Published on January 15th, 2016 | by Zach15
Sergio Marchionne Admits The Reason Automakers Detest The EV Revolution
We should really do a series on this topic. For now, though, I just want to quickly highlight an article I published last year along with new comments from Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne.
As I noted yesterday when discussing a Q&A with Renault & Nissan CEO & Chairman Carlos Ghosn, Sergio Marchionne admitted very directly at the Detroit Auto Show a key reason he detests the EV revolution: it takes away the core competitive advantage of FCA, as well as other major automakers. Automakers have outsourced much of the core work of building cars. What they still specialize in is building internal combustion engines (ICE) and ICE drivetrains. If the world transitions away from those, automakers no longer have much of a competitive advantage to hold their privileged places near the top of the economy.
Here’s more from The Financial Times and Sergio’s statements and message:
He warned the adoption of electric technology risked continuing the process that he called “disintermediation”, under which carmakers have gradually lost control over elements of a vehicle’s contents to suppliers.
“It’s been a very steady, rigorous process of disintermediation,” said Mr Marchionne.
Having initially manufactured all their own components, carmakers currently retain primary control of making only vehicles’ powertrains — their engines and transmissions — he added.
“If we start losing any of that . . . we will not be able to hang on to any proprietary knowledge and control of that business,” said Mr Marchionne. “We won’t be manufacturing the batteries. We won’t be manufacturing the electric motors that are part of that powertrain.”
This is nothing new, but it’s something not many people are aware of.
Actually, this was discussed at length by Tesla Motors cofounder Marc Tarpenning in a video I shared back in 2013 and then again last year in the article “#1 Reason Why Big Auto Isn’t Big On EV Revolution?,” so I will just repost that article to inform any new readers of the story and remind long-time readers of why so many major automakers (maybe even all of them) are quite anti-EV:
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.