‘So who’s going to win this EV contest?’

I’ve been posed this question very frequently (almost daily) so I wanted to take a few minutes to sort through an easy way to look at the upcoming challenges that companies will need to overcome in order to dominate the EV sector in the next few years.

As there are many competitors, each with its own strengths and weaknesses it’s easier for me to segment them into categories that make logical sense. I am looking at this in the broadest sense for these three different types of competitors and this isn’t meant to be all-encompassing, just an easier way to look at the entire market.

1. EV Startups
2. Legacy automakers
3. Tech crossovers

For our intents and purposes, we will focus at a high enough level that these categories face similar challenges regardless of their country of origin. Also, Tesla is the exception to any of these buckets since they kinda sorta fit into all of the categories and none of them at the same time.

EV Startups: Will they like me out there?

Their most pressing challenge is getting to that tipping point of sales where the momentum pushes them ahead more forcefully so that all of their major costs can be spread across a bigger denominator. A complementary challenge for them will be managing their limited resources properly and efficiently so that they can compete with the legacies. Whether that’s heavily investing in R&D, international expansion, or marketing / branding they not only need to deploy the capital in the right places but in the right amounts.

Also, more sales mean more cars on the roads which means more brand awareness from more potential customers which creates a virtuous cycle.

Borrowing costs for some of these companies may be close to zero right now, but they’ve never really had to deal with a ‘bear’ market in the auto sector yet. That bank account can dwindle QUICKLY as the legacies will ALL be able to tell you.

For the publicly traded EV companies, unfortunately, they still haven’t become ‘Masters of their domain’ aka the China market but their shared burden is that they have to contend with outsize expectations from external shareholders that can create a pressure cooker like environment, especially if there are a couple of consecutive down quarters. Pressure bursts pipes.

Questions that pop into my head about the EV Startups:

• Can anyone finally break through to compete with Tesla to take the monthly sales volume crown from them? Pricing aside, can anyone even come close (Wuling is NOT included here)?
• Outside of their home markets, will their brand, and the design / features of their products resonate with customers?
• My guess is one or two will break through with meaningful sales volumes in the EU markets within the next 24-30 months, but who will they be? I have my guesses…

Legacy Automakers: Fit / Form / Function vs. User Experience

The OEMs have some tremendous advantages relative to their competitors including an international presence, scale, sales & service networks, capital, and consumers have familiarity and in many cases trust in their brand.

They also have a TON of baggage: unions to contend with, dealer networks that may not want to cooperate with them, too many employees, too much capacity, employees with the wrong skills, hardware-driven development processes that need to become software-driven, hubris, vehicle sales mindset, and a process / policy & product-driven culture.

Questions they face include:

• Can the OEMs right size & pivot fast enough to not miss the opportunity that’s currently before them? What is the ‘right’ size? Are there enough software engineers to get them to where they need to go? What’s a scrum master?
• Since they can’t differentiate with horsepower & torque anymore, what will define their brand? In other words, what will their ‘Superpower’ be? Remember what Jony Ive said – ‘Doing something that is genuinely better is very hard.’
• Can they leave their ‘baggage’ behind in order to compete in a completely evolved market?

Big Tech: The party crashers

The market is too big with too much potential for most of the major tech giants to sit this one out. When they do side by sides against their competitors they probably feel pretty good about their chances. Some probably believe in their hearts that they will dominate. There are likely a few reasons for their confidence. Not only do they understand how to ‘hoover’ up tons of user data, but they’re also experts at turning that into sticky products, services, and an ecosystem that many, myself included, spend much of our time being a part of.

They’d be wrong though about being able to dominate, initially at least. If you don’t believe me, ask John Krafcik, ex-head of Waymo. His team was filled with really smart, ambitious people and they don’t seem to be much further than they were 4-5 years ago. Mobility for the tech cos. is like the Final Frontier. It buttons up their ecosystem so that if they are able to develop a decent product, there’s a chance we’d NEVER leave their platform!

With the exception of Waymo though, most of the tech cos. do not have a product in the market that could end someone’s life (see Uber ATG/Arizona). That’s why it’s silly to say that EV/AVs are just mobile phones ‘with wheels’ for those folks that make that absurd comparison. We may love our mobile phones but we would NOT trust it to keep our child safe in its back seat!

Questions that come to mind for them include:

• What’s the calculus where they’re willing to take on the data ownership (and liability) in order to sell us some services while in one of their mobility ‘devices?’
• Make vs. buy, some traditional OEMs will fail at making the necessary adjustments within the required window of time. Remember Oldsmobile, Pontiac, Mercury, Eagle, and too many others to name?

Well, when a few of them are on the ropes a cash-rich Waymo, Apple, Amazon, Tencent, Ali will be tempted to have a go at acquiring the assets of that dying brand because the economics will make sense for them but who, what, when, and how? I’ve debated with folks about this many times and I am convinced that this will happen. Other folks, I have a ton of respect for don’t see it. They’d be wrong though …hahaha. We shall see.

• Can these tech brands bridge that trust gap? I’d mentioned earlier that we trust the tech companies with a lot, but safety isn’t likely one of them. For those tech companies, there needs to be continued investment to increase the trust factor in the brand before we are likely to see thousands of ‘Apple’ cars on the road. Let’s not forget Tesla is 17 years old so they’ve been educating and building that trust for quite some time.

I look at mobility as an immersive experience that includes scheduling, movement, safety, entertainment, shopping, familiarity, collectiveness, solitude, productivity, simplicity, complexity, or basically almost anything and everything goes since your destination could be minutes away or it could be hours away. Mobility will be multi-modal.

Finally, a great ‘mobility’ user experience starts when that alarm goes off on your iPhone each morning, NOT when that vehicle door opens and it could last multiple days. In the future, vacations could be one long ‘mobility’ experience. Let THAT stretch your mind a bit.

We haven’t even talked about when autonomous vehicles will become the norm yet! That’s when mobility companies will have the most control over customer engagement and user experience. Think Starbucks and McDonalds. I can be in Detroit, SF, Beijing, Saigon, or Pittsburgh, there’s one thing that I am pretty certain of – My Big Mac is going to taste the same! A consistent, pleasant experience is ultimately what customers no matter where they are or what they’re doing.

There may not ever be a truly global mobility brand or platform due to constraints in data transfer, HW & SW restrictions, and, most importantly user’s needs but for the sake of this exercise let’s pretend that it could happen. These companies will literally know EVERYTHING about you so the possibilities are endless and could provide that consistent user experience anywhere in the world. Which is also a bit scary…

How AVs will be different

Companies can market that their AV set up is ‘better’ & their system more accurate (read: safe) than their competitors but the real is that those are empty words unless they can back it up by selling more cars since that is what will ultimately lead to more data. All else equal, the companies with the most cars on the road will move closer to L5 faster than others.

Another thing to remember, until virtually ALL identified edge cases have enough data to make AVs safe 100% of the time (in theory), AV rollout will be limited to geofenced areas for specific use cases. That’s a requisite requirement meaning one is likely not to happen (L5 autonomous) unless the other thing happens first (huge vehicle sales).

Speed kills

The announcements from China seem to be coming faster and more frequently so I hope that Secretary Pete & President Biden are paying attention! I don’t toot my own horn very often but that means that if people aren’t paying attention to what’s going on in the EV/AV/mobility sectors in Asia, they will have a HUGE blind spot as to where the market is moving or has moved.

This makes this newsletter & my weekly Clubhouse room with Lei Xing even more important! I am confident we provide you with a pretty thoroughly filtered set of news that are the difference makers. Trust me, if you’re reading this newsletter and / or dropping in to the Clubhouse room, you’re ahead of most folks that try to speak intelligently about the sector.

There’s a special bonus this week. Similar to my China Transformed – NIO Zoom preso, I’ll be presenting this week about Didi Chuxing – China’s Uber. Didi is rumored to be IPO’ing this year at > $60B valuation. I invite you to join Paul Krake and me this Wednesday 9pm EST / Thursday 9am China local time for that discussion. You can sign here: https://zoom.us/webinar/register/WN_MTbtvLWdTmGYSX62rp4p5A

Since I riffed so much up top, I decided to not post any links. We will be back to our normal programming next week though. I also have a feeling I’ll circle back on what I’ve written in order to deep dive at a later date. As always, I am very open to different perspectives on this and I think I know who those emails to debate some of my points will likely be coming from so bring it on!