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The Challenge of Being Mazda in the Mobility Transformation

Sam Abuelsamid — July 14, 2016

Electric Vehicle 2As automakers go, Mazda makes a fascinating case study in the challenges of being in the car business in the 21st century. In many respects, the company seems to have all the right pieces to be successful, yet at the same time, the brand is struggling to find a path toward long-term success. Recently, Masahiro Moro, who took over as CEO of Mazda North America late last year, paid a visit to Detroit to chat with the local press corps about where Mazda has been and where it is going.

You might think that selling more than 1.5 million cars a year should be more than enough to build a sustainable business. However, in a world that is increasingly pushing for the adoption of expensive new technologies, even a company like Fiat Chrysler Automobiles with nearly twice as many sales is struggling to find a way. Funding the development of autonomous vehicles, mobility services, and electrification takes huge amounts of cash. Aside from stock market darling Tesla, which seems to be able to go back to the equity well at will to refill its coffers, this development usually requires strong profitability.

Revamping Strategy

Ever since Ford relinquished its equity holding in Mazda during the 2008 financial collapse, Mazda has been working to revamp its product strategy. The company developed a suite of technologies under the SkyActiv brand that included new engines, transmissions, and lightweighting that have enabled it to be the corporate average fuel economy leader for 3 years running without a single electric vehicle (EV) in its American lineup.

“Mazda’s product roadmap is set through 2021 and with our second-generation SkyActiv technologies, the company should be well positioned to meet fuel economy and greenhouse gas targets,” said Moro-san. “Meeting targets for 2025 will require further electrification.”

Unlike the Detroit-based automakers, Mazda is not a full-line manufacturer and doesn’t need to offset the fuel consumption of large trucks. Moro-san indicated that for the cars and utility vehicles that make up the Mazda lineup, mild hybridization using 48-volt electrification would probably be sufficient for fuel economy. However, that is only part of the puzzle that needs to be solved. An increasing number of regional markets such as California and Norway are mandating zero-emissions vehicles (ZEVs).

“When it comes to electrification, development is not the problem,” added Moro-san. “The question is how to sell it.”

Absent Profit Margins

While the lack of big trucks helps a brand like Mazda on the efficiency front, it also means that like Tesla, the high profit margins that can subsidize affordable EVs are also absent. Navigant Research’s Electric Vehicle Market Forecast projects global battery EV (BEV) sales of just 1.6 million in 2024.

Moro-san also serves as Mazda’s global chief marketing officer. During his remarks, he discussed Mazda’s shift in strategy from trying to grow volumes based on selling to a price to focusing on the customer experience. Rather than trying to build a brand image from the top down through advertising, Mazda is working with its retail network to build an image of more premium vehicles for those that actually like to drive through customer word of mouth. This is actually very similar to the strategy employed by Tesla. While the EV-exclusive maker has not yet been profitable, if Mazda can build the margins on its traditional vehicles, that would help to fund the sales of ZEVs needed to meet mandates.

Automakers of all sizes are trying to chart a course through the stormy seas that will be part of the mobility transition over the next several decades. Mazda is taking a different approach from some of its larger competitors, and it’s far too soon to know how the company will come out on the other side.

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