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Thursday, 17 January 2019

The future of Automotive

In my November 2018 blog on Urbanization, car ownership, and house ownership, I predicted a consolidation amongst car manufacturers. On 15 January 2019, Ford and Volkswagen announced their collaboration through a "global alliance" (eg, FT, Guardian, Verge). This American-European alliance is setting the industry trend.

My October 2015 blog predicted that the VW emissions scandal would become a pivotal point for electric cars. Since 2016, several car manufacturing (sic!) countries announced their intention for banning fossil fuel vehiclesChina (2019 for new car factories)France (by 2040)Germany (by 2050)India (by 2030)South Korea (30% by 2020), and UK (by 2032-2040).

Following increasing difficulties to meet fossil fuel emission requirements, the automotive industry is facing two fundamental issues that occur almost simultaneously:
(1) transfer from fossil fuel engines to other power sources (eg, electric, hydrogen, solar);
(2) transfer from car ownership to car sharing.

The consequences are severe: (i) a cycle of declining demand, increasing stocks and extra sales incentives, (ii) reduction in production capacity (eg, mergers), (iii) the risk of stranded (legacy) assets or impaired assets, (iv) substantial investments in new technologies (eg, batteries), (v) inadequate supply of raw materials (eg, lithium), and (vi) new competitors (eg, Tesla).

Nevertheless, there is one major obstacle in this transformation process: the EV battery. A car battery, like an iPhone battery, gives some serious performance issues: (a) limited daily maximum of battery duration and vehicle distance, (b) limited battery lifespan, (c) speed of recharging, (d) impact of sub-zero temperatures. Moreover, EV manufacturing is far from "green" (WEF-2017).

Following the first fatal crash by a self-driving Uber vehicle in 2018, the industry is now also finally acknowledging that level 5 autonomous vehicles will never appear (Medium-2019):
"Waymo’s CEO, John Krafcik, has admitted that a self-driving car that can drive in any condition, on any road, without ever needing a human to take control - usually called a “level five” autonomous vehicle - will basically never exist." 
There is an interesting analogy with a different industry: watches, another male "gadget". In the 1980s, the popularity of Asian digital watches caused a near meltdown of Swiss analog watches. The Swiss industry consolidated into The Swatch Group following a 1980's reorganisation and the 1990's acquisition of premium Swiss watch brands.

The popularity of digital watches was, however, short-lived. The same can be said of the Apple Watch (2015-now). Both are not considered male jewelry. Analog Swiss watches have successfully returned although their powering has shifted to inexpensive and invisible (solar) batteries, or an expensive and visible tourbillon. I expect something similar for the Automotive industry (eg, fossil fuel-hybrids, hydrogen, nuclear, solar). 

Drive (1984) by The Cars


Note: all markings (bolditalicunderlining) by LO unless stated otherwise

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