The auto industry is on a collision course with the forces of digital disruption. You may think you have seen this movie before. After all, so many other century-old industries have collided and crumbled. This collision may, however, be different, with forces more complex on either side than those that took down Kodak or Blockbuster. Consider five forces of change that may well constitute the phantom menace in the Car Wars saga:
1. Driverless cars
From Google’s — now Alphabet’s — obsession with the self-driving car to Uber’s cleaning out Carnegie Mellon’s National Robotics Engineering Center staff, there are multiple high-profile attackers seeking to displace the human at the steering wheel with a digital phantom.
2. Combustion-less cars
The traditional internal combustion engine is also the single most important source of more than half of the carbon monoxide and nitrogen oxides, andalmost a quarter of the hydrocarbons emitted. Concerns about the impact on climate change have spurred an interest in electric and hybrid alternatives now helped by Tesla’s envy-inducing Model S that passed 90,000 units in sales and news of Apple’s 2019 launch of an electric vehicle.
3. Less cars
The very idea of car ownership seems old-fashioned. First, came car-sharing a la Zipcar – and now the “sharing economy” is in full swing, with Uber, Lyft and many regional variants, Didi Kuaidi (China), Ola (India) or Bla Bla Car (France).
4. The rise of connected cars
The idea of the car as a self-contained pod is also being revisited. Smarter cars could, instead, sense their surroundings and, in turn, feed data back to the environment as an integral part of a smart city. Already, with more than 100 million lines of code in high-end cars today — twice as much code as in all of Facebook – the age of data-generating vehicles for more efficient urban decision-making may be here.
5. Don’t forget about drones
The first delivery by drone, approved by the Federal Aviation Administration, occurred in July this year in Wise County, Virginia by Flirtey, an Australian drone-delivery start-up.
No wonder, the much-overused phrase “creative destruction” may be due for a turbocharged makeover when applied to the auto business. Who wins and what happens in its aftermath? The status quo is still formidable.
Americans love their cars — 86 percent of U.S. workers get to work in a carwith the vast majority driving alone. Having crossed a trillion dollars in revenues in the U.S. alone in 2014 and with strong growth in China and other emerging markets, the traditional auto industry is a hefty incumbent. To their credit, several automakers have embraced change.
Consider the comment: “Some might find this massive change to be daunting, but we look at it and see the opportunity to be a disruptor.” That was not one of the protagonists behind the phantom menace, but Mary Barra, the chief executive of General Motors. When was the last time you heard of a company founded in 1908, aspiring to be a disruptor?
GM is attempting to even the score a bit with its own fleet of self-driving plug-in gas-electric hybrid Chevrolet Volts — equipped with sensors technology, precision mapping and artificial intelligence — doing the rounds on its Warren, Mich., campus. Many major auto companies, Mercedes, BMW and Volkswagen, followed by Honda, Nissan and Ford, have made the trek to Silicon Valley to breathe in some of the magic and create their own breakaway units.
Others have experimented with big bang approaches. Toyota, for example, is preparing the launch of the first hydrogen-powered sedans. And if that were not enough, Toyota has even filed a patent for a flying car. On balance, this is an industry that has plenty of innovation collecting on both sides of the collision.
The dark side
The empire has two major problems. First, the perennial challenges of incumbents: organizational antibodies that reject new ideas because business models are built around existing paradigms; car companies are no different. Managers are reluctant to prioritize unproven future alternatives over known profit-generators.
There is a second form of defensiveness that has not served the industry well. In case you have been under a rock for the past few weeks, Volkswagen has been embroiled in a scandal about its diesel cars equipped with software to fake its emissions data. VW was following a long tradition within the industry to creatively bypass regulatory and environmental measures. Every time such an incident occurs, it sets the car company back and takes focus away from innovation. Indeed, the newly appointed chief executive of Volkswagen,Matthias Mueller declared: “We don’t want a smartphone on wheels” — a reversal of plans announced earlier by his predecessor.
A new hope
Regardless of the outcome of the collision, my hope is that more fundamental unmet needs get addressed as well, before we get too caught up in the Next Big Things.
For one, automotive transport is highly inefficient at a societal level. America’s drivers whiled away 6.9 billion hours stuck in traffic in 2014, according to the Texas A&M Transportation Institute and INRIX. That’s 42 hours a year per rush-hour commuter on average and $160 billion in wasted time and fuel last year. I hope the sharing economy makes a dent in this problem and the driverless cars don’t exacerbate it.
Second, there are losses even when cars are on the move; according to the World Health Organization, road traffic accidents are now the eighth leading cause of death globally, killing one child every three minutes.
The region most affected by these challenges is sub-Saharan Africa, where road deaths are expected to increase 80 percent by 2020, according to a World Bank report.
Crashes are estimated to cost African countries between 1 and 3 percent of their GNP each year. Proponents of driverless cars have talked about the benefits in terms of reduced traffic accidents. Unfortunately, these innovations are being targeted for the world’s safest roads; is anyone planning driverless cars for sub-Saharan Africa?
Besides these risks, auto innovations have unintended consequences. What happens if ride-sharing prices rival city subway and bus fares and end up starving public transit systems? What if research in more essential areas of, say, robotics gets starved? While self-driving cars wend their way around Silicon Valley, no robot can, as yet, mimic the human hand, a greater unmet need as societies age. I hope there is still science and engineering talent spared by Uber and others to help solve these other, larger problems.
In the meantime, watch out for this epic saga playing near you, where even the phantom menace will have collisions within itself. A Lexus RX450h outfitted with Google/Alphabet self-driving technology was rear-ended by a Tesla Model S, this summer. The crash at the corner of Shoreline Boulevard and High School Way in Mountain View, was a fitting reminder that the car industry is at a real crossroads. Driving in the next 25 years will not be what it has been for the last 100.
This article is published in collaboration with Washington Post. Publication does not imply endorsement of views by the World Economic Forum.
To keep up with the Agenda subscribe to our weekly newsletter.
Author: Bhaskar Chakravorti is senior associate dean of International Business & Finance at Tufts University’s the Fletcher School.
Image: A car is seen in a test room. REUTERS/Petr Josek.