Analysis: Are Today’s Automobile Companies More Like Nokia or Apple?
As the CEO shake-up at Ford was unfolding this week—Mark Fields was ousted from the top spot in favor of Jim Hackett, who had been leading the automaker’s self-driving car and mobility efforts—Silicon Valley investor Marc Andreessen issued a sick burn: “Today’s car makers are like Nokia—right before it was crushed by Apple.” Ouch.
Andreessen was talking to Bloomberg about the race between the auto and tech industries to get self-driving cars on the road, and his belief that “the entire experience of being in the car will be defined by software.” While few analysts would argue with that, there remains some debate about who will take autonomous vehicle technology to the consumer market first. Will it be a company similar to Apple or Google, or will it be a Ford or GM?
Meanwhile, the Detroit News reports that on Tuesday morning, Hackett was interviewed by Paul W. Smith on WJR radio, a station based in metro Detroit. Hackett said Ford is going all in on self-driving cars because it expects the reams of data generated and collected by autonomous vehicles to be profitable enough to withstand the auto industry’s uncertain sales cycles.
Car makers have enjoyed a more profitable couple of years recently, thanks in part to the pent-up demand that grew during the recession. But that period is coming to a close, and anyone with teenagers in their family can tell you how little interest young people have in driving cars, let alone owning them. In order to survive these demographic and economic trends, the auto industry will have to explore other avenues, like monetizing the vast amount of data that will come with self-driving cars.
Hackett contended that traditional auto manufacturers are undervalued by investors compared to sexier companies like Tesla. From the Detroit News: “‘(Auto companies) generate tremendous value for shareholders,’ but investors don’t appreciate that, he said. ‘The long-term fix to that though, is that inside of our industrial businesses will be digital businesses, businesses that today have (ratios) a dozen times more than ours. And I think the vehicle business will always be the larger portion, but the digital businesses will not only add earnings power, but they’ll be anti-cyclical. Because when we have a recession, while maybe the vehicle sales will drop, people will still use them, and we’re going to earn revenue around use in the future in a really profound way.'”
Andreessen would likely disagree with Hackett. He told Bloomberg that Tesla is going to revolutionize cars the same way Microsoft innovated desktop computers with its Windows operating system. “There’s no existing legacy car company in the world today” that would agree with that, he said. “They would all say that they are best at making cars, and that the software is a component that goes in the cars. Our thesis is, no, what’s actually going to happen is the value will flow to the software layer.”
However, autonomous vehicles can’t exist without the hardware, and that hardware still needs to pass a heap of safety regulations before being approved for the open road. Nor can self-driving cars be properly commercialized without a network of dealerships or some other distribution channel that allows people to kick the tires, so to speak, before plunking down their hard-earned money.
Ford has long claimed to be leading its fellow manufacturers in the development of autonomous vehicles, going so far as to predict it will have self-driving cars on the road by 2021. But that doesn’t track with the way investors view the company, according to the Detroit News. Its analysts say Ford appears to be lagging behind Tesla, Uber, and rival GM in “disruptive mobility.” Jeff Schuster, LMC Automotive’s senior vice president of forecasting, told the newspaper that “even if all of Ford’s investments and projects are progressing steadily, the company is behind General Motors Co., Google’s self-driving Waymo spinoff and others that have rolled out new developments and partnerships in recent years.”
Hackett told Smith during his radio interview that Ford needs to do a better job communicating its innovation strategy with investors and consumers, and make faster decisions in a notoriously slow-moving industry.
Andreessen, whose venture firm has invested in self-driving car companies such as Comma.ai and DeepMap, said car companies like Ford are already lagging behind the tech industry. “As you know, in phones you used to have these companies like Nokia, RIM and others that made phones and used software as just this sort of add-on to the hardware. Car CEOs, the new generation, they’re all working on this. They’re spending a lot of time out here [in Silicon Valley], and they’re spending a lot of time with us. But literally, the way they frame that question is, ‘We, existing car company, do not want to be the Nokia of cars.'”
Andreessen predicts that Tesla, with its Apple-like model of producing both the hardware and software needed for self-driving cars, will win the race, but cautions that there is a flood of new Silicon Valley competitors nipping at its heels.