One of former Ford CEO Mark Fields’ common refrains regarding the future came from fears that the automaker would devalue itself by focusing too much on hardware.
“At the end of the day we don’t want to end up as the handset business,” Fields told online tech magazine Recode in April 2015.
Companies that manufacture cellphone handsets have a tough time turning profits on the phones themselves. Turns out, the money is in the software and the apps that customers interact with.
While it’s smart to not follow one industry down into a financial black hole, that kind of thinking -- the fear that the auto industry could devalue itself by pairing up too closely with Silicon Valley -- is holding the industry back.
The inertia that keeps the industry protecting its current revenue streams prevents decision-makers from seriously considering other ways to make money.
In a recent research paper, Morgan Stanley analyst Adam Jonas said the emerging business model should be measured in global miles traveled, not the number of cars an automaker sells. Measuring in miles allows the industry to focus on a combination of auto sales and incremental sales of mobility, infotainment and connectivity.
One reason this makes sense is that shared mobility services will increase the miles a car is driven -- but could drive down the number of cars on the road. So overall auto sales could look dismal while healthy, strong revenue opportunities emerge. Jonas estimates that cars will drive more than 19.6 billion miles worldwide by 2030, far higher than the 10.2 billion they traveled in 2015 and a growth pace much higher than the estimated vehicle production rate during the same time frame.
“The sooner investors can make the transformation, we believe the more industry events will make sense over the next 12 to 24 months, as the story of industry disruption likely unfolds,” said Jonas.
- Sharon Silke Carty