Tuesday, 27 January 2015

Google, Apple, Uber, Tesla and the future of cars

A comrade from abroad visited the People's Cycling Front HQ over christmas. As he works for a european motor manufacturer, his debriefing was very informative.

What scares them? Tesla and Google; to a lesser extent Apple and Uber

Apple: for providing expensive status toys that don't have wheels on them. Phones are the new coming-of-age accessory, the thing you need to stay in touch with your friends. Ask people which they would do without, car or phone, and the under 30s say: phone. It's the 50+ who say "car". And, like tobacco company customers, their over-use of the product is causing them to die out.

Apple have done more though: set the expectation on how easy devices are to use, and how fast devices evolve. A 3 year old phone? How ancient! Yet car manufacturer "in car experiences" are designed to stay in a car for its entire life, and take years of effort beforehand. The car companies just aren't nimble enough here. Their user experience sucks: go to a car shop and either stare in horror at the number of buttons, or in a different kind of horror at a touch screen that requires attention.

Google: for leading the self-driving car work. Mercedes may have been showing off their self-driving car, but it still likes to offer the "driving experience", while allowing you to rotate the seat 180 degrees for a meeting with your colleagues or family. Google don't care about driving experience, and don't see their users caring either. They want the Apple market -and if you go online via the phone on a train, bus or car: they're happy. They don't have the myth of the open road or their motoring heritage brand to sell. They have something useful: extra online time with your friends. If there's one thing the car companies like about Google is that it may be possible to work with them. Though there the android experience scares them. Google own Android; phone companies come and go.

Uber: not a direct threat to the car companies, yet. What they represent though is is the driving accessory to the iPhone. Uber relies on all their customers having a smartphone. Which means it is OK to spend the money you'd spend on a car on a phone, a bike, public transport and Uber. Throw in car-club and boris bike and provided you live in a city: no car is needed. That is only going to get worse. Every time someone takes a ride with Uber, they know the pickup and dropoff points, and can start planning ahead. Taxi drivers may know that London Paddington is busy when the trains from Bristol arrive, but Uber can know more: that there are 12 customers heading in from Reading, with regular routes for 6 of them.., so start pre-emptively shifting vehicles.

Where Uber really have power is the money behind them. That lets them go beyond evolving the application to be better than anything competition can do, and get into a world that until now only the taxi and car organisations have done: get involved with government. They need to do that to overcome the barriers that some cities are putting up. The LTDA have got power in london by regulatory capture of the TfL taxi licensing authority, and access to press and politicians when in their cars. They can be individual lobbyists for their causes. Except who wants a conversation with a taxi driver when you can be on your phone doing interesting things? Meanwhile Uber has the strength to go to state and federal governments in the US to overcome city restrictions, restrictions which start to come over as anti-consumer.

But Uber can do more, because of their near neighbours in Silicon Valley. The LTDA represents Taxi Drivers. Uber represents Uber. If Uber could roll out a service with a fleet of self-driving electric cars, they would. Their customers aren't paying for 20th century driving experience, they are paying for a ride to wherever —and the chance to catch up with things on their phone while it happens.

With international scale, Uber have the opportunity to work with google for self-driving cars that meet the needs of today's customers.  They are also building up the skills needed to lobby in cities and countries, initially to make Uber legal...but those skills and contacts will help with any transition to self-driving vehicles.

Which brings us round to the one that impresses yet terrifies the car manufacturers: Tesla.

Mikhael and the copenhagenize crew may emphasise the "auto industry" as sellers of an obsolete brand, fighting back against demographic and social change, but Tesla threatens to render the existing car companies obsolete, even while driving itself remains a valued tool.

It comes down to this: what is a car company?

More precisely: what are the core skills of a car company, the barriers to entry which keep competition out?

The answer: engines

Car companies may have brands and marketing, different sub-brands (VW Audi group being the big EU example with Audi, VW, Seat and Skoda), but what takes up most of their R&D budget today, and most of their capital costs is engine plant.  Which is why all vehicles in VAG share motors from the same common pool of engines: shared NRE costs and CAPEX for plants that can cost hundreds of millions of pounds.

What Tesla say is: so what?

New mechanical engines are incredibly expensive to develop. It's not just a matter of designing something powerful, efficient, quiet, not-very polluting, reliable and easy to maintain, it's about designing engines that are cost effective to manufacture. Its those factories that take the capital.

The existing car companies may have some of the best mechanical engineers in the world, capable of designing the engines and the factories, but Tesla have come along and said: its no longer about petrol and diesel engines —it's about batteries, electric motors and the software around them.

The existing car companies may have manufacturing and supply chains optimised to keep stock down to a minimum, partner with their suppliers to get exactly the right number of spark plugs to the factory floor when needed —but that's a supply chain for mechanical parts.  Tesla have come along and said: those moving parts? You'll be needing less of those. Stop worrying about engine cooling, focus on keeping batteries at optimum temperature —and how to recharge them fast.

The existing car companies may have the dealers that nobody else can use to break into a market, but again Tesla have looked at apple retail outlets and said "we like that". Tesla don't have dealers, they are a vertical business, from battery to customer.

That vertical business model transforms servicing. If Toyota have to do a recall, it's expensive, some cars will be missed and its a massive hit to the company. Whereas Tesla have all their cars online, with telemetry and the ability to take software updates. Tesla didn't have to do a recall to (temporarily) disable a suspension-lowering facility while questions existed about its safety. Tesla pushed out the change, later on reversing it. No other player can do that.

In ten years, Tesla have gone from being a company with nothing to being a car company whose battery, charging and vehicle monitoring and management skills make those incumbents look like dinosaurs. And they back up those skills with factories that are far more modern than what the incumbents have. Yes, Tesla cars are expensive today: but they are the new status toys. And those costs can only come down, as Tesla scales.

And guess who are within range of each other: Google, Tesla, Apple and Uber.

The centre of the motoring universe has moved, from Germany and Detroit to California, where it has the potential to do for the incumbents what Apple did for Nokia: destroy them, not out of maliciousness, but because they weren't agile enough, because they stayed in the old world —rather than see the future.

Think about that when the LTDA protest about the cycle superhighway, when a taxi driver cuts you up: Google, Apple, Uber, Tesla

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