 80s, you took away the key for the car. If you want to punish a 15 year old today, you change the password for the Wi-Fi!’
The late Harvard professor Clayton Christensen coined the term ‘disruptive innovation’. He researched what happened to the ten biggest players in an industry after a disruptive innovation and found that 50 to 90 per cent of them went bankrupt, or were sold, or moved to a different type of business.
Mario believes that this is going to happen to the big automotive brands.
There are four disruptions occurring, known by the acronym CASE: Connected car, Autonomous car, Shared car, and Electric car.
Mario says that the internal combustion engine, gasoline, and diesel will all go away.
‘There is no discussion anymore that the tipping point has been reached for electric cars. And because autonomous cars are much safer, you can build them differently, lighter weight. And the computer can drive them more optimally, with less energy consumption. So we expect about 80 to 90 per cent reduction of the current price. And maybe because now transportation is so cheap, the restaurants, the movie theatre, the hospital just sends a car to pick you!
‘Cars will become a mobility service because you don’t need to drive, and the thousands of dollars you spend on car payments can be used for other things. And you can order the vehicle you need for the particular circumstances. If you have to take a sofa across town you order a van. If you are going to a party with your spouse, you request a two-seater.
‘So what happens to the big auto brands? They suddenly become suppliers. The brand name disappears. Do you know whether you are flying on a Boeing or Airbus? Do you know the brand of the train you ride? It will be the same for cars.
‘And that is a danger for automotive brands that are not part of that.’
‘We've seen already with millennials that not only is car ownership down, but also driver's licenses.’
Damned if you do, damned if you don’t
But Mario explains that their brand actually stops them from implementing these services because of existing business relationships.
As just one example, most of the taxis in Germany are Mercedes. And for many decades Mercedes has cultivated this business. But what if Daimler, the parent company of Mercedes, started operating its own robo-taxi fleet? Suddenly they are competing with the private taxi companies, who might start buying cars from someone else. The pressure comes from within the brand as well, from the salespeople who don’t want to lose those accounts, to the CEO who doesn’t want a bad quarter.
So as an existing automotive brand you get punished. You’re damned if you do, damned if you don’t. If you don’t play in this new world, where brand is less relevant, you’ll miss the boat because the consumer is going to initiate these changes, where connection, autonomous driving, sharing, and electrification are going to be the currency. But if you do try to play in the new world, you will alienate existing customers and risk short-term guaranteed sales for an uncertain future.
You have to compete with new entrants, like Waymo, who don’t have these relationships. So they don’t care about alienating taxi companies or other legacy stakeholders.
And if the big automotive brands try to compete directly they may not have the knowledge or resources to be successful. And their new competitors are extremely well-financed players. For most of the twentieth century, automotive companies were the largest corporations. But now it’s tech companies, like Google—which owns Waymo—and Apple, which is also in this space. Tesla is a tech company as well as an auto company. Whereas General Motors and Daimler and Toyota, despite their massive size, are not tech companies.
Even startups like Uber and Lyft may have more access to capital through Silicon Valley venture capitalists, who have a long-term growth mindset. Mario says these companies can lose billions of dollars for years without being punished.
Says Mario, ‘Apple alone could buy all the German automotive companies and still have money left over!’
And the tech companies also have the advantage in expertise. Autonomous cars are all about big data and artificial intelligence (AI). Mario says 85 per cent of AI people work within only a few companies within the US: Microsoft, IBM, Intel, Google, Facebook, and Apple. They have the talent, and they have the data.
Another advantage these tech companies have is that their founders or direct successors are working in this area, whereas the founders of the automotive giants are long gone and the companies are run by managers who are brought in to grow share price, and if they don’t succeed in four years they are out. So they have no incentive to start a 10-year autonomous program that costs billions of dollars.
Incremental is idiotic
So what the automotive brands do is incremental innovation. Mario uses the example of going to the moon. If it’s the 1950s and you want to go to the moon, you know you need to build a rocket. But you are nowhere close to being able to build a rocket that can reach the moon. So instead you build a ladder. And you claim you are making progress, because with each step on the ladder you are closer to the moon. But of course this can never be the solution. You need a rocket.
There are about 140 major automotive brands. Are they building ladders or rockets?