I believe it is good for us to, from time to time, take a few steps away from the action, and reflect a little on the overall development of the automotive industry, and to ponder on the macro aspects of the business, especially in the field of car electrification. Today, I would like to talk about 4 major changes that are affecting the automotive industry as a result of electrification.
Firstly, there is now a major divide between the traditional automotive powerhouses, and the new players. The traditional players tend to have a long history and has acquired decades of experience that are difficult to duplicate. However, due to electrification, some of these strengths may not be able to be carried into the future. Take for instance the strengths in power train. As the electric motor replaces the engine and transmissions, the decades of accumulated experience in transmissions loses its value. Had it not been the case, it would be very difficult for new players to come in as gear transmission design and manufacturing is a complicated business and the entry barrier would be very high.
However, when the electric motor replaces the traditional power trains, the opportunity for new players to come in is presented. These new players shift the focus from beefing up the muscle of the power train to the software part of the customer experience (rightly so, as the electric motor itself is more efficient and powerful than the engine so there is no need to brag about power anymore).
Secondly, the mix of skills and talent in auto production has also changed. Traditional car manufacturing plants start to see a higher mix of software engineers and fewer mechanical engineers. NIO said in an interview that more than half of their engineers in the production department comprises of software engineers. This is very different from the traditional car manufacturing process where the focus is on the mechanical side, to ensure safety, comfort, ease of operation and durability.
Thirdly, as the mix of software engineers gets higher and higher over time, there is more and more female participation in the workforce. This is a major change in the workforce composition, because the automotive industry is traditionally very male dominated. In the past, due to the focus on the mechanical aspects of design and production, the industry attracts males and deter women from joining.
Fourthly, I predict that Japanese brands will start to lose their dominance, especially in Asia where they are currently still very dominant. Take for instance in Thailand, Japanese brands make up 90% of all new car sales. This is about to change, as we see more and more Chinese news coming into the market (MG, and now GWM/Haval/Ora). More and more Chinese brands will come into the market as electrification becomes more widespread. Other than Chinese brands, new players like Tesla is growing in market share too. Thus, in the longer term, Japanese brands will lose market share as they struggle with electrification.
All these major changes in the industry presents both risks and opportunities.