Automaker to techie: ‘C’mon, if you’re hard enough!’

TU-Editor

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16th June 2017

Carmakers should not fear a head-to-head conflict with Silicon Valley giants eyeing up growth potential in the tech-focused auto industry of the future.

That’s the firm belief of Paul Cuatrecasas, CEO at the mergers and acquisition advisory specialists, Aquaa Partners.

Speaking to TU-Automotive, Cuatrecasas said carmakers have enough in their arsenal of expertise to fend off any direct encroachment on their core business. He said:

“They have the ability to win any battle they choose to be in but it does come down to that battleground choice. The automotive area is big enough in terms of potential profitability in order to be able to plan, therefore, if OEMs choose to play to win, you have to ascribe a reasonable probability that they will win.”

However, Cuatrecasas stressed that the time factors involved in how auto technology will develop would also influence the eventual outcome of any potential threat to the automaker’s supremacy in mobility solutions. He explained: “The question is, when does that winning start? Is it five years out or 10-15 years out? That depends, to a certain extent, on how AI, robotics and machine learning develop across our society. As AI gets integrated more into our individual lives, whether we are aware of it or not, that tends to give those Silicon Valley companies something or an edge. That’s unless one or more of the automakers decide that they want to play and it’s not, necessarily by brute force.

“This can be done in a David and Goliath scenario in a tech sense and, if the auto companies are smart as to what and who they invest in, what talent they introduce and how they manage that culturally, then it gets very interesting.”

High profile acquisitions of tech companies, such as Ford’s partnership with autonomous vehicle specialist Argo AI, point the way forward for many automakers, Cuatrecasas said. “I would say that this was based partly on the people. The top talent in the tech world is precious and while that may not seem fair to some people, it’s a reality.

“This is where the auto companies will have to take a deep breath and decide what is it going to take for them to compete and would it become too expensive and so far it has not. There is also the question of execution and, ultimately, the only way the auto companies will be able to do battle with the tech companies, if they have to, is to manage culture transformation over time. That is going to be the biggest challenge.”

Yet carmakers possess a trump card that could prove the winning hand in any challenge from a tech disrupter. Cuatrecasas explained: “What auto companies do have is an enormous asset that Silicon Valley does not have – a built-in culture and business organisation able to look at a time span of between five and 10 years. They have to because designing and building a car is a very complex process that is constantly evolving, so they are actually quite good with change and handling technology and with management.

“What they are also good at, where you could argue Silicon Valley isn’t as good at, is having a vision. Having to always look at five to 10 years ahead, auto companies have to do the same thing with regard to their industry which has become tech driven. If the auto companies have accepted that in this time frame we will be autonomous driven, then we have to go all in to win that space without being disrupted.”

Far from seeing new technology as a threat, most carmakers are likely to grasp the nettle as an opportunity, said Cuatrecasas. “In fact, they will be thinking ‘we will use technology to increase our margins and we will find a way to turn it into our advantage’. I believe there isn’t any reason why the auto companies cannot do that.

“The only exception is in the scenario of a market crash which would cause problems for those auto companies that are still heavily in debt. Then they would have to make some tough decisions because they will not have all the freedom they would like.”

Cuatrecasas also doubts the tech companies’ incentives to take the auto industry’s established companies head-on. He explained: “The tech companies are at the exploring and experimentation stage but that is all. Those are not core to a company like Google. Its core business is still generating up to 95% of its profits so unless ‘search’ becomes part of automotive technology, I’m not certain Google could win a battle with the carmakers. For example, people forget that Android was an acquisition for Google spending something like $50M back in 2005 – probably the best acquisition of all time! I’m not sure that Google will be able to compete with autonomous vehicle technology with the carmakers.

“Apple isn’t too different from Google and is generating the vast majority of its profits from devices like the iPhone, iPad and iWatch. When you combine that with the requirement to plan over five to 10 years you get to understand they are not used to this and it’s not core to their business. The companies that are really successful, whether Silicon Valley or automotive, are the companies that do their core really, really well.”

Only Tesla, already entered into the automaker sphere producing premium electric vehicles including Model S and Model X and the soon-to-be-launched ‘mass market’ Model 3, could be seen as a possible threat. However, Cuatrecasas said the company’s ultimate influence is impossible to predict. “Tesla is interesting because it’s a mix between a tech and automotive company but it is a complete and total wildcard. So you have to give the edge to the auto companies because it’s so important to them because it’s in their core and they will do whatever it takes to survive.

“The tech companies do not have to be in this space so they will continue to advance their technologies, their understanding, their intel including in robotics and then work together with auto companies and find that as a new source of business i n a partnership sort of way.”

Cuatrecasas believes the tech companies will continue to do what they do best, innovating and picking up revenues where they can, without wanting to take over a whole new industrial space. He said: “In a similar way, Google Glass came out in an experimental way and then went away and many people thought they had failed. They didn’t fail, it was just an experiment. They were learning and just because they took it off the market it doesn’t mean they are still not working on it. When it does come back to market, I would bet it will be a winning product.

“So what we are seeing today with the tech companies in automotive is similar to this situation. It will be learning and experimentation that could see them moving as players into a large global space in a serious way selling something not necessarily directly competitive with the auto companies.”

[Mob.Myles.2017.06.16]