By Adam Lashinsky
The world’s biggest carmakers are in disarray over their plans to produce electric vehicles. From Ford to General Motors to Mercedes, one car company after another has announced delays, cancellations and billion-dollar write-downs due to their sputtering EV efforts. These are industrial giants that built their brands on internal-combustion engines, only to see their market values dwarfed by EV market leader Tesla. Now they are being humbled alongside their upstart rival by a perceived lack of consumer interest in their newfangled wares.
Make sense of the latest news and debates with our daily newsletter Yet the wrong conclusion to draw is the demise of EVs. Instead, what we’re seeing play out is as old as capitalism. A new idea, brilliantly executed by a challenger company that seems to be an overnight success, shakes incumbents to their core. Massive overinvestment, poorly executed, then ensues, leading to hand-wringing, retrenchment and doubts about the market.
If history is any guide, and it almost always is, EVs are here to stay, and the carmakers that get them right will be the ones that survive. The key to understanding where this is going isn’t the losses Detroit is racking up but its pain threshold for enduring more red ink.
Mercedes-Benz earlier in the year said it was pushing out by five years, to 2030, its target date for having a 50 percent electric lineup. As these heavyweights are stalling, Stellantis, owner of Chrysler and other brands, has barely shifted out of park. Stellantis offered its first EV in the U.S. market only this year, an underpowered, bite-sized car called the Fiat 500e. If anything, the incumbent car manufacturers run the risk of getting out before they even get into the game. Of the top 18 EVs sold in the United States in the second quarter, per Kelley Blue Book data, only four came out from the Big Three. The rest were non-U. S. brands — and Tesla.
This turn of events is as predictable as it is alarming. In industry after industry, legacy businesses react slowly — and then too frantically — to start-ups that are willing to endure massive losses attempting to change the rules of the game. Amazon suffered years and billions of dollars of losses as established retailers first scoffed — and then scrambled to catch up to — online retailing. Two decades later, many shopping malls and the merchants that once ruled them are hollowed-out shells, while Amazon moved on to prosper in multiple adjacent markets.
Every entertainment company in Hollywood belatedly invested heavily to match the streaming prowess of Netflix. Most are licking the wounds of their unprofitable investments while Netflix continues to soar. Once beefy brokerage houses lost their fat trading margins after discounters like Charles Schwab and Vanguard took them away.
The lesson isn’t that incumbents can’t fight back. It’s that they must be realistic about what they are up against: new competitors that don’t have the same profit requirements as the stodgy old companies that have been around for decades.
Xiaomi, a new maker of cars in China, recently said it is planning to invest $10 billion in EVs. It’s unclear whether Xiaomi, known for making mobile phones and other gadgets, will be able to raise that kind of money. But it is more than likely that it will succeed in making life miserable for established players as it pursues its goals.
China is the proof that EVs aren’t some passing fancy, no matter what Donald Trump and a slowdown in the sales growth of electric cars might suggest. In July, the Chinese market for the first time had more sales of EVs than internal-combustion cars. And despite high tariffs on Chinese EVs that prevent their manufacturers from establishing a toehold in the U.S. market, Western incumbents know China will be a force globally. Ford Motor CEO Jim Farley said as much when he recently told investors: “We believe that the fitness of the Chinese in EVs will eventually wash over our entire industry in all regions.”
EV efforts by industry stalwarts have plenty to contend with besides iffy consumer demand and their own paltry supply. Coastal Tesla customers don’t suffer much from range anxiety because Elon Musk’s company built an impressive and ubiquitous charging network in those regions. But the auto industry, which relies on a century of investments in corner gas stations, has been slow to get behind what a “fill-up” might mean in the new age, and somehow it expects public utilities and state governments to make up for its underinvestment.
Capitalism is often maligned for ruthlessly putting profits before people. But its true destructive power is never more visible than when a new idea comes along — and legacy capitalists, unable to adjust quickly, find themselves, almost overnight, looking like roadkill.
NYA Thanks The Washington Post!