This article first appeared in The Edge Malaysia Weekly, on May 2 - 8, 2016.
After 125 years, during which the petrol vehicle reigned supreme, the electric vehicle (EV) is making an extraordinary comeback.
That’s right. The EV pre-dates the petrol engine and automotive engineer; Ferdinand Porsche hand-built one in 1898 before creating his own brand of sports cars. In the US, after 1890, several manufacturers produced EVs for city use and by 1900, “electric cars were in their heyday, accounting for around a third of all vehicles on the road”, said the US Department of Energy.
The EV was easy to use and very popular with the ladies, the New York Times reported on Jan 20, 1911. However, the market for EVs collapsed after Henry Ford introduced the Model-T in 1908 and drove down car prices. Consumers wanted to travel longer distances and that was made possible with the opening up of petrol stations nationwide, selling cheap gas.
This changed the paradigm and companies involved in EV manufacturing and their supply chain not unexpectedly closed down. Fast forward to today and Tesla’s Gigafactory in Nevada, slated to open in 2017, will have a production capacity of 500,000 units.
More importantly, it will manufacture lithium ion cells for the industry based on technology provided by Panasonic Corp, which is an investor in the Tesla plant. The car battery pack has been designed around existing cell technology, which is not proprietary, thereby making it possible for all car manufactures to enter the market. Think of it as an open-source opportunity offered to all car makers!
Initially sold to environmentalists and consumers looking to save on petrol bills, Tesla cars are now sold on their looks, features, space and performance. The top-of-the-line Tesla Model-S P90D develops 90kW and takes you from 0-100kph in 2.8 seconds. That’s faster than the iconic Porsche 911 Turbo, which has a 3.8-litre, twin-turbo six-cylinder engine that delivers 427kW and takes 3 seconds to get from 0-100kph.
We are witnessing a new era in car technology that will be massively disruptive. All stakeholders will be impacted along with thousands, if not millions, of blue and white collar workers, not to mention investors. In our world, we see disruption all around us, with large companies being tied down by their bureaucracies and planning and approval cycles taken out by entrepreneurial start-ups.
Eddie Obeng, a British organisational theorist, academician and author, provides an eloquent warning to market leaders: “Most of us spend our lives acting rationally in response to a world we recognise and understand but which no longer exists.” Leadership teams need to ask their companies this critical question: “Are we stuck in the world before midnight?”
Some car companies are hedging their bets, trying to adopt existing platforms for the EV, others like Tesla are pushing the envelope in design and performance. More change will come. Tesla founder Elon Musk has been battling US regulators for four years to allow him to replace the external side rear mirrors with a camera and in-vehicle display! When this is allowed — and it will be eventually — there will be one more supplier put out of business.
What will happen to the “world before midnight” car makers?
Well, they won’t go out of business soon, but they will eventually. And when they go, they will take with them most of their supply chain because the electric car does not need fuel tanks and lines, gearboxes, engine control systems, exhausts, emission controls, drive trains, starter motors, timing belts, oil pumps, radiators and so on. The “no longer required” list of parts and components is very long.
What about the engineers working on these systems? The faculty and students at automotive colleges? Extend the network further — gas station owners and transporters of fuel … I think you get my drift?
While we won’t see change occurring overnight, it will happen in stages and will leave a lot of people stranded without a job and needing to be right-skilled. Investors will probably be the first to bolt. If your company is involved in the value chain for petrol engine cars, the writing is on the wall.
Bloomberg New Energy Finance, which provides unique analysis, tools and data for decision makers driving change in the energy system, forecast global electric vehicles sales to increase from 462,000 in 2015 to 40 million in 2040, or 35% of light car sales. We know that forecasts are sometimes wildly wrong but we never know in which direction!
In consumer and lifestyle products, we have been served with sales forecasts for the likes of PCs, mobile phones and iPods. What was the forecast for PCs? The IBM PC announced in 1981 was forecast to sell 250,000 units over five years, but reached one million in just two years. Talk about being wrong!
You might have seen videos of cars being crash tested — they slam them into a wall and pretty much wreck them. I hope this is not the fate that will befall the car companies. Will incumbent car manufacturers and their supply chains be able to avoid this?
Time will tell but based on historical evidence, the prognosis is not positive, hence the need to bring entrepreneurship into the management of large companies.
Anwar Jumabhoy is an author and speaker on bringing entrepreneurship into large organisations
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