Navigant Research Blog

Perception vs. Reality: CES and the North American International Auto Show

— January 19, 2017

Connected VehiclesIf there is any one lesson that we should all take away from 2016, it’s the confirmation that perception does not necessarily equal reality. What people perceive to be the truth is often the most important part of their decision-making, a concept now shown in the auto industry’s seemingly increasing participation in the International CES and apparently declining interest in Detroit’s North American International Auto Show (NAIAS).

There has been a lot of consternation in Michigan recently about the impact that CES has had on the Detroit show over the past decade. The two events tend to run back-to-back over the first 2 weeks of January. I was on hand in 2008 when then-General Motors CEO Rick Wagoner was the first major auto executive to keynote at CES after demonstrating the autonomous Chevrolet Tahoe, which won the DARPA urban challenge the prior year. While more automakers and suppliers than ever took part in CES this year, GM actually took a pass for the first time since Wagoner’s speech.

While the Detroit Auto Dealers Association, which organizes the NAIAS, is concerned that manufacturers are increasingly favoring CES, the issues of the auto show are largely unrelated to what’s happening in Vegas. Auto shows are consumer events designed to showcase all of the latest products available for sale, and media previews show what is arriving in the coming months.

With rare exceptions (like 2016, when Chevrolet unveiled the production version of the Bolt EV), new production vehicles are almost never shown at CES. The electronics show is a business-to-business event that isn’t open to the public; instead, the industry flocks to Las Vegas to talk up technology.

NAIAS Is About Reality; CES Is About Perception

For many years, the financial market’s perception of the auto industry has been that of old-school manufacturers of commodity widgets. The view of Silicon Valley and technology companies is that of innovators on the bleeding edge that are poised for explosive growth. Thus, you have investors pouring billions of dollars into startups every year; most of those companies getting all of that investment fail without ever producing anything noteworthy while burning through cash.

Meanwhile, the modern car is one of the most complicated and technologically sophisticated devices ever created and is produced by the latest cutting-edge processes. The industry that produces them employs tens of millions of people globally directly and indirectly, generating trillions of dollars in revenue and tens of billions in profit. Yet the industry gets little respect and low market values.

The presence of the auto industry at CES is designed to reach a group of media that cover companies like Apple, Google, Microsoft, Amazon, and Facebook alongside countless startups, the same media that investors follow. The goal is to change the perception of the auto business from one that looks like it came from the dawn of the industrial revolution to one that innovates on a daily basis.

That’s not a message you can get across by showing off the refreshed Ford F-150, even though it may be packed with far more technology than anything from Silicon Valley. That’s a message you communicate by demonstrating automated cars in Las Vegas traffic jams; partnership announcements with chip designers like Nvidia won’t reach its intended audience in auto shows in Detroit, Frankfurt, or Geneva. These shows have issues to address, but the fault doesn’t lie in Las Vegas. It’s all about perception.

 

EV Market Needs More Practical Vehicles, Less Hype

— January 19, 2017

Please 2017, bring us more announcements of practical, production-ready, 200+ mile range battery EVs (BEVs), and fewer of the concept electric super cars or Tesla killers. Yes, these long-ranged, sleek, sporty thrill rides are pretty and may sell in small volumes to high-end buyers when (or if) they come to market. But startups that are seemingly overcompensating for inexperience by showcasing their engineering prowess and far-flung visions won’t provide the needed bridge to mass adoption.

Since Tesla found initial success with the Model S, the term Tesla killer is frequently part of the discussion around most new, long-range BEV introductions from both established and startup automakers alike. In 2016, one company that was the focus of such hype was LeEco, which invested billions in EV startups. These investments led to what was described as one of the more lackluster BEV debuts at 2016’s Consumer Electronics Show (CES): Faraday Future’s FFZERO1. Unfortunately, the company’s variable platform architecture and the way in which that architecture might advantageously position Faraday to achieve its lofty business goals received muted attention relative to the billboard-doubling tail fin.

As it is presented, the architecture should allow Faraday to expand and diversify its vehicle offerings beyond the initial flagship model with ease. Regardless of whether the platform accomplishes Faraday’s business objectives, maintaining focus on either this aspect or another business innovation would showcase the company’s pragmatism and flexibility—qualities desperately needed in a rapidly evolving market. Unfortunately, during Faraday’s attempt to debut its flagship model at 2017’s CES, there were wide reports of financial trouble as well as an executive exodus.

The Race Against Tesla

LeEco’s other two EV investments, Lucid and LeSee, have as of yet avoided some of the harsher skepticism surrounding Faraday. The cars presented by the company do look closer to being production ready. Given that, LeEco is playing catch-up alongside many of the established premium brands, as well as positioning to compete against Tesla. All are aiming to introduce their long-range, $100,000+ flagships sometime before 2020, begging the question: will there be room for all in the premium EV segment?

While these would-be competitors try to outdo each other and out-maneuver Tesla, Tesla continues to stress pragmatic business model innovations. This includes advancing electrification outside of costly premium vehicle segments, laying the groundwork for automated mobility systems, taking the lead in public infrastructure development, and expanding into home energy management. Moving quickly on all fronts is a tough ask for any company, but at least any stumbles Tesla makes are likely to be grounded in vision and not vanity. For their part, the established OEMs are less fallible of Tesla-killer glory and are moving quickly to deploy practical innovations in affordable long-range BEVs, ultra-fast charging developments, and new mobility services.

 

Exelon’s GE Predix Deal Points to a Cloud-Based Future

— January 16, 2017

IT InfrastructureIn November last year, General Electric (GE) announced that US utility Exelon had signed a major deal to use the Predix platform to analyze data from its entire generation fleet. The enterprisewide agreement covers data from Exelon’s 32,700 MW portfolio of nuclear, wind, solar, hydroelectric, and natural gas power. Initially, Exelon will use Predix to help improve operational efficiency: it is targeting efficiency gains of up to 5% and operating and maintenance cost reductions of around 25%.

This was one of the most newsworthy announcements in the utility IT space in 2016, as it marks one of the first major shifts to cloud-based analytics of a large utility’s OT data. It is also GE’s largest Predix deal to date and helps validate the large bets the company has made in the OT analytics space, particularly its acquisition of Bit Stew (data ingestion) and Meridium (asset performance management).

Utilities and the Cloud

When the cloud was a hot topic in the broader IT world 4 or 5 years ago, there was little to write about in the utilities industry. This changed when utilities started to migrate back-office applications such as enterprise resource planning (ERP) and customer relationship management (CRM) to the cloud. Since then, there has been an acceleration of certain IT systems to the cloud, but utility OT applications have remained resolutely on-premise.

As utilities have become more comfortable with the cloud concept, it was only a matter of time before the OT world caught up with IT. Other IT vendors (e.g., Oracle with its Dataraker product) have already recorded numerous successes analyzing utilities’ grid data in the cloud. However, until now, the vast majority of these projects have been small-scale proofs of concept or have focused on smart meter data analytics.

Real-Time Performance

Exelon’s Predix deal marks a new era in cloud-based OT data analytics, as it involves the analytics of large volumes of operational grid data from preexisting sensors. This data has historically been fed into data historians, where it was then cleansed, extracted, and analyzed. The process was inefficient and relied on significant IT resources. By streaming data as soon as it is created into the Predix cloud, Exelon will be able to build a real-time view of its assets’ performance. And while the project will initially focus on asset performance management, if the project is a success, there is little to stop Exelon developing new use cases, particularly in network management.

GE is excited by the deal—it is one of the three largest software deals the company has ever closed—and expects more data from critical infrastructure to go into the cloud soon. While it has obvious strengths in asset performance management (APM), it also expects network management applications to migrate to the cloud. While we recommend a certain amount of circumspection (after all, one big deal does not signify a lasting trend), if analytics start to deliver the promise for huge cuts in operating costs, regulators will start to demand that utilities use these tools to cut customer costs.

Discussions of the deal with GE late last year highlighted yet again how vital C-level sponsorship is when driving digital transformation within a utility business. Exelon’s C-suite has been instrumental in the company’s adoption of new technologies, and GE has invested a great deal of time with executives to support them in making this change possible. There will be no digital transformation without C-level buy-in: the cultural and technological changes required are too great to be driven from individual departments.

 

Alexa Steals the Show at CES 2017

— January 16, 2017

CodeVoice activation took center stage at CES 2017, with Amazon and Alexa as the leading stars. I spent several days at the annual geek fest, and the device kept coming up in multiple conversations with industry players.

Alexa, formally called the Amazon Echo, is not new. The $180 device was first available exclusively to Amazon Prime members in November 2014. Since then, the device (along with its smaller clone, the Dot) and its cloud-based data service have been made available to anyone, steadily gaining a solid foothold in the smart home-Internet of Things (IoT) market. It has become a surprise hit, and vendors across the spectrum now clamor to include Alexa functionality in their devices. Companies like LG, Whirlpool, Samsung, Mattel, Lenovo, GE, and Ford have (or will soon have) products with Alexa voice technology.

From an energy standpoint, Alexa has already made inroads with smart thermostat makers to work directly with their products. For some months now, Alexa has enabled users to simply say a command, and a Wi-Fi-connected thermostat will alter the temperature to a new setting on a Nest, ecobee3, Honeywell Lyric, or Sensi product.

Waiting in the Wings

Even though Amazon’s Alexa is the clear leader of the voice-activation trend, Alphabet’s Google Home device was waiting in the wings at CES to carve out its share of the market. The Home device has only been available to consumers since its launch in November 2016, but a number of vendors I spoke with already have products that can work with Home or are planning to add Home integration to their products in the near future.

While Amazon and now Alphabet are competing head-to-head for voice-activation in the home, conspicuously absent in the space at CES were Apple and Microsoft—though that could soon change if rumors about Apple are true. Rumblings out of Cupertino indicate Apple is developing its own competitor to Alexa. Microsoft has its own voice-activated assistant engine called Cortana, but it is still unclear what the software giant’s strategy is in this part of the market and whether it wants to join a competitive hardware-cloud battle where it would likely start out as the number four player.

Other Connected Things: Mostly Incremental Gains

I saw mostly incremental advancements for smart thermostats, smart appliances, and numerous connected-smart lighting products on the show floor, which is not meant as a criticism. As manufacturers hone their skills, I would expect to see steady energy efficiency gains among these products as more sensors and data analytics combine to improve energy consumption. This kind of effort is difficult to achieve and takes time to develop.

Nonetheless, there was one notable product in terms of energy efficiency called LaDouche from French startup Solable. LaDouche is a residential water heater, and it was named as a CES 2017 Innovation Awards honoree for its heat-exchange capability, which ostensibly can lower an electric hot-water bill by up to 80%. That is impressive (if it can be verified).

Voice Technology as Transformative

The 2017 CES was a showcase for voice technology as a transformative trend, and one that Navigant Research has pointed out as a key new input for the IoT and computing in general. This was CES’ 50th anniversary event, and the show remains one of the few places where transformative technology gets a megaphone, and where one gets a glimpse of what potentially lies ahead in coming years—maybe even in the next 50. Flying cars, are you with me?

 

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