The European Automotive Industry’s Race to Electrical Innovation
The European automotive industry is currently in a period of unprecedented change. Legislation is driving technology in electric vehicles, and changing customer demand is requiring increased levels of personalization in what has traditionally been a mass-produced product. We recently surveyed 300 senior executives across Europe about the innovation challenges facing the automotive industry and held a webinar with 100 senior executives in European automotive sector. This post breaks down the key trends, challenges, and findings that came out of that research.
Electrification and the Pace of Change
With more than a century to evolve and improve, consumers know that the internal combustion engine is reliable to get them from A to B easily and reliably. However, recent pressures from climate change and legislation have pushed the automotive industry to explore developing electrically powered vehicles that can match this convenience and reliability. In fact, 100% of the people we surveyed said they personally feel there is an increase in the level of focus on electrification. It is not so much evolution, as a revolution.
While the uptick of electric cars is still low, it is rising rapidly. This change affects far more than the electric vehicle itself, as manufacturers also seek to drive forward their own sustainability agenda to meet increasingly strict industry standards and the demand from a more climate aware general public–their customer base. The investment to improve the technology on a tight timescale is significant, and there was debate among survey participants on whether this investment comes from historic brands (61%), with established expertise, or from a new startup with the vision and disruptive nature to break current barriers (39%).
The transition will be painful for traditional car makers and suppliers. Electric cars have about 25% fewer parts than conventional vehicles, and companies that make engine parts like pistons, fuel injection systems, and spark plugs will have to find new products to sell, or they will die. For startups, the challenge is different. While they don’t have the same legacy infrastructures as traditional brands, they still need to forge key relationships so that they can share the developmental load with suppliers. They also need huge injections of cash, without the revenue streams that the more traditional brands enjoy.
Disrupting the Norm
For true innovation to happen one word is key: disruption. To up the pace of innovation, businesses need to either disrupt or be disrupted. We also need to accept that disruption often comes from outside the business or industry. Startups typically have the advantage of thriving through this disruption. Without the long history the traditional manufacturers have, they don’t face the same barriers to progress, such as sales from existing technology vs. the need to rapidly change, regulations, and resources.
Another problem is that while everyone has a designated role within a business, that role typically does not include innovation. Employees are often too scared of the negative impact on their careers to suggest a new approach or idea. This is a real challenge for management who may be inadvertently putting a brake on innovation. As Dean Johnson, President for the Chartered Society of Designers, said in our survey, "Most businesses think they innovate, whereas in reality they don’t. The challenge is either to find ways of overcoming this fear barrier, perhaps the modern equivalent of an anonymous suggestion box, or to seek innovation from elsewhere."
Innovation happens when something is not good enough. Businesses need to be brave and allow themselves to be disrupted from within, and they need to look outside their bubble to see where it is being done better. This disruption might be from the supply chain, a key part in the modern automotive industry, or even from outside the industry.
Changing Customer Demand
Electrification is not the only challenge facing the industry. The public is now so used to ordering from the internet and ticking boxes to get what they want, rather than what you want to sell to them, that the whole role of personalization within a mass-produced environment must be addressed.
Digital manufacturing has found itself in the forefront of this movement. One example is the Mini, which started with personalizing colors, such as a Union Jack roof, but now offers customization as far as a 3d-printed dashboard with your name on it. It makes you feel as if it's your car, rather than a car that was given to you.
Manufacturers need to put their money where their customers are, or risk losing them to more forward-thinking competitors. Consumers don’t just want to buy a car; they want to buy their car. This personalization is already affecting design, but beyond that the industry needs to explore how people interact with their vehicles. Other key trends at the moment include self-driving cars and connectivity–how do we and other people in the vehicle use our time, do we work or seek entertainment for example?
Crossing the Finish Line in Time
The automotive industry has some big barriers to overcome to reach its targets and ensure survival. For electrification, the first task is to deliver a reliable and convenient solution that the public can trust. This requires new thinking, and there is a real danger that a misplaced competitive instinct could get in the way of such development.
Only 21% of our survey respondents said collaboration with competitors is something they are focused on in regards to the shifting industry. While competition is healthy, a balance must be found. A great deal of collaboration is required to achieve the tight deadlines for electric vehicles to become the norm.
Cross-industry collaboration needs to work both horizontally with competitors and vertically through the supply chain. As the industry changes, the role of the supply chain becomes even more important in introducing new ideas and technologies, such as additive manufacturing. This integration needs to be seamless, and reaction time needs to be rapid. The industry has been used to long lead times and product cycles, but this is getting shorter with legislation driving the electrification timetable.
As we have seen from the polls in our report, the automotive industry is also facing a talent crisis. In the face of this and the need for rapid progress, one solution is to bring innovation in from outside, such as tapping into an ecosystem that already exists–outsourcing innovation to suppliers, forging new relationships, and extending the supply chain to include other specialists.
With technological barriers to overcome in electrification and new, more sophisticated customers demanding personalization, it is clear that inaction is not an option and there will be casualties along the way. The challenge is to make sure that your business is a winner and is still here making the most of future opportunities in 10 years' time.