The EV Industry Is Running on Connectivity
The venerable Ford Motor Company is reportedly looking at separating its growing EV business from its legacy Internal Combustion Engine (ICE) operations.
Why would they think of doing this, you might wonder? Aren’t they using the same auto bodies and many of the same parts?
The answer is that it’s becoming increasingly clear that in moving to EVs, the auto industry is leaving behind its legacy as an old-world analog industry and becoming a business where software and connectivity are differentiators.
While Ford is attempting to reinvent itself as a “mobility” company rather than a car company, many of the leading EV companies are startups. They have invested heavily not just in a plant to build auto bodies but also in the software stack that powers the vehicles' connectivity.
China’s secret weapon is software
These points were made in a webinar last week held by U.S. investment house Capital Group, where the firm’s analysts put an investment lens on the EV industry.
Jason Zhang, one of the Capital analysts, used the Chinese EV industry to illustrate the point.
“For three decades, China has tried to be successful in the ICE industry without success, and foreign brands have a market share of over 70% in ICE vehicles in China,” he said.
“But that flipped in the EV market. Chinese manufacturers have an 80% EV market share, and that is because Chinese companies excel in software and connectivity, and they are using that to their advantage.”
The Capital Group analysts believe that Tesla, which sold half a million units in China last year and is about to open a European factory near Berlin, is the global leader in the EV industry. This is because of its investment in an integrated software stack, which includes the design of its computer chips.
“Tesla runs a centralized software stack which reduces complexity and increases functionality and allows over the air updates, and that makes a Tesla a far more advanced and connected vehicle”
They point out that a traditional ICE engine is complex, with many moving parts and a significant difference in quality. However, EV engines are far simpler and more generic, so the differentiation in the EV industry of the future will be in software and connectivity.
Tipping point
In its earliest phase, the EV industry was about range. This meant a balance between power and weight. But with the adoption of EVs now at a tipping point in the E.U. and U.S., after rapid growth in China, the software dimension is becoming increasingly important.
“It’s about the data collected, communications, and Advanced Driver Assistance Systems,” one of the Capital Group analysts told the webinar.
“These are the competing features which we as investors are looking for.”
Tesla not only has a first-mover advantage in developed country markets, but it has built an advantage around its unique architecture and superior data capture. These have led to improvements in upgrading and improving the vehicle’s performance in real-time, without the need to take it into the garage.
“Tesla runs a centralized software stack which reduces complexity and increases functionality and allows over-the-air updates, and that makes a Tesla a far more advanced and connected vehicle,” says Jason Zhang.
“The major automakers are switching to this model in-house, but I’m skeptical that they’ll have their platforms ready [before] mid-decade, and that’s how far behind they are.”
These differences, the analysts said, would only be exacerbated by the momentum for increased connectivity and driverless technology, putting Tesla and the new Chinese EV startups at a further advantage against traditional rivals.
So this is one reason why Ford could be considering an EV spinoff, cutting the ties with the legacy business, which has sustained the company and made it a global leader for a century or more.
Where Henry Ford revolutionized the industry with his production line, today, Ford finds itself chasing after the new revolutionaries who are the software-driven startups.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/peterschreiber.media
