Clayton Christensen in his seminal book The Innovator’s Dilemma reflected how every business leader must one day face a challenge to its business model, regardless of its industry or tenure as top dog. Approximately a century ago, the carmaker industry ousted horse drawn carriages as the primary vehicle of transport. Now the roles have been reversed and the giants of the auto industry (BMW, Daimler, and Volkswagen) must learn how to adapt their products as autonomous vehicles edge further and further into the mainstream. However this is not just a case of out with the old and in with the new. The emergence of autonomous vehicles (AVs) has pushed other issues into circulation, primarily the revision of old business models and accountability for driverless cars. The coming tides of disruption have already prompted some responses to these issues – but are they enough?
First concerning the auto manufacturing industry itself. Right now the state of the industry is in the middle of an arms race for making the first big breakthrough. On one side there is the old guard, the established players which comprise the well-known brands of Toyota, Ford, BMW etc. German carmakers best embody this faction. Brands like VW built their name on providing cars that had superior features and efficient engineering. Their lucrative success has made them an economic powerhouse that according to the IFO is responsible for 13% of the value creation in Germany. But their reign is threatened by AVs, which the new entrants (Uber, Google,and Tesla) are propounding. AVs will be largely standardised, making premium features less of a concern. The superior engineering is also less pressing once a car can operate itself. Auto leaders are not blind to this. German carmakers have applied for up to 800 patents for AVs since 2010. New projects are in development such car2go in Daimler and DriveNow in BMW are in the works. These leaders also have the scale and clout to mass market a new product. However Google is more familiar with the data side of the industry and has also made a considerable amount of patent applications. Uber also has actually introduced self-driving taxis in California. In short, both sides are well-equipped to beat the other, but time may shift this balance of power in either direction.
AVs will not just force carmakers to upgrade their products but also their business models. Last year Dieter Zetsche suggested that a sharing model for robotaxis could be the most likely, with more opulent models for longer journeys. McKinsey has opined that there will be a hybrid of service in the next 10 or 15 years. Carmakers will still produce as many cars as necessary and offer support services like maintenance and distribution. But mobility services will be where the real profit lies. This would seem to be a type of business model closely related to Uber’s. You would call a car and it would deliver you to where you wish. This may cause consumers to be less focused on what brand of car they would like and instead look to more tailored aspects – the silicon chips within the car, the efficiency of the software. One solution to this seeming end of brands’ importance is for auto leaders to team up. Henrik Fisker of Fisker Inc. noted that ‘With all the new technologies merging, you have to have partners, because you can’t be expert in everything,”. This may lead to a single widespread mobility service comprised of old manufacturers. However this rosy collaborative image does belie the fact that in a highly competitive industry only a few can be winners. That winner will be the one who figures out how to extract quick profit from a radically altered industry.
It should be kept in mind though that the course of new innovation rarely runs smooth. There is some apprehension around AVs, mainly based around how to control a driverless car. This anxiety seems justified as a woman in Arizona was run over by a self-driving Uber taxi on 19 March. Following this Uber has suspended its AV program in all areas. But this is only the tip of the iceberg as now regulators are asking who is accountable in such a case? Can you sue the maker of a self-driving car or someone else? Or is it just an act of God? Prior to this the Trump administration was working to remove all obstacles in the way of AVs introduction. Now some are asking if this perhaps indicates everyone is moving too fast to deploy self-driving cars. This incident may just be a once-off but it has put some consumers and distributors ill at ease.
The challenges AVs pose to the auto industry have caused carmakers to reframe the way they do things. No industry play wants to fall into disrepair but the competition is tight. Many firms are trying to enter the AV market but it appears that the spoils will only go to a few. A century ago, hundreds of businesses sprang up to capitalise on the new craze for automobiles. Over the course of the 20th century many of those companies collapsed and only our current household players remained standing. Now the wheel has turned back to that same place. Carmakers can plan for the future but it grows more and more apparent that they are no longer in the driver’s seat.
Daniel Forde – Law Editor