Full Charge or Empty Tank: The Strategic Choices Defining the Future of Legacy Automakers in the EV Era
The electric vehicle (EV) landscape just witnessed a tectonic shift and legacy car makers are showing they’re not prepared for what’s underway. The $10 Trillion global EV market is experiencing explosive growth, reaching a record 10+ million unit sales in 2023. The three legacy automaker regions, North America, Europe and Asia are experiencing very different adoption rates each wrestling with a different set of supply and demands. Still, the overall picture is almost exponential adoption, it’s changing so quickly that the International Energy Agency revised its EV market share tipping point a few years ahead of what they initially projected later in the decade. EVs are coming on line faster and faster and from further a field.
However, amidst this electrifying boom, established automakers from North America, Europe and Asia find themselves caught in a white-knuckle ride, struggling to keep pace with agile EV companies like Tesla and the Chinese challengers like BYD and others. This stark disparity necessitates a closer look at the factors fueling the “tsunami” and the critical choices facing legacy players in the rapidly evolving EV landscape.
Lagging Behind: Burdened by the Past, Hesitant on the Future
Years of dominance with internal combustion engines (ICEs) led to delayed investments in dedicated EV platforms and battery technology for many legacy auto makers. While Tesla and BYD and other new entrants built their entire infrastructure around electric mobility from the ground up, traditional players have grappled with adapting existing processes and supply chains to the demands of battery-powered vehicles. This translates to a slower pace of innovation, with estimates suggesting new entrant EV companies filing twice as many EV patents as their Western counterparts. The result? Less competitive offerings, reflected in lagging sales figures. This year alone, Tesla said it sold just over 1.8 million vehicles, up 37.7% from 2022 numbers. BYD sold 3 million cars globally in 2023, 62% more than 2022, of which 1.57 million were pure electric vehicles (EV). BYD outsold Tesla in Q4 2023, delivering 526,409 vehicles compared to Tesla’s 484,507. While Tesla retains the annual production crown, this quarterly milestone signifies a potential paradigm change in the global EV race. Together they sold more EVs than all the other legacy automakers combined and the gap is turning into a chasm.
Beyond Hardware, Software Prowess is Rapidly Emerging as a Crucial Differentiator
Tesla’s software and hardware integrated design and BYD’s AI-powered features highlight the growing importance of in-house software expertise and seamless integration from production design to delivery and charging. Many legacy automakers remain reliant on outsourced solutions, with a patchwork of suppliers with multiple closed and sometimes incompatible software systems creating a costly, and clunky user experience and gap in capabilities compared to their integrated ground-up software-driven rivals. This is even more concerning when considering the growing prominence of smartphone integration into EVs. Xiaomi, the tech giant and worlds no. 3 smart phone maker, released its first EV and plans to leverage its mobile expertise to create a connected car experience, potentially setting a new standard for software-defined mobility.
The Chinese Surge: Agility, Disruption, and State-Powered Momentum
Chinese companies like BYD wield a formidable “vertical vortex” advantage. They control much of the entire EV supply chain – from lithium mines to car dealerships – enabling cost efficiencies that Western rivals struggle to match. Add to this generous government subsidies, and you have a recipe for disruptive affordability. But affordability is not the only differentiator. At US $50,000- the average price for most legacy EVs , they’re are simply out of reach for the majority of customers. Also product market mismatch is an ongoing issue for North American automakers who insist on oversized EV trucks and massive SUVs, a market that is not clamoring to embrace their EV versions. On the other hand, in Europe, the compact EV market demand exceeds their legacy automakers supply and the new entrants are ready, willing and able to supply that demand.
Design and innovation are driving another wave of disruption. NIO and Xpeng are pushing the boundaries with sleek aesthetics and feature-rich offerings, captivating younger demographics who often perceive traditional models as outdated. New well designed and affordable brands are resonating deeply with cost-conscious existing and prospective customers who are not as loyal to legacy brands- in fact, they prefer the fresh new line and look. Other companies including Vietnamese Vinfast has already captured 50% market share in its home market and now is setting up for North American expansion. If it feels a little like “deja vu” when Hyundai came to the US, expect it, just faster. The gap is wide open for new EV companies to wrestle market share.
The tide may be turning, however, with a subtle shift towards near-shoring. Mexico and India, with lower labor costs and proximity to key markets, are becoming increasingly attractive production hubs for EVs. This trend could offer legacy players a foothold to regain competitiveness, particularly if they can leverage their established distribution networks, manufacture batteries and leverage partnerships and brand recognition in these regions.
A Call to Action for Legacy Giants To Navigate the Electrifying Current
The road ahead for traditional automakers is undoubtedly arduous, but not insurmountable. To weather the EV tsunami, they must undergo a decisive shift, focusing on:
- Full Commitment to EVs: Legacy players must move beyond half-hearted offerings and invest heavily in dedicated EV platforms, cutting-edge battery technology, and in-house software expertise. Strategic partnerships with tech titans can accelerate the transition and bridge the digital divide.
- Embracing Design Evolution: Shedding the outdated skin of yesteryear is crucial. Bold design, intuitive features, and user-centric experiences will be key to regaining relevance in the evolving EV landscape. Legacy brands need to show how this can be done successfully. Its not secret that most of the new EV entrants hired designers from the legacy automakers. They have just given them free reign. The quality from the new EVs is testament to the skills of the design and production teams.
- Price Optimization: Exploring vertical integration options and strategic partnerships with battery and materials suppliers can lower production costs. Legacy players must offer compelling alternatives to the affordability champions from the new entrants, without compromising on quality or safety. This may involve rethinking traditional dealership models and embracing direct-to-consumer sales strategies. It also means having serious conversations with governments on how they create policies that create a level playing field with imports and exports and not inadvertently subsidize the competition.
- Learning from the new entrants: Adapting successful strategies in design, affordability, and digital integration to local markets is a potent strategy. Benchmarking the new entrant rivals and understanding their strengths in customer preferences, marketing strategies, and government support mechanisms can provide valuable insights for legacy automakers.
The EV race is far from over, and the finish line remains far from view. Legacy automakers have a choice: cling to the ICE past by slapping EV drivetrains on the “same old same old” and risk being swept away by the new entrants tsunami, or adapt, innovate, and embrace the electrifying current. This strategic shift will require bold decisions, strategic investments, and a willingness to learn from their agile rivals.
The auto industry is important economically to the legacy regions, their governments need to take notice. Those who are open to change, rapid learning, iteration and innovation will navigate the rapids successfully. They stand at a crossroads, forge a path to innovation and you risk survival at worse and a reinvigorated future in a redefined mobility technology landscape at best. Choose the latter.
