How OEMs can achieve the best of both worlds

Traditional OEMs and new entrants may not have much in common, but in the Transformative Age, working together may be their road to success.

In the next 10 years, you will undoubtedly see instances of new entrants being acquired by traditional original equipment manufacturers (OEMs). Both have problems that are not easy to solve. But when these two types of companies are paired together, these problems can be addressed.

Both new entrants and traditional OEMs have strengths and weaknesses — and both have competitive advantages. Having less experience means having fewer constraints and less fear — after all, there is less to lose. But it also comes with a lack of wisdom and practical knowledge, as well as a tendency to make more mistakes along the way.

The automotive industry has existed for over 100 years. A lot of the large OEMs have spent decades really honing how they can make their supply chain lean; build and sell cars on a large scale, at a high volume and cost-effectively; get the cars out to consumers who actually use them; and help drivers maintain those cars. Over those decades, those OEMs have grown massive. They now lack agility. They struggle to achieve speed to market when they have a new, creative idea that needs to be launched fast. That’s where their own inertia of being large works against them. This is where the new entrants break the mold.

Traditional OEMs are not about to wait. They are going to recognize innovative changes to the way cars are made and the way we use those cars. They will reproduce what the new entrants do faster and at scale. Instead of taking a decade, it will take traditional OEMs three to five years to scale an innovation as well as or better than new entrants.

From managing the status quo (an existing supplier base, dealer network and customer base) to turning to new products with new requirements (supplier base, parts, plants and revenue model), striking a balance will be critical to maintaining the value of the company and mitigating the risk of an overnight stock wipeout. 

We are not seeing the full effect of the electrification and new entrants yet. New entrants still need to figure out how to have financially viable business models in the longer term with the products and services at scale.

Acquisitions aren’t the only situations in which traditional OEMs and new entrants can play off of each other’s strengths: it would also be fascinating to see a joint venture between the two. Under this scenario, all of the knowledge from the traditional OEM could be used with the new entrant, allowing everyone to innovate. It happens in the tech world all the time.

Whether through acquisitions or joint ventures — however it plays out — it’s very likely that you’ll see traditional OEMs and new entrants working together in the coming decade. They’ll do it because they need each other.