This year’s Consumer Electronics Show (CES) in Las Vegas could have almost been a motor show. From the endless booths of automotive-related products to massive car company displays, the entire and extremely massive show had a very heavy auto skew.
The reason for that is simple: As the revolution of electric cars, connected cars and autonomous cars finally begins to take shape, tech companies are invading the automotive sector. Soon, your car will stop being little more than a dumb motor attached to some wheels.
The tech giants charging full-steam ahead into the very lucrative automotive sector are the likes of Apple, Google, Uber and even Nvidia - once little more than a specialist in video graphics. These are the new rivals that should be keeping automotive executives up at night.
They have cash, lots and lots of cash, and need to spend it on something. Apple was even reported at one point to be looking at a takeover of McLaren - and, to put things in perspective, the Cupertino-based company has a market capitalisation of USD $630 billion ($860 billion). Likewise, Google is worth USD $566 billion ($776 billion).
Compare that with General Motors and Ford, which are at around USD $50 billion ($68 billion) each, and the Nissan, Renault and Mitsubishi alliance that come in at around USD $70 billion ($95 billion) combined - and things begin to look a little bleak for traditional car makers as they face the biggest change and challenge in their history.
Realistically, Apple and Google could buy a controlling stake in Ford, GM, Mitsubishi and Mazda and even Volkswagen ($100 billion), combined, with their existing free cash (held comfortably in Ireland). The point is the car makers are facing competition from companies that work on much higher margins and can afford to spend billions on R&D without any return.
But while Apple and Google know how to make a pretty good phone, they arguably have no idea how to make a car. And while Mercedes makes amazing cars, its digital integration and connected-car services fail to come even close to the functionality of a modern smartphone.
The game has turned into how fast car companies can learn to make autonomous technology with artificial intelligence that works versus how quickly tech companies can learn to make cars and deploy their far more mature digital technologies and artificial intelligence systems.
Google’s deep learning system is something that many do not know about nor understand, but it represents the future of artificial intelligence. At a recent talk by a very senior Google executive in Sydney, the term ‘autonomous vehicle’ was used so many times that it became annoying.
Google has changed its entire focus to artificial intelligence and the world will change because of it. Don’t think for one second that Google and Apple are content making a better search engine or nicer phones and computers - they are looking to grow, and that's partly inspired by some crazy guy called Elon Musk.
Speaking of which, if you believe the share market, Musk's Tesla is worth more than Mazda, Mitsubishi and Suzuki combined and just 25 per cent less than Ford or General motors. Think about that for a minute. Tesla makes fewer than 100,000 cars a year and those three manufacturers make more than 4 million - and, yet, the trio is worth about half Tesla's value.
Forgetting valuations for a minute, the arrival of the tech giants and Tesla should be scaring the hell out of car companies. Sure, the argument in their favour goes: “We’ve been doing this for more than a 100 years and cars are very complicated and regulated - making a car is far more complicated than making a gold iPhone.”
That argument is one I’ve made myself before and it has some validity. Except for one thing: cars and mobility as we know it is rapidly changing. No doubt all the already mentioned car companies know how to make a great internal combustion engine, but why did it take Tesla to bring everyday electric cars to the forefront? Why was Tesla the first car company with autonomous driving technology that was more than just a concept?
Some random upstart that has been ‘mass producing’ cars only since 2008. Two thousand and freaking eight! I remember 2008, it was like a few weeks ago. Tesla achieved both of these feats before any of the established manufacturers and, while it definitely has some ways to go to match the build quality of the old guard, it’s not exactly decades behind.
A very senior German BMW executive recently told me that Tesla’s first-to-market success is due to the company not testing its products nearly as much as they do. Sure, that might be true (if something of an overstatement), but it also highlighted the weakness of car companies. They run like giant political corporations, overwhelmed by bureaucracy - while Tesla, Apple and Google operate like tech companies, where things happen at a much faster rate and with far leaner processes.
All of these companies, be it vehicle manufacturers or technology giants, are all presenting solutions to problems of future mobility from different perspectives. Google and Apple are stealing car company staff like it’s going out of fashion in the hope of dazzling the market with their own product. Whether that’s an actual car or the software for the car seems to change every week.
Meanwhile Uber and Ford envision a future where car sharing becomes a far bigger norm and Nvidia, best known for making pretty graphics a possibility, is now making a great deal of the hardware that drives the Tesla Autopilot system and is seeking to position itself as the Bosch of the new automotive era by producing commoditised artificial intelligence and vision processing systems. Shares in the company have gone up by more than 400 per cent in the last 12 months.
The atmosphere around the autonomous driving systems is electric. Every auto maker wants to have the best system and yet, they were all beaten by some American upstart.
Nissan and Volkswagen made big deals about their autonomous vehicle technologies at this year’s CES. Nissan with its man-in-the-middle approach (SAM) has basically admitted that autonomous cars won’t work on their own. They need a human monitoring them, Nissan says, so that when things get complicated, someone can dial in and help the car’s artificial intelligence out. Well, is that even an autonomous car anymore?
More to the point, during the live demo of its new Nissan SAM, the system froze. Twice. The autonomous car was stuck and no one was coming to help. Nissan blamed it on a failed satellite link, which highlighted the lack of a backup solution. Really? It has such an obvious single point of failure and no one thought a backup would be a good idea?
Volkswagen had a similar failure demonstrating its own autonomous vehicle technology. Meanwhile, Tesla’s Autopilot 2 system is in the hands of 1000 customers, being tested in the real world right now.
To be fair, Mercedes ($110 billion) appears to be the only brand that is keeping in reach of Tesla, with its own autonomous car technology set to launch this year and the first stages of the technology already available in the S, E and C-Class.
It's worth noting that Mercedes bought a 9.1 per cent stake in Tesla in May 2009, before it went public, for an estimated $50m. It disposed of its shares in October 2014, making a cool $780m - and both companies learnt a fair bit along the way.
The biggest advantage that tech companies have over the vehicle manufacturers, however, isn’t just a more innate understanding of artificial intelligence and connected devices. It's mapping.
Google and Apple maps are the two leading mapping systems in the world (Apple map jokes aside, the system has improved substantially over the years). Do you think Google’s Street View and Google Earth features were developed as a user-focused visual treat or side hobby for the company’s CEO? No. In order for autonomous cars to work properly, accurate mapping data is vital. It’s why BMW, Mercedes-Benz and Audi jointly purchased Nokia’s Here map system last year. The race is on to build the world’s most accurate mapping data.
Perhaps it's also worthwhile to remember that even though the traditional car makers are stuck in the current dealership model, new comers will further change the game and remove one of the least consumer friendly sides of the automotive business. Just look at an Apple Store experience compared to your local car dealer.
So, here we are. Two industries are about to clash. The car as we know it is about to change more than anyone can predict. Carlos Ghosn, the CEO of Renault-Nissan and now Mitsubishi alliance said that the emergence of electric cars, autonomous cars and connected cars will see more change in the automotive industry in the next decade than we’ve seen in the last 50 years. He likened it to the revolution from horse-and-carriage to the car.
How many horse-drawn carriage manufacturers can you name?
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