How Silicon Valley disrupts the automotive industry

April 1st, 5.30 Dutch time, Tesla revealed both their Model 3 and its figures about the pre-registration. Whereas Apple events tend to get less interesting over time, Elon Musk always brings excitement in his reveals. And note that this time, the traditional car manufactures were glued to their screens to see what Tesla was up to as well.

Despite the revealing of Model X and its falcon doors (wing doors), the past weeks Musk already announced that he wanted to do ‘something more radical’. The world was holding its breath to see what that would mean, just like when Steve Jobs announced ‘one more thing’. Today it turned out to be the first one hundred percent affordable electrical car. Model 3 has a minimum range of 300 kilometers, standard auto-pilot software, a 0 to 100 in six seconds and all that for 35 000 dollars. Tesla has taken over from Apple in terms of product launches and a loyal group of followers who are eagerly looking forward to it.

The world is yearning for something new

Where innovations by major car companies such as Toyota, GM and Volkswagen were still part of the news earlier, the hype has been taken over by new technology companies like Google, Apple and Facebook over the past decades. Suddenly everything was about technology and connectivity. Telephone calls became unnecessary and youth switched to ever-changing technologies: text messages, WhatsApp, Snapchat and Periscope. Finding information became a piece of cake thanks to Google. Social connections were made, first via the Dutch social network Hyves, then via Facebook and Twitter and more recently via Nextdoor. We are not stuck at our offices anymore as a result of laptops and 4G-connections. And our houses become smarter thanks to smarter home-technologie like Nest, Toon and Vivint.

“To accelerate the world’s transition to sustainable transport.” — Elon Musk

The world is not only changing in terms of technology. In terms of social area we have changed the world as well. Suddenly climate change became a big issue. The climate summit has never been as big as last year in Paris. It was not without a reason that Musk started that morning, April 1st, with: ‘Why: to accelerate the world’s transition to sustainable transport.” A new generation is ready to make a better and cleaner world.

Welcome disruptors

Not only Tesla is currently working on redefining the automotive industry. Companies located in Silicon Valley, which differ a lot from Tesla, are also on it. Let’s have a look at some of them.

Tesla is working on the first serious attempt to make electric cars the new normal. At the moment they are the only manufacturer that makes electric cars with both a decent range and (soon) an affordable price. Nevertheless, Tesla goes far beyond just that.

They are also working on setting up a system of quick chargers in the US. Having made a huge investment in setting up the Giga Factory, an enormous battery plant in Nevada, is part of that plan. With the help of SolarCity, the solar project from its owner Musk and Tesla’s Power Wall, the company covers the whole ecosystem of electric transport: from converting solar energy to electricity, to the storage and rapid charging of cars. Tesla’s long term plans are yet to be revealed though. There is speculation going on about an independent transport system, already partly featured by Model X.

Faraday Future

The plans of Faraday Future are even less clear. This company introduced its first prototype at CES: an electric car with more than 1000 hp power. Yet this was only a concept car, and probably not their main concern. They rather seem to be concerned about a a kind of shared transport system with a revenue model focused on access instead of ownership: a subscription instead of a purchased car.

Faraday Future is not just any startup, by the way. It is a Chinese billion dollar investment, located in California. By recruiting former designers and engineers from BMWi and Tesla, they’ve got the knowledge to actually really innovate.

Atieva

Similarly, Atieva has its own plans as well. Although the company was already founded in 2007 by a former vice president of Tesla, we have not heard much from them since. However, this has changed since the (also Chinese) manufacturer BAIC made a billion dollar investment. Apart from a teaser about ‘rewriting the rules’, we do not yet seem to know much about this ‘startup’.

But is doesn’t stop there. Last year, Apple announced to bring a car on the market by 2019. We haven’t heard much about it since, but Apple has a talent for keeping secrets. Meanwhile, Google has driven more than half a million kilometers with their self-driving cars. Its first car accident with an autonomous car has already taken place.

New understanding of the concept ‘car’

A lot has happened since the era of pioneers like Carl Benz and Henry Ford. In a 100 year-timeframe cars have become nicer, better and safer. Nowadays far fewer fatal accidents occur as a result of inventions like safety belts and airbags. We emit fewer harmful substances thanks to particulate filters, downsizing and the use of light-weight materials. We enjoy infotainment as a result of bluetooth and serious speakers. Much has been done in the field of traffic technology as well: separated bike paths, traffic management and porous asphalt. All in all, a lot has changed since the first production of Fords altered the cities in America in no time.

But despite all these improvements, the car has not fundamentally changed overall. Initially it is still about a chassis, a combustion engine, four wheels and a steering wheel. Although electronics and software play an increasingly important role, it is not yet the basis of a car. At least not as it is the case with smartphones.

The basis will be totally different

The new car brands are approaching a car in a totally different way. Of course, their car has an electric motor instead of a combustion engine, but it goes far beyond that. As their starting point they take a personal autonomous device which is part of the Internet of Things. Coincidentally that device has also got four wheels, but one may doubt the future of the steering wheel. This fundamentally different approach brings some evolutions, or rather call it revolutions, as the changes are radical.

Software engineers as a core capability

Making this kind of new cars requires new disciplines. The mechanical engineer gets replaced by a new kind of engineer, who will be the beating heart of the development. These new engineers come from the software development and are working on, amongst others, robotics, artificial intelligence and sensor technology. That is why Atieva and Faraday Future will show more job vacancies for software engineering than for mechanical engineering on their websites. Those include specialisations like ‘Automated driving’ (with roles such as behaviour planning and 3d perception research), ‘Digital Product’ (with roles featuring User Experience designer and User Interaction designer), ‘Internet of Vehicle’ (with roles like Wireless system engineer) and ‘Software engineers’ (with roles such as Automotive Cloud and ADAS).

The new car is about software, user experience and data!

New creative profit models

The new cars come with new profit models. For example via a subscription structure, like Faraday Future proposes. In such case customers are not the owners of a specific vehicle, but through a subscription they can travel in a particular class, just like in a train where you can travel either first or second class. The first examples nowadays are GM’s Maven-service and Ford’s Credit Link.

But also software upgrades of third party applications become an integral part of the profit model. Until now the car has been independent from the internet, but soon updates can be made easily with connected cars. The impact is enormous, proven by the fact that Fiat-Chrysler had to recall 1.4 billion cars after Wired tested for cybersecurity last year. Tesla had to perform a comparable update, but accomplished to fulfill this in one day, over-the-air. Updates and third party applications are services that add value, which have been backed by a profit model in the smartphone industry for already quite a while now. This is going to happen in the automotive industry as well.

Subscription services, data & share platforms

As a Internet of Things-device a car can no longer be seen as distinct from other ecosystems, such as the Smart Home. These systems will be communicating with each other, if it were only to inform the alarm system when leaving home. But the (electric) car can also be part of the Smart Grid, where the battery serves as a storage for additional daytime energy produced.

And what about smart package delivery, in which Volvo and Amazon already ran a pilot. This is how the car becomes more and more part of a complex system of integrated services. Also for the more traditional services, like car insurances, which can offer a much better deal through data based on behavior. Or even better: which can insure the autonomous car in a smart way. Sharing platforms are growing. There already exist dozens of them, from the manufacturer (DriveNow and Car2Go) as well as independent ones (BlaBlacar and zipcar). The car manufacturer will be co-responsible for this kind of services in the future, because it will be an integral part of their earnings.

Does Silicon Valley become the new Detroit in its best days?

Till midway 20th century, Detroit was the capital of the automotive industry. That’s permanently over since the 70’s, when the automotive industry started to globalize. Nowadays Toyota is the biggest car manufacturer, followed by Volkswagen and GM. However, the threat from the truly innovating car companies comes from Silicon Valley: Tesla, Faraday, Future, Apple and Atieva. The suppliers of the new core competencies are also situated here: internet, data, Internet of Things and robotics are disciplines mostly visible in California.

The culture in Silicon Valley is hugely focused on change, something which companies from outside the Valley cannot compete against. And then there is also the investment and possibility of acquisitions: apart from a network of millions of investors in the Valley, players like Apple have a market value that is higher than GM, Ford, Toyota, Fiat-Chrysler and Volkswagen together! They have the power to turn the automotive industry upside down, not only in America, but they are also capable of becoming the global capital city in terms of cars. It is therefore going to be exciting watching the world of cars in the coming ten years.

A new overall vision

Meanwhile, many traditional manufacturers are defending their current position. Lobby groups in Brussels manage to postpone meeting the new emission requirements. Tesla is derided in car magazines for ‘still not making any profit’. That might change soon after the 115 000 pre-orders of the Model 3.

After Volkswagen’s emission scandal the company promised to enhance their business in electric cars; though we have not yet seen much of their promise in practice. According to their own statements all of their brands are working on it, but at the moment there is no other company that can match Tesla’s value proposition. BMW comes close with its i-series though, whereas Nissan is making an attempt with the Leaf.

“These changes require real leaders with a new cathedral vision”

The worst possible response to disruptors and real change is burying the head in the sand and defend whatever can be defended. Borders, Nokia and V&D have already learned their lessons. These changes require real leaders with a new cathedral vision. It is not only about looking forwards, but also about looking left and right. The real competition does not come from the existing market, but from Silicon Valley. The same goes for the (much needed) co-operation possibilities.

Want to gain more insights on why Silicon Valley is as succesfull at disruption as it is today? Just mail sven@ktcagency.com and get a whitepaper for free! (No spam, we promise)

Tesla production line