Seven years from now, electrification technologies will render gas cars obsolete, declares Tony Seba, author of “Clean Disruption of Energy and Transportation,” which was published in 2014. Electric vehicles (EVs) and the self-driving kind (AVs) have been disrupting car making, which puts the repair segment at risk if it doesn’t adapt.
Industry insiders should pay careful attention to Seba’s scenario on converging disruptive business model innovations defined by automotive software providers like Tesla Motors. While at it, they should learn why KPMG, a financial advisory firm, sees electrification in the automotive aftermarket differently than Seba.
By 2030, the EV park will have overtaken the conventional car, says Seba in his book. Rock bottom recharging prices are too affordable to resist. This Stanford University professor who runs RethinkX, a think tank, calculates that EVs cost 10 times less to charge. For example, to drive 12,000 miles, a Tesla Roadster costs $313 for the trip compared with $3,000 to fuel a Jeep Liberty. The average price per gallon, Seba concludes, cannot compete against $0.12 per kilowatt-hour.
Also by then, an entry-level EV will retail at half the sticker price as a base model of equal performance. Citing a 16 percent annual improvement, battery costs at $1,000 per kilowatt-hour have dropped to $500 in 2014, which Seba projects to fall to $73 by 2025. Whereas internal combustion engines (ICE) are 79 percent wasteful with the fuel it burns, the EV motor is nearly 99 percent efficient. While at it, battery storage capacity is expanding.
Under his projections, EV platforms — and by extension vehicle autonomy — can outlast ICE, require less parts and need no motor oils. The cost of ownership will result in 90 percent less repairs and scheduled maintenance, which means less components for parts suppliers to sell and the need for fewer tools and equipment. The business models used for nearly 100 years, Seba insists, are as outdated as the horse pulled buggy.
In one respect, Seba overstates himself. 2017 national registration figures show 366,940 EVs in operation, where California claims half of those. It is hard to imagine how in the next decade that 278 million vehicles and 8.6 million big rigs will become displaced. Yet Seba’s assessment of Tesla Motor’s smart-car technology business model predicated on connectivity and convenience is winning over some consumers.
When charging station infrastructure becomes evenly distributed and when the breakeven point falls below ICE, electrification will prevail, says Gary Silberg of KPMG. “For sure, the combustion engine will be around for a long time,” says Silberg, “but it will not drop from 100 to zero.” According to Seba’s timetable, KPMG’s EV sales estimates could total 50 percent of vehicles in operation.
Although EVs contain fewer mechanical parts, the remaining electrical portions are complex. Unfortunately, Seba did not respond to my requests to update his 2014 theory about who should be fixing those components.
Interestingly, however, Seba’s outlook on EVs, AVs, connectivity and mobility-as-a-service complements Silberg’s optimism about semiconductor products. Coined as the “Internal Computing Engine” by KPMG, these building blocks fall at the center of automotive innovation that incorporates the memory and logic chips found inside the onboard software and hardware systems. Unlike Seba’s pessimism that the aftermarket will wither from these emerging technologies, Silberg cleverly asserts that parts retailers and technicians will have plenty of business for years even as ICE car sales remain brisk.
This breathing room gives the aftermarket added time to align with the computer on wheels for 21st century digital customers. “As I tried to make clear in my talk to the Automotive Aftermarket Suppliers Association conference, that the complexity of semiconductors is going to be phenomenal,” says Silberg.
In two decades, the KPMG report says that the current $40 billion semiconductor industry will rise five-fold to $200 billion. Silberg feels that the 100 million lines of code of onboard electronics are too mind-boggling for one industry or company to manage. Servicing the vehicle cannot be done alone by the OEM.
By investing further down the supply chain closer to the customer, semiconductor firms or other software outfits could forge more exciting relationships. Silberg is spot on to suggest that semiconductor industry leaders should think beyond collaborating with the automakers and their tier-one suppliers.
Understandingly, a transition to a new vehicle service model during this topsy-turvy era is fraught with risk for the automotive technician. Undoubtedly during this unnerving economy, changing business practices feel scary, especially as many have recast their roles for the post-COVID-19 world.
Remember one unique advantage for the aftermarket supply chain. Product managers can preview the vehicle rollout and make a running start to stock up on talent to service the onboard computers and electronic systems. If appropriately calibrated with the semiconductor companies who wish to partner up with the aftermarket, everyone could be up for exciting times.
Independent service stations and their suppliers can benefit. They must prepare themselves to scale the learning curve brought on by semiconductor applications found in telematics, safety and powertrain. “More and more functionality and value will be based on software and electronics, and the seamless integration of hardware and software,” writes the KPMG report.
Universal operating standards remain fragmented along the lines of LiDAR sensors, image-recognition systems, and 5G communication. Silberg advises that technicians choose specialization over brand diversification. What’s more, envision when the day comes where remote fixes can be wirelessly configured from afar by your favorite repair shop. And the good news is that so far, during the COVID-19 lockdowns, many of those consumer-facing repair shops have already integrated new technologies by accelerating online appointments, virtual diagnostics, and digital payments.
As Seba astutely points out, the problem with the carriage industry was never about a shortage of horses when General Motors first came to market. The truth behind GM’s rise in mass production was more about their innovative business model: vehicle financing. When loans to buy an automobile cheaply became accessible to consumers, switching costs away from the horse-drawn carriage became a game-changer.
During the survival of their business, people have proven how to adapt. Yesterday’s lesson on disruptive business needn't be today’s deal-breaker.
Sources: Automotive Semiconductors: The New ICE Age by KPMG, Clean Disruption of Energy and Transportation by Tony Seba, U.S. Department of Transportation
