#1 Reason Why Big Auto Isn’t Big On EV Revolution?

I wrote about this years ago when summarizing and discussing this wonderful presentation from Tesla cofounder Marc Tarpenning, and I’ve brought it up in numerous comment threads, but it is still something that is little understood and very infrequently discussed. I’m talking about what I think is the #1 reason why large automakers are not throwing themselves into the EV revolution, why their electric offerings and electric programs don’t match Tesla’s. That is: the competitive advantage of large automakers is almost entirely in their knowledge, experience, and intellectual property (IP) surrounding the internal combustion engine (which, of course, is not a component of a fully electric car).

Marc highlighted the fact that auto companies have been outsourcing more and more parts of the car in the past several decades, resulting in almost no competitive advantage outside of the engine (and basic manufacturing economies of scale and supplier connections). He said that the sluggish pace at which Big Auto was moving toward electric transport was one of the key talking points they initially used to attract investors, but after leaving Tesla and consulting a bit for these large automakers, he found out… it was much worse than they had been saying!

Of course, outside of straight patents and IP, the top executives of these auto companies have extensive experience and knowledge of internal combustion engine (ICE) vehicles. Most of them, especially as they approach the ends of their careers, don’t feel comfortable with a massive product shift that basically wipes out the usefulness of their expertise. It’s understandable, even if not morally “right” or “good.”

This is not a situation unique to the auto industry, though. This is basically what happens with any big technology “disruption” or shift. There is great difficulty for a giant incumbent leader to go against 95% or 99% of its expertise and business in order to shift with the market. It’s why we’ve seen the likes of Kodak, Blockbuster, and countless other large companies go under. A great book on this topic you may want to check out is The Innovator’s Dilemma.

This is one reason I’m a Tesla investor. I’m convinced the future of cars is electric, and it’s hard to see anyone competing with Tesla in this realm in the near future. But we’ll see.

12 thoughts on “#1 Reason Why Big Auto Isn’t Big On EV Revolution?

  1. The problem with this deterministic account is that the traditional carmakers are smeared over a spectrum of commitment and in-house cultural change, with Nissan at the head, followed by BMW, GM, and VW, then the laggards Ford and Peugeot-Citroen, and the denialist Fiat-Chrysler in the rear. Toyota is the strongest case for your thesis, a carmaker that threw away its lead in first-generation hybrid cars through conservatism.

    My prediction is that most of these companies are now in deep enough for their EV teams to win most of the intra-corporate battles and eventually take over. If they don’t, they will be supplanted by the specialists, Tesla and BYD. BYD has just about cornered the electric bus market: a niche compared to cars and trucks, but a significant one.

    1. Really good points, as always. And gives me an idea: an official “ranking” (from EVObsession/CleanTechnica) of Big Auto’s EV efforts. Of course, would be subjective, but fun, and people love rankings. 😀

      I am curious if BYD can break into other car markets at some point. With the electric buses alone, though, it looks ready to take a huge chunk of the new bus market.

      1. The bus market is sooo much leaner and faster-moving, which is odd!

        In China there are multiple electric bus companies already, but only BYD is trying to crack the American market. Facing competition from BYD and Proterra, New Flyer promptly produced a solid battery-electric bus (I’ve ridden it, it’s very nice). Volvo is the laggard but seems to also be making a serious entry.

  2. There is probably a lot of unwillingness to move out of their comfort zone at many car companies, but I think there’s another big factor at play. Namely that traditional cars, especially SUVs, have much higher profit margins. EV margins are narrow to begin with and, more importantly, they need much less maintenance. A big part of car-company profits is gouging customers for inspections and maintenance at dealerships and selling expensive OEM parts.

    The big question in my mind is why is Toyota spending millions pushing fuel cell cars and selling them at a huge loss? Certainly not because they’re sticking to their ICE or hybrid comfort zones. I thought maybe fuel cell had some sort of extra maintenance cost Toyota could profit on, but this NREL study of battery vs fuel cell forklifts pegs the maintenance cost about the same:

    So I don’t know. Unless Toyota is grabbing a percentage of the sale of the hydrogen fuel (which should be a nice big profit stream), I can only think that they truly believe fuel cells will dominate the market eventually and they really want to corner it. OR they want to dangle FCEV as the perfect car of the future for as long as they can to reduce interest in EVs and keep up their ICE sales as long as possible. OR Toyota’s friends in the natural gas industry are bribing them to create a market for natural gas hydrogen production.

  3. If companies like GM and Nissan are not even going to advertise their terrific plug-in products, Obama should. The biggest sales point is the hundreds or thousands of dollars these vehicles save per year in fuel costs depending on how many miles one drives per year. “Filling up” one is like paying anywhere from 50 cents to a dollar a gallon of gasoline depending on what one pays for electricity. The side benefits are cleaner air and water, and, most important to rightwingers, starving most of America’s enemies without firing a shot–terrorist groups, Iran, and Putin–all of whom depend on oil revenue for their existence. Bumper sticker ideas: “Starve America’s enemies. Buy a plug-in car” and ” ‘Fill up’ for a $1 a ‘gallon’ or less: buy a plug-in car”

      1. Imagine how many people would be flocking to the dealerships if they just advertised how many hundreds or thousands of dollars one could save per year just in fuel costs.

        They don’t want to do it.

  4. Zach -I think you are being too kind to big auto. The #1 reason they aren’t on
    the EV path is the lost revenue that the ICE generates from parts and service at both the factory and the dealer levels.

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