Amidst the Noise, Volvo and VW Are Quietly Winning at ‘New Auto’
While I’ve been focused on super-future ideas recently, I think it’s important to recognize also what’s happening on the ground, and opine on why and who from an incumbent-OEM standpoint is making headway in the emerging automotive landscape.
It’s extremely easy to get lost in the deluge of media and company press releases around new mobility solutions, autonomous vehicles, electrified powertrains, and new form factors, without being able to glean what’s real, who’s full of shit, and who’s making actual progress. For the purposes of this update, I’m going to focus on the products on or soon-to-be-on the shelves, and leave the future autonomous and mobility land alone.
In 2015, I said that it was the year of Volvo and Jaguar. The new Volvo XC90 had just launched — becoming a bestseller immediately, and Jaguar, under the direction of Ian Callum, had a slew of products like the F-Pace and F-Type that are world-class. It was a purer car-journo’s viewpoint, and predominately focused on the cars themselves, but both companies remain firing on all cylinders.
Today, Jaguar is ahead of Volvo on the electric vehicle front, having launched the i-Pace to much acclaim, though sales remain mostly modest. Volvo, however, is quickly making up ground on the EV front, having spun their performance marque — Polestar — into its own EV-focused brand with their flagship Polestar 1, a Tesla Model S fighter, and Polestar 2, the Model 3 fighter, well on their way to production. I expect both of these vehicles to deliver impressive numbers after launch.
Volvo is also pioneering the subscription model for a number of its nameplates — including the XC40, XC60, XC90, and S60, all of which can be subscribed to via app and come included with insurance and maintenance. It’s basically a lease re-wrapped for the smartphone age, but it’s been compelling enough to begin rolling out nationally. If that weren’t enough, Volvo has also launched a JV with their parent Geely, called Lynk and Co, as a more access-versus-ownership-oriented brand that is targeted for use in car sharing networks. Above all, Volvo’s ownership by Geely still represents Volvo’s most compelling asset — almost-free access to the largest EV market in the world.
Since 2015, VW and its brands have made steady progress in the EV space, and today represent the most credible threat to Tesla’s dominance in the space. Audi’s e-tron is now outselling the Tesla X and S combined in Europe, and the forthcoming e-tron GT sedan looks equally compelling. Yesterday, Porsche launched the Taycan, a fully-electric Porsche, that will compete directly in the price range as the upper-end Teslas. Oh, and Porsche is also having success with its subscription model pilot, which leverages the same Clutch tech platform as Volvo and Mercedes.
You may be thinking — why do the electric vehicle and subscription model moves position Volvo and Porsche on top of the rest?
First, electric vehicles will matter to OEMs faster than autonomous vehicles or any mobility model will in terms of true P&L impact. At the moment, every OEM loses their pants on each EV they sell, which means that the companies willing to try it out will theoretically (ha) achieve scale in battery tech and manufacturing faster than others. And given the sheer cost of standing up EV businesses (see Tesla), the ones who figure it out first are in for a market share treat.
Additionally, the EV and subscription model dual paths that VW via Porsche/Audi and Volvo via Polestar/Lynk are rolling out are exceptionally interesting because they fundamentally alter the ways in which customers experience cars. Both Volvo and Audi/Porsche’s EVs will be standard with OTA (over-the-air) update capabilities like all Teslas, meaning that from day one, the cars will be able to update their software remotely. This is extremely compelling to customers, who are frustrated at buying 100k+ internal-combustion Audi/Porsche/Volvos that have old maps or other software problems that require the dealership to fix. What’s more, EVs benefit the most from OTA capabilities because unlike their ICE brethren, the car can actually improve its performance and battery range with software updates, not just fix the Spotify bug that won’t stop playing Sorry by Justin Bieber (no judgment, great song). For evidence of how compelling this is, just google “Tesla OTA”.
On the subscription front, most early adopters have never been Volvo or Porsche/Audi buyers, meaning that these legacy brands are starting to attract new, younger buyers that are supposedly shunning luxury car buying. That’s a good thing. More importantly though, these models, inclusive of all insurance and maintenance, give more vertical integration for the OEM, and thereby more control over the customer experience. They can decide how and by whom the cars are serviced, bulk-buy insurance contracts for decreased rates, and altogether own the customer-facing digital and physical channels, regardless of where the customer lives. The dealer, under these conditions, will likely morph into a customer touchpoint for the service and exchange of the vehicle, similar to a rental car station at an airport. Which they’ll be happy with because they make negative money on the cars they sell today anyway.
In the near future, if you’re a Volvo or Porsche/Audi person, you’ll be able to subscribe to an electric model for a certain amount of time that comes with all the insurance and maintenance built in, and what little maintenance the car does need will be fulfilled either through OTA updates, or at an approved dealer or through mobile service.
Volvo has already announced the Polestar 2 will be available through their Care by Volvo subscription service. As the kinks get worked out on battery technology to make EVs profitable, the decreased maintenance costs and OTA update capabilities will allow OEMs to derive more margin from their fledgling subscription businesses, and more control over the ownership costs presents more opportunities to squeeze insurance providers and other costs that make customers wary of buying an expensive car.
These maneuvers equate to a radical departure from where we are today across most OEMs. While autonomous vehicles are still a ways off, EVs and subscription models are nascent, but they’re becoming powerful building blocks of the “new auto” competitive moats, and so far Volvo and VW have the deepest holes.
