Auto giants’ global strategies for the future

By Jeff Lee 2022-10-21

Each major automaker’s conditions and financial background are unique, resulting in many distinct global business strategies. What we can be sure of is that EV assemblies in the future will go localized (due to rising protectionism and imported cars’ rising tariffs and stricter thresholds for purchase subsidies), the combat for key components and raw materials will happen before the retail market, and automakers will no longer reign the development of advanced technologies.

The current Japanese car industry has claimed many years on the global sales throne. Previously in the age of ICE cars, Japanese carmakers started to export their products and gradually grow their global market share after the early stages of product imitation and the subsequent quality & production efficiency improvement. Afterward, they established local factories and assemblies overseas, offering market-oriented products and competitive pricing strategies due to lower costs. Since 2007, the production capacity of the oversea Japanese car industry has surpassed that of its homeland. Soon the car industry will have to adapt to the age of EVs; should these traditional industry giants retain their ambition and purpose, how will they adjust their global strategies, and how will these strategies differ from what they implemented in the age of ICEs ?

First, smart EVs differ greatly from traditional ICE cars in terms of assembly processes and supply chains:

  • ICE cars are based on mechanical techs, while smart EVs stand on the shoulders of the ICT industry.
  • The management of ICE cars relies on vertical supply chain integration, while smart EVs prefer horizontal partnerships and collaborations.
  • ICE cars center around automaker-developed technology frameworks; smart EVs’ technological requirements are high and distributed to batteries, chips, and autonomous driving systems, which are not easily controllable areas for traditional carmakers.
  • Batteries’ raw materials and high-end chip supplies cannot sustain the future growth of smart EVs. Compared with ICE cars’ steady supply chain, smart EVs’ supply chain will be the decisive factor for their sales in the long run.
  • Following the Paris Agreement’s net-zero initiative, governments worldwide have varying subsidies and policies for their EV industries. For example, the US has set up increasingly harsh conditions for foreign auto companies, resulting in severe trading drawbacks.
  • EV’s components are relatively simplified so EV assembly process doesn’t need surplus labor from ICE car assemblies.

Second, there is no need for EVs to provide traditional maintenance service like ICE cars, which has altered the profit model of dealers, and carmakers may even skip the dealership and go for direct sales. As such, the market rep of retail channels has become a crucial subject.

Should auto giants wish for successful transformations and fulfilling their ambitions in the EV era, they need to focus on a few directions in this almost unrecognizable new era:

  • The Chinese, US, and European markets are all essential. With the European market’s openness and high approval for EVs, Chinese self-owned brands have been dipping their toes in the market in recent years. Although the Chinese market is expansive, its fierce competition calls for international giants with exceptional technological levels to withstand Chinese self-owned brands’ startling price-performance ratio. Although Ford’s performance in the ICE car market has been lackluster lately, the company recently set up Ford Electric Mach Tech in China to develop future smart EV models independently, hoping to turn the tide in the Chinese market. Of the three major markets mentioned above, the US is the slowest to go electric, yet the bar for foreign EV industries to enter remains very high. Companies wishing to set up local factories in the US must consider how their whole supply chain works locally, and US consumers no more have the 7,500 USD tax break for imported EV purchases.
  • As VAG & Bosch, Toyota & Denso collaborations in the past swept over every market, automakers today need to form alliances or invest in battery manufacturers, foundries, and autonomous driving tech companies, all of which are essential! Additionally, they’d better to collaborate with multiple companies to avoid putting all of their eggs in one basket (for example, Mercedes partners with Luminar and Nvidia individually to develop autonomous driving tech).
  • The internationalization of technical talents. The age of fostering talent internally for traditional carmakers has passed. Now, every second counts in this ultra-competitive technological environment where it’s best to directly set up R&D departments in China and the US (for example, VW’s and Ford’s R&D centers in China, and Toyota’s and Hyundai’s in the US. Mercedes, on the other hand, named an Asian director in McKinsey Hong Kong to the new position of chief strategy officer, focusing on the Asian-Pacific Market.)

In the ever-changing and competitive environment of the future smart EV industry, even traditional auto giants need to embrace collaborations and adaptation. Strictly speaking, when more cross-industry competitors join the contest of the auto industry, traditional carmakers would have to take on a defensive stance in sales and profit. The time has come for a complete reevaluation of these industry giants’ global business strategies when their future competitors become elusive and unpredictable rather than identifiable foes and ample time for market evaluations and strategizing in the past.