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Most people working in the automotive sector will probably acknowledge that it’s a challenging industry. There have been several waves of technological breakthroughs in recent decades, financial crisis, coupled with tough competition despite significant barriers to entry. The industry also faces strong dependencies on local regulations and a worldwide supply chain affected by regional conflicts and influences.

As on today, ‘Uncertain’ is perhaps the term that best defines this business, and it’s paradoxical: In comparison, product development takes years and billions of dollars, requiring meticulous planning and anticipation.

This paradox reaches a new level with the challenge of electrification, and the recent rise of Chinese dominance in the supply of essential components for the new EV era, in addition to owning the largest market on the planet. The right strategy for traditional OEM has probably never been so difficult to define.

Let me share some thoughts with you. Please comment and react; I don’t believe anyone holds the perfect insight in this field.

The Dusk of traditional OEMs ?

There are a few ways to be incredibly successful in business, and it’s not specific to automotive. From my perspective, two methods stand out:

1- Solving widespread problems that affect a large swath of the population,

2- Mastering the craft of manufacturing and selling things people don’t necessarily need, but deeply desire.

Take, for example, the German approach to cars. They’ve honed the art of building what are essentially luxurious toys – expensive, yet highly coveted by many. Their brands have become iconic, embodying strength and appeal. Even in a future dictated by ecological concerns, their value remains substantial.

However, they’ve somewhat lost touch with their roots in building cars for the general public, a factor pivotal to their post-war boom. This oversight could pose challenges in the mid-term.

Across the pond, America’s ‘big three’ in the automotive industry seem to have strayed off course, quite a while back, honestly.

Henry Ford’s vision was monumental, focusing on solving mass problems – “opening highways for all mankind”, creating jobs, and ensuring that workers could afford the cars they built. This created a virtuous cycle of value and societal advancement.

But what remains of this once-great American automotive era? We have Tesla on one end, innovating and tackling global issues like electric mobility, AI, robotics and clean energy. On the other, we find mostly inefficient and sometimes unnecessary massive pickup trucks, their survival momentarily propped up by protective regulations and a local penchant for big wheels and thirsty engines.

Although I, as a car enthusiast, am not particularly a fan of Tesla as a product, I can’t help but acknowledge Elon Musk’s vision. Traditional car makers are playing catch-up, their focus skewed towards survival, appeasing shareholders, and calming markets. They may try to emulate Tesla’s approach, but lacking the foundational vision and purpose resulting in a costly groping strategy, they end up trailing behind, with diminishing margins.

Some, like Stellantis, are better at cutting costs, honing in on cash, efficiency, volume, and margins. They have a hand full of relevant local brands to be strong on protected markets and secure global volumes, a daily focus on squeezing costs, on good sense choices and they stick to them. They seem poised to claim a survival ticket in the old guard.

Ford’s strategy, betting on performance cars and reinvigorating competition, like in Formula One, is fascinating. It’s a move that resonates in the US and one that I personally adore, but is it enough to save the company in the long term? The new Mustang and Raptors are undoubtedly cool, but in Europe, the Middle East, or Asia, they pale in comparison to a Porsche 911 or a Mercedes G-Class. The Ford, Chevrolet, or Ram brands don’t hold the same cachet in these regions.

The big three all have ambitions and “reactive” strategies in the field of electric vehicles, but they remain opportunistic and navigate according to the wind, in what sometimes seems to be a thick fog floating on Lake Michigan.

Software : the Magic key ?

Software is the new magic bullet for many leaders in the automotive industry. The shift from traditional vehicle engineering to software engineering within big manufacturers is evident. Yet, the reality is more nuanced. Customer value is driven by utility, emotion, and cost-effectiveness. People are unlikely to pay extra for things like Over-The-Air updates or heated seats, as some brands have learned. Even the billions spent on proprietary multimedia and operating systems seem questionable when options like CarPlay and Android Auto exist. Software, in the end, might become a commodity, not a differentiator as expected.

Even the cheapest TV can run Netflix in 2024. Netflix is making money with the subscription on content, not the Chinese manufacturer of the flat screen .. OEMs will have to deal with it, and vehicle programs management are not comfortable with such a poor economical equation. They put additional dollars in front of connectivity engineering and recurrent costs. However, there won’t be any dime to earn, almost. So yes, software engineering is essential, but not much more that the good old boys dealing with the brakes and air conditioning in the eyes of the customers. They will expect features that work fine, at a minimal cost.

Added value that weights on the bottom line will have to come from other areas: exterior distinctive design, appealing onboard experience with gadgets, lighting, sound, security, fun features, direct-to-consumer distribution, reinvented customer services– elements that create a truly unique and engaging experience, not dictated by the likes of Google or Apple.

The rise of the dragons

The Chinese manufacturers are poised to excel in these areas, outperforming us, by far. They’re adept at manufacturing and selling technological desirable items. Relying solely on protectionism would be a poor strategy. Western ‘elites’ have facilitated Asia’s ascension in manufacturing, tech, and innovation for short-term gains, but this could have long-term repercussions.

We’re already seeing China’s potential to dominate the affordable EV market, driven by European green policies. But don’t be fooled – they will also excel in the premium segment. The competition won’t be about roaring engines and blowing turbos, but rather about smartphone integration, fun design without any legacy contrain, shining chromes, smart electronic features. The only hurdle for Chinese and Korean brands is their current lack of strong brand recognition. But this can change, especially if they acquire well-known brands.

My two cents that Chinese OEMs will try to buy more iconic names. They already have stakes in European brands like Volvo, Mercedes, Renault. They will jump on any new opportunity. Will Stellantis, Tata or Renault sell some jewels to generate immediate revenues ? Dacia, Alpine, Lancia, Maserati, Jaguar.. There is no lack of opportunities for Chinese to solve their brand issues.

In the end, the industry needs a balance – a healthy competition between the traditional giants and the emerging dragons. Monopolies are detrimental, and diversity in the industry will benefit us all. Western OEM need to quickly understand how and where to compete with BYD and the others. It’s certainly not by simply cheating on Elon’s copy.

And now ?

There is still hope for Western traditional OEMs, despite formidable challenges. My advice includes:

• Establish a genuine purpose, beyond mere marketing rhetoric. A robust, straightforward vision that clearly outlines your goals and informs the product focus without preliminary sketches is essential. This should not be a generic HR/sales motivational speech, but an elevator pitch akin to what Henry Ford or Louis Renault might have presented to investors at CES or the Paris Motor Show in 2024, if they were founding their car companies today.

• In terms of software, swift adaptation is key. Collaborate to share as many assets as possible with competitors. Move away from proprietary operating systems and inconsequential features. Develop and finance common features, such as autonomous driving and safety assistance, in a unified manner. These features, expected by customers across all brands, are too resource-intensive to develop individually and should meet industry-wide standards. They won’t be differentiators.

• Allocate significantly more time and effort to cultivating your brand, its heritage, emotional resonance, and storytelling. The power of brand appeal in influencing pricing cannot be overstated – as exemplified by luxury brands like Hermès and Louis Vuitton. This is far more crucial than Over-The-Air (OTA) updates in establishing a competitive edge, particularly against Asian manufacturers.

• Focus on distinctive, appealing design and features. Given the uniformity in EV design due to aerodynamic constraints, it’s vital to discover elements that set your products apart. Strive to be unique, daring, and appealing to consumers.

• Utilize the best AI technology to enhance interactions with passengers and generate both off-board and on-board content. Transform your vehicles into interactive media platforms to strengthen brand appeal among existing customers. The goal is to create more than just cars; it’s about fostering engaging experiences, focusing on content rather than just software.

• Strengthen the connection between your brand and the public. While dealers manage face-to-face relationships, explore innovative channels under your control for customer engagement.

Please share your point of view !

Thank you.

Franck Louis-Victor – founder at Business Innovation Studio – Paris Detroit