We launched iTRANSFORM in January, 2018, Our goal was to understand and manage disruption. Above all, we did not like the world disruption. It had a negative ring to it. So therefore we committed to use Transformation.
All major industries are being transformed today. Therefore all major players must understand the transformations impacting them, or, in other words, adapt to their changing business environment.
A 12-person team of Value Innovation subject matter experts developed the Transformation Axes bringing seismic changes to the global auto industry. The team concluded there were 6 Transformations in play. By sharing what we’ve learned, it is our hope you will be inspired to learn more.
iTRANSFORM is a Value Innovations, Inc. trademark.
Why did we focus on the Global Auto Industry?
Major economies are tied to the health of auto and truck sales:
The global auto and light truck market is huge. Therefore, most major country’s economies are directly impacted by its ups and downs.
For instance, the major German car manufacturers, BMW, Mercedes-Benz and VW Group directly employ 800,000 Germans. So as many as 9 million people in Germany have direct ties to their auto industry. In conclusion, Germany’s GDP and GDP growth are directly tied to the fortunes of its “Big 3.”
Market facts:
- Global sales of cars and trucks are about 100 million units annually. Global car and SUV sales in 2018 are expected to be 80 million units.
- China, the United States and Japan are the three largest auto markets. The Chinese market is shrinking,
- Sales of plug-in hybrid and battery electric vehicles (bEVs [both cars and SUVs]) were 2 million units in 2018. This was a growth of 72% over 2017. And bEVS were 69% of this total!
- We expect bEV sales to increase 50%/y on average for the next 10 years
- Reuters recently reported major auto companies committed more than $300B to the development of bEVs.
- In early 2018, VW placed an order for $24B of bEV batteries. They increased this to $48B six weeks later..
The bEV influence:
Tesla Motors, BYD and BAIC were the Top 3 manufacturers of PHEVs and bEVS in 2018 and the Tesla Motors Model 3 was the best selling bEV in 2018 – Tesla delivered 145K Model 3s in 2018.
In other words, the Transformation from the ICE to the bEVs is very much alive. Its just a matter of time before we arrive at the bEV end state.
The Value Innovations’s team concluded, because of its size, we needed to fully understand the Transformations bringing seismic change the global auto industry. Our team had to learn more and share our findings with you.
Above all, we want you to enjoy this blog. And after that, you commit to learning more!
Our approach:
We:
- Have monitored twitter every day for 1 to 1.5h since September, 2016.
- Tweeted >5,000 times on the 6 Transformation Axes.
- First published bEVCurrent, a weekly report highlighting headlines on the 6 Transformation Axes, in February, 2018.
- Installed bEVCurrent TMS (Text Mining Solutions) in June, 2018 and added TMS outputs to bEVCurrent.
- Have learned a lot over the past 2 years. Above all, we continue to be surprised by the new facts and revelations we uncover every week .
We recognize all the major players in the auto industry are at risk. Therefore we are sharing our leanings in this blog hoping we can bring clarity. Above all, every major player can expect to achieve a positive if they navigate through the 6 Transformations well.
The end state for each Transformation Axis is clear but what’s not clear is: When and How we will arrive at the end state.
In conclusion, auto manufacturers, auto dealerships, and tier 1 suppliers the challenge is how to effectively manage through these transformations. Above all, new competences, capabilities and knowledge must be developed or acquired to assure a positive outcome.
Key Players/Factors in defining the end states:
All local, state and federal government agencies can enact legislation to drive desired outcomes, for instance:
- The US government offers a $7,500 tax rebate to an individual who purchases a new bEV (up to 200,000) and the state of California offers a similar, but lower, rebate.
- The Norwegian government passed legislation banning the sales of new cars with ICEs effective 2025. Other countries, Belgium, Denmark, Netherlands, India and Sweden have enacted similar legislation effective 2030.
Subject matter experts: For instance, Tony Seba,predicted no major auto company would sell a new car powered by an ICE starting in the year 2030. Tony made this prediction in his book Clean Disruption published in 2014.
Key Stakeholders:
The initial list we developed was long. We edited and cut it to make it manageable for you. Here’s our final list:
- Auto repair and specialty repair (e.g, Transmission, Tires, etc.) shops,
- Car rental and fleet management companies,
- eMobility services and systems
- Franchised and independent auto and light truck dealerships,
- Legacy auto manufacturers
- Mass transit (e.g., Buses, eBikes, eScooters, and light rail)
- Raw materials suppliers
- Shared riding services.
- Taxis, and bus services
- Tier 1 and 2 Suppliers
- Unions, etc,
Key Influencers:
We developed a strawman list, and decided to pair it down too.:
- Charging system companies,
- Departments of Motor Vehicles
- Departments of Transportation,
- Electric utilities,
- NHTSA and other organizations concerned about safety,
- Oil and gas companies, etc.
Managing the Transformation from the ICE to the electric motor:
Auto Manufacturers:
Obsoleting the Internal Combustion Engine:
Because this transformation predicts the elimination of a power source and drive chain and its replacement with a completely new and different power source/drive train, the legacy auto manufacturers (OEMs) must plan to shutdown the manufacture of, or assembly and installation of:
- Carburetors, Fuel Tanks and Fuel Pumps
- Distributors
- Exhaust Systems and Catalytic Converters
- Internal Combustion Engines and all its component parts
- Radiators for cooling
- Transmissions, etc..
Developing the New Power Source:
A sophisticated battery is the new power source that supplies electrical energy to one or more electric motors and provides a new and very exciting driving experience.
Car Design:
Auto manufacturers must completely change their approach and design thinking.
Amateurs have replaced an ICE with a battery and electric motor for many years in garages across the United States but this approach is not acceptable. In other words, the car must be designed from the ground up starting with the placement of the battery because of its weight and size. For instance, a low profile, flat battery, with the form and size of a tabletop, is positioned between the front and rear axles thereby:
- Lowering the vehicle’s center of gravity
- Improving road handling, and
- Creating more space for passengers, entertainment systems and passenger belongings..
The Battery:
Li-ion is the battery of choice today. Li-ion button cells and prismatics have been used successfully to power cell phones and other hand held devices. The consumer electronics primary manufacturing base has been SE Asia. Not surprisingly, the development and manufacture of Li-ion cells and batteries is predominantly located in China, Japan and South Korea. There are hundreds of Li-ion cell manufacturers operating in China. CATL, LG Chem, Panasonic, Samsung SDI and SK Innovation are the major Li-ion battery manufacturers on the world stage today. Northvolt, a start-up company is constricting a plant outside Stockholm.
OEMs must understand how the chemistry and configurations of Li-ion cells impact finished battery performance, In other words, they must become expert in:
- The assembly of modules that contain Li-ion cells and incorporate the means to control cell temperature
- Providing the capability to disable rogue and shorted cells
- The design and assembly of a finished battery pack.
Therefore, a car manufacturer, understanding these variables and the fundamentals, is in a position to develop clear, concise, design requirements for a battery by:
- Optimizing power and energy densities for maximum range and acceleration
- Designing safety in, while
- Driving to the lowest cost.
In conclusions, we expect to see Li-ion battery energy density, power density and safety improve as the knowledge of the fundamentals improve, and costs continue to drop to <$100/kWh. We understand Tesla Motors expects to break through this cost barrier by the end of 2020. Soon after that, we will see the price of a bEV drop below that if the equivalent ICE powered car and race to the end state will be on.
Managing the Supply Chains:
Auto manufacturers must understand and manage the supply chains for raw materials (Al, Co, Cu, Li, Graphite, Mn, Ni) and components (cans, separators, controls, connectors, insulators, and more). They will build a knowledge base.
Over time:
- Requirements and specifications for cells, modules and batteries will improve.
- The improved power sources will deliver better performance which their customers will recognize and appreciate.
Tesla Motors:
- The clear leader in the race to higher energy density, power density, improved safety and lowest cost, continues to look to improve.
- Recently acquired Maxwell Technologies for $219MM.
- Maxwell’s core business is Ultra-Capacitors but it recently developed a Dry Battery (Lithium) Electrode (DBE) which could provide Tesla with the ability to develop Li-ion batteries with much higher energy densities (approaching 350 Wh/kg).
In addition, legacy auto manufacturers need to recognize BYD and Tesla Motors, who manufacture their own Li-ion cells and batteries, were the two largest manufacturers of bEVs in 2018. In other words, auto manufacturers should consider backward integrating into the manufacture of batteries.
Other Core Competences:
With this transformation, auto manufacturers need to build core competences in:
- Charging systems for their vehicles to maximize battery life and minimize charging times
- Electric motor(s) that deliver high torque and combine low weight and cost
- Inverters and
- Software to:
- Allow updates on all aspects of vehicle operation
- Capture outputs from all vehicles operating in AV mode
- Control vehicle operation
- Eliminate the need for buttons, knobs and sticks
Auto Dealers:
Must:
- Train, motivate and reward sales associates to sell bEVs
- Understand how bEVs are different from ICE powered vehicles
- The need to be re-charged (How to accomplish this at home and on the road)
- Recognize all charging stations are not the same? Recognize the differences between them and inform owners on what must know?
- How long will it take to re-charge the battery at home and on a trip?
- Explain range and the factors that influence it (battery size, ambient temperature, etc.)
- Share they have lower maintenance requirements and will cost much less to own
- Electricity is less expensive than gasoline and diesel fuel, so operating cost will be lower
- Have excellent performance and road handling. In addition, bEVs are very exciting to drive
- Will last much longer, The battery could last as long as 0.5 million miles therefore owners will keep their cars much longer.
- Recognize gross margins from service, parts and maintenance (typically 30 to 35% of total gross margin for a dealership) will decline. Therefore, they will have to make moves to cover the margin shortfall.
Unit sales/y will probably drop because customers will keep their cars longer
Tier 1 Suppliers:
We expect the clear distinction between OEMS and suppliers will morph over time, so we expect to see major Tier 1 Suppliers such as Magna International and Robert Bosch moving into auto development and assembly. e.g., Magna manufactures the Jaguar i-PACE, e-PACE and f-PACE in its facility in Graz, Austria and Bosch displayed #AutonomousVehicles it’s developing at CES2019.
Suppliers of the components unique to internal combustion engines, transmissions, oil pumps and oil cleaning systems, fuel pumps and the like must prepare for the loss of their OEM business while maximizing returns on their replacement parts business.
Do you have questions? Do you want to learn more?
We want to answer your questions. You can contact us by phone or email.
Dick Lee at dick_lee@valueinnovations.net or call +1-720-291-0758, or,
Dick Melrose, CEO of Vision21,: Call +1-561-737-9942, or email him at r.melrose@Vision21.us
What will we address in our next blog?
We will address the transformation from auto dealerships to omnichannel retail and share what auto dealers must do to survive and thrive.