Navigant Research Blog

Automakers Protect Their Turf by Cannibalizing Themselves

— January 6, 2016

Time may heal all wounds, but for the auto industry, not enough time has elapsed yet to forget the pain caused by the 2008 financial meltdown. With that sales collapse still visible in its rear-view mirror, the industry is wary of another potential collapse due to innovations from Silicon Valley as it takes to heart the warning from the late Steve Jobs: “If you don’t cannibalize yourself, someone else will.

Jobs was talking to his biographer Walter Isaacson about how the then-new iPad had the potential to steal sales from Apple’s own MacBook laptop computers. With the mobility ecosystem on the precipice of a transformation stemming from a combination of automation, connectivity, car/ride sharing, and electrification, incumbent automakers have recognized the potential for a massive drop in future sales and are positioning themselves to take advantage of the new normal, whatever that might be.

Navigant Research’s Autonomous Vehicles report projects global sales of more than 40 million autonomous light duty vehicles annually by 2030, while carsharing programs are projected to have 23.4 million members around the world by 2024. Along with increasing urbanization, automakers see the combination of these trends potentially decimating sales of personally owned vehicles in mature markets like Europe and North America in the second half of the 2020s and beyond.

Industry Takes Note

Based on recent announcements from several incumbent automakers, automakers hope to partner with the technology industry to transform how they make money from personal ownership to on-demand mobility-as-a-service. General Motors (GM) kicked off the 2016 International CES with an announcement that it would invest $500 million in fast-growing ridesharing company Lyft while Audi is leading a Series C investment round in Austin, Texas-based rental firm Silvercar.

The GM-Lyft deal includes plans to develop a network of autonomous vehicles that can be summoned on demand by Lyft customers. In September 2015, GM announced plans for a pilot program with a fleet of autonomous Chevrolet Volts to be used as on-demand shuttles by employees at its Warren, Michigan technical center.

Airport rental startup Silvercar now operates in 12 cities across the United States with a fleet of identical Audi sedans. Like Uber and Lyft, customers get service through a website or smartphone app. A reserved car can be unlocked with a phone and the all-inclusive flat daily rate is also paid automatically through the app.

Like GM, Ford has thousands of employees that move among the dozens of buildings in its product development center and global headquarters in Dearborn, Michigan. Ford recently launched a dynamic shuttle service with a fleet of Wi-Fi and power-equipped Transit vans so that employees can stay in contact or work on the move. Rides can be summoned and tracked from a smartphone app, just like Uber or Lyft. While retirees from nearby Ford factories currently drive the vans, Ken Washington, Ford’s vice-president of research and advanced engineering, has not ruled out using autonomous vehicles at some point when the technology is ready.

With increasingly congested cities looking for ways to help people move around while reducing accidents and improving air quality, urban centers may well ban human-driven vehicles at some future date. Each of these investments point to a time when fewer people need or want to own a vehicle but still need a convenient way to get around. With companies like Google, Uber, and potentially Apple hoping to step into the breach, automakers are smart to look at ways to cannibalize their existing business in favor of a whole new way of making money.


Reading for a Changing Utility Landscape

— January 6, 2016

If you have been on the Internet recently, you will have noticed that the end of 2015 brings with it endless online posts regarding some of the year’s bests, worsts, highlights, and lowlights. I’m following suit by listing a handful of my favorite semi-work-related books. Throughout the last year, many thought leaders introduced creative approaches that apply to current utility business challenges. These approaches include, but are not limited to, organic growth, disruptive technologies, and fraternal twins, and global warming and climate change. Here are my favorites from 2015:

  1. How to Fly a Horse: The Secret History of Creation, Invention, and Discovery, by Kevin Ashton.
    Now that the Internet of Things (IoT) has entered the energy and utilities industry in a big way, it is time for people in this industry to read something by the man who coined that term, even though the book itself is not specifically focused on IoT. Debunking the idea that greatness is the result of single moments of revelation, Ashton argues for the merits in repeated experimentation, failure, and gradual development. Utilities feeling pressured by an all-or-nothing approach to developing an integrated and smart organization can pivot their focus a bit more toward how they can start to get their hands dirty, focusing on small achievements to support the foundation of much larger change.
  2. Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry, by Jacquie McNish and Sean Silcoff.
    While I did not love the heavy historical narrative in this book, it did really hone in on the concept that one should never underestimate their competition (in BlackBerry’s case, the iPhone), and that competition can come from anywhere. Since the power utility industry has traditionally been protected by a regulated monopoly model, lessons in dealing with competition are likely less ingrained than in other deregulated markets. But as the regulatory environment changes, young companies in solar, storage, IoT, energy efficiency, and demand management have encroached on utility consumers like never before, and there are no signs that their momentum will slow. The utility-customer relationship is becoming more important than ever, right when it stands the most threat.
  3. Superforecasting: The Art and Science of Prediction, By Philip E. Tetlock and Dan Gardner
    Based on a 4-year study of random individuals tasked to predict outcomes based on common information, the authors of this book found that the best forecasters followed a common methodology based on data collection and objectivity. This seems like an obvious outcome, but the authors also noted that it is very rarely applied to business, economic, and political forecasting. Something for all of us to ponder.

These are just three books that felt pertinent to me this year given the changes occurring in the United States and globally, where environmental, political, and technological forces are shaping organizational change at an unprecedented rate. In a time of unruly transition, one thing that cannot hurt executives is to start reading up on the topics that have helped leaders in other evolving industries—and look for ways to apply lessons to their new challenges.


More Automakers Are Revisiting Fuel Cell Vehicles

— January 5, 2016

Consumers are waiting for the next big thing in clean transportation, yet nobody has a clear idea of what it may look like. While battery electric vehicles (BEVs) are a popular option in this niche market, fuel cells vehicles (FCVs) offer similar environmental benefits. Though the buzz surrounding FCVs has waned over the years, many believe that growing government incentives and advancements in the technology position this class of vehicles for a major breakout in the coming years.

Fuel cells are devices that convert chemical energy into electrical energy, much like a battery. Proton exchange membrane fuel cells (or PEMFCs) have been the leading type of fuel cell for light duty vehicles (LDVs) and buses due to their shock resistance, compact construction, and fast startup time. Toyota made headlines a few months ago with its rollout of the Mirai FCV in the United States. The fuel cell stack utilized within the car is Toyota’s proprietary stack with W.L. Gore’s polymer exchange electrolyte. Preorders well exceeded expectations, totaling just under 1,900 units by October. Toyota plans to sell 3,000 units in the United States by the end of 2017. Navigant Research documented the market for FCVs in its recently published research brief, Fuel Cell Vehicles.

New Developments in FCVs

In 2015, the Tokyo Motor Show served as a platform for auto manufacturers to showcase their efforts within the FCV space. Toyota made further news with its Lexus LF-FC Concept, which utilizes a fuel cell electric system that drives the rear wheels and also can send power to front in-wheel motors for all-wheel drive. Honda revealed its new production version of the Clarity set to go on sale early this year. The Clarity’s entire fuel cell stack and drivetrain is now packaged under the hood. This model will likely be the basis of Honda’s new BEV and plug-in hybrid electric vehicle in the next few years. Additionally, Daimler showcased its Vision Tokyo concept at the show, an autonomous-capable lounge on wheels with a plug-in hybrid fuel cell drivetrain similar to the F015 Concept shown at the Consumer Electronics Show. There is no lack of technological innovation in the transportation sector, but other issues like infrastructure and cost must be resolved before widespread FCV adoption can occur.

Research institutions, automakers, and cleantech manufacturers continue to push new developments with fuel cells, and new ways to improve them are underway. Through nanotechnology and advanced microscopy, scientists have found ways to decrease the amount of platinum used in PEMFCs by up to 84%, possibly even eliminating the need for it all together. This would translate to a significant decrease in vehicle cost if it is able to be fabricated at scale. Companies like Ballard Power Systems and Hydrogenics are frequently enlisted to have their fuel cell modules utilized in different applications (e.g., defense, aerospace, and stationary power), and have made developments to incrementally improve roundtrip efficiency. Furthermore, key partnerships (like BMW and Toyota and Daimler, Nissan, and Ford) dedicated to researching and improving fuel cells technologies will continue to be important in decreasing costs.

Electric drive is the leading opportunity to improve our transportation system’s efficiency. With fuel cells there is one more way to generate that electricity. Fuel cells also help ensure that there is an option for everyone as the push toward electrification and efficiency continues throughout the transportation sector. The years 2016 and 2017 should prove to be a breakout year for FCV announcements and deployments. Increased government, private sector, and public sector support will determine how deeply integrated FCVs will become in the global transportation fleet.


E-Bikes Pave the Way for German Bicycle Highways

— January 5, 2016

Germany recently opened its first 5 km (3 mile) bicycle highway, with plans set to expand the highway to over 100 km (62 miles) of track. Bicycle-only highways are more expansive and favorable to cyclists than simple bike paths; the highways are 4 meters (13 feet) wide, have several bike lanes, and are well lit and cleared of snow in the winter. Gone are the days of bicyclists dealing with irregular speed bumps, cars driving into bike lanes, and the startling situation of a bike lane merging with a bus lane.

Safer and Better for the Environment

In addition to serving as a much safer way for cyclists to commute, the German regional development group RVR estimates that the new bicycle tracks will remove 50,000 cars from the road every day—drastically reducing traffic jams and urban air pollution. Overall, the bicycle highway will connect 10 cities and four universities, running largely along unused railroad tracks. Nearly two million people live within a mile of the bicycle highway and will be able to use it for their daily commutes.

E-Bikes are Key to the Infrastructure Expansion

While Germany undoubtedly has a rich history of traditional bicycling, it is also the largest electric bicycle (e-bike) market in Europe, with 480,000 e-bikes sold in 2014 according to the trade association BOVAG. Sales of e-bikes are growing steadily, accounting for roughly 12% of all bicycle sales in Germany—with the e-bike market achieving 17% year-over-year growth in 2014 compared to 2013.

E-bikes help commuters travel longer distances and easily conquer hilly terrain; advantages that are helping more and more German commuters make the switch from cars to cycling. The high adoption rate of e-bikes in the country is contributing to the need for all cyclists to have more safe and private roadways for commuting. As most cities around the world search for ways to reduce the number of cars on the road, they can look to Germany for some basic best practices. Bicycle highways both incentivize and create the necessary infrastructure in order for bicycles and e-bikes to play a major role in urban mobility. Keep an eye out for the upcoming update to Navigant Research’s Electric Bicycles report for more on this topic.


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