Electric cars and the coming revolution

Just as it happened in the digital arena, electric and driverless cars are going to be disruptive for companies that resist change

The world’s 10 largest companies by revenue include six that produce fossil fuel — Royal Dutch Shell, British Petroleum, Sinopec, China National Petroleum, Saudi Aramco and ExxonMobil. Another two are companies that use fossil fuel (Volkswagen and Toyota). Over the next few years, these eight companies will not remain in the top 10.

Many nations have begun setting cut-off deadlines for manufacturing fossil fuel automobiles, and some have begun implementing them. China, the world’s largest consumer of fossil fuels and of automobiles, has gone down that path aggressively as have most nations in Europe with the possible exception of Germany, which is the largest European producer of cars with internal combustion engines. The shift in big markets has already begun happening this year. An electric car was the bestselling automobile in The Netherlands and in Norway last month. In Switzerland it was the fourth-bestselling, and the trend is accelerating exponentially. Though the base is small, the electric car is the only growing category in European automobile markets, regularly adding high double-digit growth. Even in America, the bestselling car by value is an electric car, the Tesla Model 3, which is also the automobile that is the bestselling by volume in its category, outselling Audi, BMW, Mercedes-Benz, Lexus and Jaguar combined.

The interesting thing here is that it is not the traditional automakers that have claimed this space. One would imagine that since they have been building cars for so long — Daimler, Ford and General Motors for over a century, and Toyota and Volkswagen for eight decades — and since they have such resource available — they all made a net profit of between $2 billion and $8 billion last year — that they would be expected to lead the transition to electric. But they have not, and, in fact, they have fallen behind so far that they are in danger of dying out in time.

Illustration: Ajay Mohanty

This may seem surprising but the fact is that they have no real advantage in this transition and may even be handicapped. A 2016 report in the Financial Times explained how. It reported that “one of the car industry’s most outspoken figures — Sergio Marchionne, chief executive of Fiat Chrysler — has warned that the trend towards electric vehicles threatens the sector’s viability and should prompt a rethink about the merits of consolidation.” Marchionne, who died last year, explained that automakers had all gone through a process he called disintermediation, under which they gradually lost control over elements of a vehicle’s contents to suppliers. “Having initially manufactured all their own components, car makers currently retain primary control of making only vehicles’ powertrains — their engines and transmissions,” the report quoted him saying, adding “if we start losing any of that… we will not be able to hang on to any proprietary knowledge and control of that business… We won’t be manufacturing the batteries. We won’t be manufacturing the electric motors that are part of that powertrain.”

Unfortunately, the automakers currently make a profit out of diesel and petrol cars and, therefore, their shareholders and quarterly earnings interests keep them from investing seriously in electric motors and battery technology. And in tech, leads that are decades old cannot be reversed as we know from other consumer products.

The world’s biggest car battery makers are Panasonic, LG and China’s CATL. In fact, the battery, drivetrain, instrument cluster, infotainment system, climate control, electric motor and charger of the Chevrolet Bolt are all made by LG. General Motors has no expertise in this field and it is too specialised for them to now catch up. Another vital area for electric cars where car makers are lost is software. Tesla is the only automobile that can receive over the air updates for the entire car — a recent one made the car faster for all owners — and uses serious artificial intelligence for its limited self-driving abilities. Comparing the most expensive Mercedes-Benz or BMW to a $40,000 Tesla is like comparing rotary telephones to the iPhone 11.

The decline of the internal combustion engine is upon us and its death is certain. Indeed, even if we ignore regulation and the dangers of climate change, the fact is that the internal combustion engine is an outdated century-old technology, which has already been eclipsed by electric cars. Consumer shifts will follow once there is awareness. Not many Americans know that Tesla (which spends no money on advertising) produces an electric car one can buy today with a range of 600 km on a full charge. This car is quicker than a Ferrari or Porsche, safer than a Volvo and has more passenger and luggage space than a Toyota. It is also cheaper to run, holds its value better over time and is often cheaper to purchase. There is no compelling reason to prefer the old technology. The change will come quickly and will wipe out entire industries. In Norway, it has been purely policy and regulation that has led the transition to electric, essentially through the government raising awareness, and providing infrastructure and incentives. 

In India, there have been brave words by this government about phasing out petrol and diesel cars by 2030 (words that have since been withdrawn), but no real action has been forthcoming. Niti Aayog released a fairly anodyne paper on the matter last year. A Bangalorean named Chetan Maini produced a compelling electric car called the Reva many years before Tesla did, but his product (renamed e20 after Mahindra bought the company) did not receive the sort of government backing it should have. Tesla was also a start-up but got a $465 million loan from the Obama administration which helped it scale up. Today it leads both the electric and the autonomous revolutions, which have become irresistible.

On September 25, Minister of Road Transport and Highways Nitin Gadkari was quoted as saying that “several big personalities from the country met me and said they want to bring driverless vehicles to India. I clearly told them that till I am there, I shall not allow driverless cars in India. I was asked whether I oppose new technology. I said not at all.” He explained that India had 4 million drivers (for various cab services and so on) and there was a further shortage of 2.5 million drivers. “I will not let the jobs of 10 million people be snatched away,” by allowing autonomous cars, Gadkari was quoted as saying. This is the textbook definition of a Luddite.

A tidal wave is forming that is poised to wash away the world’s largest corporations. There are opportunities of historically unprecedented scale which have emerged amid this disruption, which will become more and more violent every year. And just as happened in the digital arena, companies and nations will stand aside helplessly and watch as the change washes over them.