Even though Evs have been around for a while now, it's just in the last two years that every major automaker started a proper race to catch up with Tesla and possibly outrun the rest of the competition.
And while initial forecasts predicted that EVs would have taken a fairly long time to surpass ICE cars, by looking at the current market development, the story could be different. The main drivers of the change are the so-called ACES standing for autonomous driving, connectivity, electrification, and shared mobility. A sign of this drastic shift is the number of tech companies, involved mostly in software and consumer electronics development that are entering the space:
This is reflected in online communication as well. Social media personalities involved in technology are giving more and more attention to electric mobility as well. There is a convergence of interests for tech enthusiasts in EVs and automakers too are involving more influencers from this side of the market.
One above all, the recent partnership between Marques Brownlee (one of the most followed and respected YouTube personalities in the tech world) and Top Gear, for the review of electric vehicles. But there are many more.
Consumers' preferences are changing, software and electronic integrations are gaining importance and automakers know that. In 2020, 40% of the average cost of a vehicle was spent on electronics, up from 2010's 27%, and is projected to reach 45% by 2030 (Deloitte). Also, according to McKinsey in this decade the automotive market will experience a CAGR of 7%, from $238 billion in 2020 to $469 in 2030, with Power Electronics, Integrations services, and software above it with a CAGR of 15%, 10%, and 9% respectively.
The software side is becoming increasingly important in everyday use. This affects the luxury and performance automotive niche too where there has been a clear trend toward cars more suited for every-day use by every luxury and sports car manufacturer.
But it also represents a more substantial differentiation between super sports cars and pure luxury cars (or even lower segments for that matter). Luckily, for some manufacturers, the focus on the driving experience is something that plays more into the strengths and expertise they accumulated for decades, while digitisation, autonomous driving, and electrification are big equalisers, which lower the entry barriers for the huge number of start-ups coming to the market every day lately. In fact, among the companies developing connected services and cybersecurity, 44% have been established in the last 20 years, while those working with ADAS have grown by 38% in just ten years. The US and China thanks to their large investments and powerful tech industrial clusters account for the larger share of this industry respectively with 34 and 28%.
This standardisation process can become an even bigger problem for premium and luxury automakers for obvious reasons. The increase in shared components, and especially electronics and software like it happens in big automotive groups could tarnish a brand's exclusivity.
In the lower market segment, someone that is avoiding this to a certain extent is Tesla. Not only creating every part in-house separates it from the rest of the market, but mostly having its own ecosystem does. Tesla has employed a strong vertical integration. Something that is not easy to replicate now that the EV market is already growing at a fast pace at least for high-volume automakers.
For low-volume productions, though this might be different. The example here is Rimac that has developed a similar strategy in the EV world. Ultimately this paired with its proprietary technology are the major characteristics that turned the Croatian company into the success it is today, at least from a technological standpoint (and likely in automotive too very soon). Among low-volume luxury automakers, Swedish Koenigsegg too adopts the same integration. As ACES level the playing field, higher integration, and in-house development could be the key for sustained and long-term brand strength.
Standardisation will increase in software development as well. Much like it happened for computers and mobile technology, initially, every company developed its own system. However, as the industry consolidates, competitors are going to disappear and only a few (or very few) players will remain. In this context, tech companies and software developers such as Google, or Chinese giants Tencent for example will have a significant advantage over their automotive counterparts. Volvo and Geely subsidiary Polestar has already done that step integrating Google infotainment and OS.
Also due to the increasing complexity and need for cross-system integrations, automakers will have to establish special partnerships with Software developers to implement these systems properly (McKinsey). This would give the suppliers higher bargaining power, and the standardisation of software could become an issue for luxury automakers that need to distinguish themselves and the driving experience offered from that of others.
Regarding sports cars and super sports cars, with the focus remaining on the driving experience, most ACES factors are likely to have less of an impact on the segment. But not all. Electrification in fact is already having a big impact on the industry and on new generations of potential clients. Performances that already reached small incremental improvements in the last years are making a significant jump with electrification (at least in some contexts) and could soon reach a limit, if not of what is physically possible, at least the limit for what the average human being can handle. While the top-of-the-line ICE super sports cars and hybrids reached accelerations varying between 2.8 and 2.5 seconds from 0 to 100 km/h (0-62 mph), it is not uncommon to see super electric vehicles claimed acceleration market below 2 seconds.
Again, Rimac made the headlines a few days ago with the release of the production-ready version of its C_Two, now called Nevera, clocking record acceleration speeds with 0-62 in 2 seconds or less, and a quarter-mile in less than 9 seconds.
As of now, the instant torque and excessive straight-line speed of electric vehicles represent a novelty. But this kind of competition is not likely to last. Due to the (relative) ease with which automakers achieve such stunning performance numbers with EVs, the competition will either go onto something more complex, like a full lap time (something that already happens among long-standing automakers) or simply lose its appeal. If this happens, we will see the competition transforming into something completely new.
The change is happening extremely fast. Autonomous driving, connectivity, electrification, and shared mobility are transforming the automotive industry for good. Cars will increasingly become consumer electronics. But where does this leave the luxury and performance niches?
These companies will have to come up with strategies to differentiate themselves against the overall standardisation that seems to be developing. This will have to include the vehicles’ value proposition, whether it is the driving experience, the performance, or the luxury.
While some core strengths of these traditional OEMs might lose importance, others should stay. Additionally, the higher technological and digital integrations offer also relevant opportunities. Automakers have the chance to create more comprehensive, involving, and seamless ecosystems to attract customers and improve brand loyalty. Connectivity and software development offer countless possibilities to create services, build communities and a sense of belonging, making the car ownership an experience more than ever before.
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