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Why traditional car makers have been resisting car electrification until now

8/1/2021

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With all the decades and even a century of automotive experience, with the high entry barriers to the industry, why is car electrification being led by newcomers like Tesla, NIO and XPeng?

Make no mistake, credit is due to the traditional auto makers, many of whom have introduced electric cars (EVs) in the last few years, and plan to bring into the market a lot more models. They have also recently invested heavily in car electrification, and some have made announcements to go completely electric in the near future. However, their speed to market is still slow compared to the new players. With all their experience and resources, why should this be the case? In fact, the reverse should be true, traditional car makers should move ahead a lot faster, by simple logic, but this is not the case. Why?

The biggest fear of the traditional auto makers is the fear of cannibalization of their profitable models, their bread and butter. Let's look at a similar case, though different in nature, the fear is the same. Porsche, Maserati, Rolls Royce, they initially resisted developing an SUV model even though the global trend is moving towards SUVs. Their fear is the loss of identity and that the SUV models may eat into their sales of the core models. Fortunately for Porsche, the Cayenne became a great success.

Personally, I think car electrification poses the greatest challenge for sports car makers. For decades, they extoll the raw power of their big big engines, the muscular sound of the engine revv, which is what defines them and makes them what they are. Now, the smaller sized electric motor can do more than those big and muscular engines, silently, now that negates all the marketing work they have done for the last few decades. This reality destroys their sense of identity. If Porsche make their cars electric, what is the new identity? Will electrification take away the sales of their current core models? How will that impact their bottomline?

As you can see from the image posted above, that fear is very real. So, if you are a member of the top Porsche management, what would you do? Go ahead with electrification, or not? If yes, what kind of pace would you adopt? How would you create a new identity that is no longer associated with the loud engine revv and big engines, big exhaust pipes? How would you manage the transition to electric cars with minimal impact to the bottom line? How do you convince the shareholders that the short term pain in necessary for long term gain?


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