Tesla went from a niche automaker to making the world’s bestsellers in just over a decade, without any advertising either. Toyota dropped its renown 4.6 and 5.7L V8’s from its dead reliable Tundra, Land Cruiser, Lexus LX, and LS to meet emission standards. Ford’s BlueCruise and GM’s Super Cruise were unheard of 10 years ago, while today, they offer Level 2 self-driving capabilities for as little as $200. Mercedes is selling over-the-air software updates that increase the horsepower of its electric vehicles. Notice a trend? If not, then its never been more clear: The car industry is rapidly changing. In this new segment, titled The Automotive Xchange, we’ll observe what’s really going on, but in a bigger picture setting, rather than just what OEMs are doing. We’ll first observe upcoming trends, then an analysis of individual companies, a comparison of these companies at the end, and much more.
So what exactly is going on right now? Let’s start with the most obvious: electrification. Within the past few years, governments of major countries and even certain US states have banned traditional internal-combustion engine (ICE) vehicles. The European Union and California, representing over 260 million registered cars in 2021, have imposed an ICE ban starting in 2035, with some exceptions for carbon-neutral fuels. Many automakers have chosen to fast-track that goal of all-electric sales, such as Volvo, which has committed itself to selling a fully electric product line by 2030. Even those hesitant on this new wave of transportation, like Toyota, have set aside similar goals and have initiated significant investments in the EV space, such as their $3.8B North Carolina battery plant set to open in 2025.
While that highlights the push from governments, it doesn’t explain why consumers are buying into it. After all, even though the average new car purchase has ballooned to $48k, the average new EV still costs over $76k. So why are car buys chasing these pieces of new-age technology? The first reason, and arguably the most important one, is the fuel savings. A Tesla Model 3 costs about $5-15 to recharge, while a similarly sized BMW 3-series would cost around $60-80 to refill. But not only are EVs cheaper to recharge, they’re also cheaper to maintain, owing to less parts. This decrease in complexity, quietness and smoothness only add to the pleasure many find in owning EVs. This space is a ever changing dynamic, however, with everything from Elon Musk’s netiquette to changing tax credits influencing if, when, and how car buyers are getting into electric vehicles.
The next big trend in the automotive space is connected software services. For better or for worse, this trend highlights how cars have shifted from rolling metal with bits of technology to essentially a smartphone on wheels. The recently launched 2024 Mercedes E-Class has a built-in cabin facing camera with Zoom, TikTok, and Angry Birds already installed. If that doesn’t sound like a smartphone, then I don’t know what does. Sure, Teslas have been like that for years, but we’re talking about the literal inventor of the automobile, not a Twitter induced tech CEO. Automakers have woken up to this rapid expansion of the car software market and, in typical capitalist fashion, have found new ways to profit off of it in the form of in-car subscriptions. GM’s aims to bring in $25 billion in yearly revenue by 2030, with CEO Mary Barra claiming that its customers are willing to spend up to $85/month on such subscriptions. One of the biggest offenders in this space is BMW, which recently came under fire for implementing an $18/month subscription for heated seats, among other features, in the UK, Germany, New Zealand, South Africa, and South Korea. BMW responded, claiming it added more flexibility by allowing consumers to test out the functions before fulling committing to them. Still, many car buyers are pushing back, simply claiming corporate greed over functions that are already present in their cars.
Structure of how the industry works.
Source: Automobil Industrie
The last trend, and one not so commonly talked about, is the development within suppliers. If your familiar with the tiered setup of the automotive industry, you’ll know that automakers don’t actually make all the parts of their own vehicles, mainly due to the sheer number of these parts, but also the economic feasibility of R&D for specialized components. Two years ago, we covered how Magna, a prominent Tier 1 supplier, created an electronically assisted axle for an easier transition into the electric age. Other key players in this space are Bosch, Denso, Aisin, and ZF, however, this section of the article wouldn’t be here without a bit of disruption to the norm. As mentioned in the subscriptions paragraph, the use of software is rapidly changing, and so are its creators. Automakers have been used to making most of the software for their cars, with some components requiring special attention, but as carmakers continue to pack their vehicles with more technology, some are turning to third-party solutions. Android Automotive, not to be confused with Android Auto, is Google’s car-orientated OS that allows manufacturers to essentially use Google’s template but with their own branding. This way, they can ensure they’re receiving top-notch software, rather than a potentially glitchy in-house version, while still customizing it to their liking. Letting carmakers make cars and software companies make software is one thing many are getting behind, such as Volvo/Polestar, GM, and Ford, and it’s proving to be a successful venture, garnering much praise over rivals that are plagued with problems.
We’ll be going over some of these trends in much greater detail in the coming weeks, as well as other developments many don’t see. For example, I recently heard an interview from an engineer who worked at Kubota, the bright orange farm equipment company, and found it fascinating that the agriculture industry follows the trends of the automotive industry to see how they play out in the real world. We’ll also dive deeper into the role of AI in this field. Let us know what you think of these trends in the comments!
