The automotive industry is under pressure to meet regulatory emissions targets
Electric vehicles, driverless cars, carpooling, changing patterns of vehicle ownership and use, and the recognition that climate change poses an existential threat are just a few of the major disruptions that may force automakers to modify their current business models.
Climate scientists say electric vehicles are one of the best ways to reduce greenhouse gas emissions, most of which come from cars and trucks. In the United States, the transportation sector is the largest source of emissions, and the auto industry is under great pressure to meet regulatory emissions targets and do its part for the planet. Automotive companies, their suppliers. and other mobility players must adapt to an emerging future that threatens their existing business models.
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For example, carsharing can undermine the single-family ownership model that has been central to the business model of automotive companies for over a century. If a rideshare company like Lyft or Uber is able to send a fully autonomous vehicle to customers’ doors and take them where they want to go on command, those customers may be more closely tied to that service, not the Car manufacturer.
Electric vehicles will also have an impact on the traditional business model. For starters, there is a dramatic increase in the number of new entrants to the market, and sales and distribution channels are shifting from brick-and-mortar dealers to online stores. The service requirements for electric vehicles are less than for the gasoline internal combustion engine because of their simplicity, and gross margins may decrease due to much stronger competition and lower prices for electric vehicles in the world. over time. In addition, policymakers in Washington will continue to promote and support faster adoption of electric vehicles to address climate change.
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Rising ownership of electric vehicles is at the heart of the Biden administration’s $ 2.3 trillion infrastructure package. It would provide $ 174 billion to drive the development and adoption of electric vehicles, including incentives to purchase them and install more electric vehicle charging stations across the country – 500,000 of them by 2030 – so that people feel sure that they don’t run out of juice. There are currently approximately 41,000 charging stations in the United States, compared to over 136,000 gas stations.
Surveys show that while consumers’ appetites for electric vehicles have increased dramatically, they remain concerned about the price of battery-powered cars, which can cost up to $ 10,000 more than conventional vehicles. But the total operating costs of electric vehicles may well be lower than those of conventional vehicles. Less maintenance and charge costs can offset the higher initial price over time. Electric vehicles also have fewer moving parts and do not require an oil change.
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The hope is that the federal largesse will spur the growth of electric vehicles, which currently represent only 2% of the new car market and 1% of all cars, sport utility vehicles, vans and pickup trucks on the road, according to the Department of Energy.
Autonomous or fully autonomous vehicles may represent an even greater disruption to the auto industry, although there remains considerable uncertainty around fully autonomous vehicles, despite significant investments in such vehicles. It is difficult for potential customers to imagine what a community would look like in which this is a viable transportation option.
Even once fully autonomous cars are available, it is extremely difficult to predict their rate of proliferation. We do not know if they are in five, 10 or 15 years. Either way, they can lead to lower sales of traditional cars.
All of these factors are dramatically changing the automotive manufacturing landscape. Incumbents will be forced to change their business model, which will result in wholesale changes to their manufacturing base, closure of current facilities, adjustments to their dealer network and fundamental changes to their overall cost structure. This type of disruption is not easy for large, mature companies.
One thing is certain: the way people move from place to place affects many aspects of daily life as well as hundreds of related industries, and that will change in the near future.
Joseph M. Giglio is Professor of Strategic Management at the D’Amore-McKim School of Business at Northeastern University.