Industry Story:Disruptive Innovation in the Automotive Industry

Janesville, 23 November 2008, and the last Chevrolet came off the production line in the oldest of all General Motors (GM) production plants. Originally opened in 1023, a town had grown around its geography, its rhythms and its jobs. Now, ad the great recession of 2008 took hold, Janesville, a town on the road two hours northwest of Chicago, found itself on the cliff edge of decline.

The automotive industry has always been emblematic of a nation’s success, or a nation’s failure. The great Japanese expansion of the 1970’s and 1980’s announced Toyota, Nissan, Mitsubishi and Mazda to US and European markets. The weak amongst those incumbent carmakers were quickly weeded out: The UK industry lost spectacularly, but consolidation and scale became constant, global phenomena amongst all those that survived. There was a race to build scale, to modernise and sometimes to protect be legislation or legal ruse.

Yet through these times, from the birth of the Janesville plant through the Japenese invasion and beyond, petrol and diesel continued. The technology itself remained constant – there was an internal combustion engine, a gearbox of some sort and a driver. The engine and gearbox were subject to constant evolution so they became better and better by whichever latest metric was applied. The driver stayed more or less the same, just subject to a few more laws, a few more technologies and road safety.

Today it is different. In 2017, Tessla passed GM and became the most valuable carmaker in the United States. At that time, April 2017 Tesla was just thirteen years old and controlled 0.2% of the US market.GM, by contrast, was 108 years old and controlled 17.3% of the market. Such market valuations can be explained by the battery power of the Tesla car plus its artificial intelligence autonomous driving technology. To the markets, these technological achievements change the plane of the competition. Tesla is priced for future performance, both as a car maker and a battery company, and as a provider of autonomous or semi-autonomous mobility through advanced software with network effects.

In summer 2013, Uber CEO Travis Kalanick visited Google where he had the opportunity to ride in a fully autonomous car. Later he told David Krane, a partner at Google Ventures, ‘The minute your car becomes real, I can take the dude out of the front seat.’ In September 2016, The Economist heralded the still privately funded Uber under the headline, ‘From zero to seventy (billion)’. Again, investors have been pricing for the future. Uber represents the potential of flexible mobility and pricing. Vehicles, people and goods can be managed through its algorithms. The potential value of taxi markets increases through the deregulation wrought by Uber’s platform, but just as important, the potential patterns of mobility themselves could be changed and enlarged. Controversy accompanies Uber, but even as it met opposition in different cities for affecting incumbent taxi firms and the working conditions of drovers, there was a more radical prospect in view. One day, not too distant, there might not be any drivers at all. Vehicles will be autonomous.  In 2016, Uber announced collaboration with Ford and Google to advance autonomous vehicles.

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