New automotive industry entrants don’t have existing friction points in their organization. Similar to how developing countries skipped landlines to adopt mobile phones, a new entrant doesn’t have a profitable business model to defend. As a result, they are all offense and very little defense. In contrast, existing large players have to defend their existing product portfolio, market share, revenue and profits. Factories, human capital and large swaths of land need to be paid off by traditional manufacturers, further constraining how much capital goes toward the future and thereby limiting their ability to innovate, scale up and scale down costs, and more.
New entrants, on the other hand, are constrained by how quickly a new idea can be scaled in a cost-efficient way. They can rapidly iterate. They don’t have to deal with existing cost bases or an asset base. Because they are small, they can experiment on a smaller scale, and whatever results in a successful experiment gets scaled.
But new entrants must keep innovating and outpacing traditional OEMs or they risk losing the uniqueness of their technology. If nothing is unique about new entrants, they risk their sales stagnating and declining because traditional OEMs have the resources to catch up and do so at scale.
Between autonomous vehicles, electrification, connected vehicles and transportation as a service, the automotive business model is completely changing. Traditional companies are caught in a tug of war: how fast can they move into new products without actually destroying their existing business model?
New entrants created a completely different architecture for vehicles because they were not constrained by conventional vehicle construction. It took seven years for traditional OEMs to start to change the architecture of a car to reflect the skateboard model introduced by new entrants — and it may take a full decade to scale this architecture.