Sustainable mobility with sustainable profitability.

Vehicle manufacturers

Huge investment in new technologies:

• The environment: manufacturers have made, and must continue to make, massive investments to adapt internal combustion vehicles, which until now have been the foundations of their business, to increasingly demanding environmental requirements, with shorter periods for returns on their investments due to the demanding carbon-reduction deadlines.
• Self-driving vehicles: the possibility of relieving drivers of what in many cases is the tedious and dangerous task of driving a vehicle is an opportunity for vehicle manufacturers. But it is also, and perhaps with more possibilities, an opportunity for everyone who see this freeing up of drivers' time as a golden opportunity to sell content and create products and solutions that drivers and passengers can consume while travelling in their cars.
  Vehicle manufacturers face the challenge of deciding whether to invest in the design and manufacture of self-driving-vehicle technology or to purchase that technology from third parties. Whatever happens, they will be competing with Apple and Google, which, although they do not manufacture vehicles directly, apply a“ design in California, made in China” approach, whether working with new manufacturers or through agreements with existing ones.
• Electrification: the solution chosen for meeting the challenge of environmental impact involves replacing fossil fuels with new electric alternatives, using electric motors with rechargeable batteries or hydrogen cells to produce the electricity needed to move the vehicles. If manufacturers wish to be technological leaders in either of these solutions, as they are now for combustion engines, they will need to invest heavily and compete with companies with huge experience and technology in these new areas. And these companies often have substantial government support, as is the case with Chinese companies. The solution, as we said with regard to safety, is to buy or share this technology with other companies. However, this means losing the current barriers to entry, and their current weight as actors in the mobility sector.
• New models of vehicle use: this point is often reduced to talking about car sharing or carpooling companies“”, but we think that it is much more important for the profitability of today's companies, particularly manufacturers. I think it is more appropriate to talk about shared and exclusive mobility, by which I mean: exclusive mobility is where the user is, in general, the exclusive decision-maker for the mobility resource, and therefore decides the model and brand, the type of vehicle, with whom and how to finance it, and how it is maintained; and shared mobility is where users use a mobility resource when they needs it, but do not decide or act on decisions about the mobility resource, such as taxis, “car2go/Share now” vehicles and hire cars.

Manufacturers have built their businesses around exclusive means of transport, where users acquire or finance vehicles and repair them by going to dealerships and garages. The shared model changes this radically, with the appearance of intermediary companies that come between the manufacturer and the end user, such as car hire and sharing companies.

This will require a new structure of personnel and other resources. But it also involves a change of culture and investment in the stock of available vehicles, with the resulting depreciation and maintenance cost, to ensure users can be guaranteed a convenient mobility service.

Uncertain profitability and return on investments:

• Loss of barriers to entry: the main barrier to entry to becoming a vehicle manufacturer used to be the“ ”knowhow involved in designing and manufacturing engines and the drivetrain for internal combustion vehicles. But electrification and the adoption of new safety and use technologies may result in the emergence of new manufacturers offering vehicles specifically designed for things such as shared mobility companies and distributing goods. These vehicles may be more suitable and have lower costs, and will have the latest technology offered by component manufacturers in almost identical conditions to traditional vehicle manufacturers.
• Cleanliness investments: many of the investments that manufacturers are being required to make, especially those related to emissions regulations, do not result in competitive advantages. In other words they are all about cleanliness. They have to be made but they do not result in better margins or increased sales for the manufacturers. In fact, they sometimes increase the sale price, which reduces demand.
• Difficult competition: mobility is one of the largest businesses in the world economy, with enormous direct and indirect weight. It is logical to expect it to attract new participants, especially among those who have created almost exclusive links with their customers such as Apple, Google, Amazon and Alibaba. The business strategies of these companies do not include manufacturing mobility resources.

  Their strategy is, and will continue to be, to offer alternatives for mobility when and how the user wishes, intermediating and using the available providers of such mobility.

  The mobility market should not be measured in terms of the volume of mobility resources available (cars, buses, scooters, etc.), but by the miles travelled and the options chosen by users, companies and individuals for these. The challenge for the future is to be able to provide these miles of mobility when and how the user wants, either through exclusive vehicles, as before, or by offering new solutions that are suitable for the mobility needed by the user to do what they want to do. The challenge for the structure and culture of today's manufacturers is to choose: to compete with the large companies that have both huge financial resources and a bond with their customers, and which are often almost the sole source their users use to do what they want to do; or to position themselves as the mobility provider users choose from among the most successful platforms.

  Another important factor in this complex competitive environment is the opportunity for companies such as Google and Apple to sell content and services while we are on the move, especially with the development of self-driving cars. We are already seeing how these have been introduced into vehicles through Apple Car and Android Auto. In future, this enormous potential for profit may mean that, as with phones, these companies end up playing a very active role in the supply of mobility, offsetting the investment and costs involved through the extraordinary profits from selling content. This situation would leave manufacturers as mere B2B providers, losing much of their relationship with the final customer and, therefore, seeing slimmer margins and a weakening of their business.

I think we can all agree that these changes are already taking place, and that the public and governments want them implemented quickly.

Within the sector, we often argue about whether the bottle is half full or half empty. What we should really be focusing is where the bottle is being filled and where we will have the best chance of achieving sustainable profitability.