The world’s speeding towards electrification and digital… but a lot of carmakers can’t keep up
If you’re a regular reader of Dominion’s newsfeed, you’ll already know that the automotive industry’s future is approaching at breakneck speed. That future includes a wide range of new tech, from electrification to self-driving, connected cars, and more. What you might not know is that some of the more traditional carmakers in the space (the kind that don’t fit in with Dominion’s investment thesis and, therefore, don’t usually feature in these pages) are struggling to keep up.
Aptiv’s share price has skyrocketed by 46% year to date
Source: Yahoo Finance
Companies like Aptiv (a specialist in self-driving and connected car tech) and BYD (the Chinese company powering the electrification revolution in public transport) are leading this revolution. Tech giants like Alphabet and Baidu are also major players, each of which is developing its own futuristic car projects. All of these companies are held in Dominion’s Global Trends Managed Fund. But many other companies are only paying lip-service to the kind of digital transformation that’s required to be competitive in the automotive industry’s future.
A new study authored by KPMG and Egon Zehnder International Ltd. suggests that the industry as a whole “seems to be clinging to its old ways.” 500 industry executives were surveyed, and the study’s conclusion should worry many of them: “leaders recognise the unprecedented challenge now facing them, but have yet to establish the digital-ready culture needed to meet it.”
The result is that, while you might routinely see car execs acting like tech execs (presenting, for example, in jeans rather than a suit) they’re failing to embody the values required for the innovation and digital success they crave. The study’s authors wrote: “executives are still thinking about digital transformation in terms of process change rather than a shift in mindset.” Dieter Becker, the head of KPGM’s automotive consultancy, added: “What’s needed to positively shift the automotive industry are bold, equitable partnerships with external and digital players. A clear and revolutionary vision is lacking.”
When all your competitors are failing to evolve, it’s tempting to become a dinosaur along with them. If it isn’t broke, don’t fix it, right? The problem is young hungry companies chomping on your heels. In this case, those companies come from a vastly different culture, where experimentation and egalitarianism have stoked innovation. Give that only 28% of the study’s respondents were “open to” a “failure-tolerant environment” they look ripe for more agile competitors. That’s bad news for some of carmaking’s biggest names, but great news for investors looking for a disruption story in the making.
Dominion holds Aptiv, BYD, Alphabet, and Baidu in its Global Trends Managed Fund.
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