Legacy OEMs face EV culture challenge
Consultancy MHP suggests pure play start-ups have an execution advantage
The e-mobility revolutions calls “not only for those who can recognise potential or do solution concepts, but for people to really implement those solutions, get things going and push the transformation forward”. So says Nils Schaupensteiner, head of digital innovation and strategy at German management and IT consultancy MHP.
And in translating goals into outcomes, EV start-ups may have an advantage over established OEMs. “We see that in traditional markets or in legacy companies, it is perhaps more challenging to drive transformation, because you do not have the greenfield approach, you do not start from zero all over again,” Schaupensteiner tells EV inFocus.
But that does not mean that there is, in his view, no place for legacy OEMs in the shift towards EVs. Rather it is about recognising strengths and compensating for any weaknesses.
“Traditional companies should, and do, focus on their strengths and really multiply those strengths, build up new products on those strengths,” he suggests. But at the same time, they should “acknowledge where they need additional or new capabilities, and then team up with companies which have those capabilities”.
“Strategic partnerships are key,” Schaupensteiner continues. “Some companies have more capabilities in the software business, some of them more in, say, scaling up EV platforms on the hardware side.
“It is not one or the other; it is more driving things together.” And he references German legacy OEM VW’s partnerships announced earlier this year with China’s Xpeng and Saic as a good example of what this new paradigm could look like.
Ford CEO Jim Farley laid out starkly one of the challenges legacy OEMs face when he described his firm’s software system as “crazy” in a podcast with UK EV initiative Fully Charged in June. “We farmed out all the modules that control our vehicles to suppliers because we could bid them against each other,” Farley said, meaning the 150 or so through a vehicle have software written by different companies which do not necessarily talk to each other.
Ford has decided, with its second generation of EVs, to in-source the entire electrical architecture. But Schaupensteiner is not convinced that represents the optimal solution for all legacy OEMs.
“To get everything in-house is quite a challenge, just because there are not that many resources and people that each company could bring into its own organisation. And, if you choose to do so, it is at high cost and high risk,” he warns.
Again, in Schaupensteiner’s view, strategic partnership is part of the answer. But there is also a third solution, which is to reduce the supplier landscape.
“If you do not have a three-digit number of suppliers, you will increase your development speed; you will be able to push out over-the-air updates much faster because you do not have to get approvals from lots of suppliers that have their IP on this control unit or this part of the software,” he suggests.
“I think it is a combination of the three: getting capabilities inside as far as possible, then reduce your number of suppliers, and working with them on high-level strategic partnerships,” Schaupensteiner concludes.
And that potential consolidation means that suppliers, as well as OEMs, need to think about their business models too. “Transformation always brings consolidation opportunities or possibilities,” he predicts.
“We have now an explosive development of EV suppliers, EV pure play brands, EV start-ups, and this will lead to a consolidation in the entire supply chain. Traditional products, as a supplier, will also have to understand those transformation challenges,” Schaupensteiner predicts.
But he remains broadly positive for both OEMs and suppliers alike, as long as they focus on execution. “You need to come up with a strategy on where your spot is to bring capabilities that made you successful in the beginning. But, while the solution concept is great to have, now is the time to really move forward — to reorganise your company, to get into strategic partnerships, maybe internalise some software capabilities, but really get going,” Schaupensteiner advises.
In his view, traditional companies — with “a legacy of extraordinary success all over the world in the automotive and mobility space over years” — are now “picking up speed very fast”. But Schaupensteiner acknowledges that they are still working within certain constraints with which start-up competitors are not encumbered.
“It is not that they do not know how to do it, it is just they have also responsibility for hundreds of thousands of employees and their families, and they cannot just forget that. They have to do a healthy transformation.”