For a short period last week, Tesla was worth more than Ford and GM, and came in reach of BMW’s market capitalization. How this astronomically seeming market valuation can be explained – although Tesla makes less than 1/20 of GM’s revenue, is something we have already discussed several times. But the evaluation gives us an impression of what we will see unfold in the next months and year. Especially how the collapse of traditional automakers will unfold.
The signals are visible, and the most obvious one came one year ago, when Tesla got close to 400,000 reservations for its Model 3. The iPhone-moment for the automotive industry is being telegraphed, and starting July this year we will live witness its demise. How exactly will it happen?
Phase 1 – Summer 2017
The first Tesla Model 3 will be delivered starting this summer. After some expected initial problems most of them will be quickly fixed and the production volume increases. Between 100,000 and 150,000 Teslas of all three Models (S, 3, and X) will be delivered to customers at the end of the year. With the successful deliveries of the Model 3, a new segment of customers with will start considering a Tesla as a potential purchasing option, also given the reception in the media and with the first owners. Test drives from Model 3 owners and at Tesla dealerships will convince many new car buyers. We will see a flood of YouTube-videos and articles around the Model 3, how the acceleration is, how the touchscreen works, and how the Autopilot works.
Phase 2 – Second Half 2017
In the second half of 2017 a production version Tesla will complete a fully autonomous drive from Los Angeles to New York City and demonstrate the capabilities of all cars manufactured since October 19th, 2016. All those cars have since been equipped with the Autopilot Hardware Kit 2.
At this point in time at least 100,000 Tesla with this hardware kit will have been manufactured. This extended autonomous Autopilot-software will soon afterwards be released piece by piece to customers. Starting with Level 3 and on certain corridors Level 4. Since all Tesla models have been collecting data in passive mode, the increasing number of cars sends an exponentially growing amount of data back to the mothership and will thus accelerate the improvement of the autonomous driving functionality of the Tesla-fleet.
At this point even the last traditional car manufacturer will realize what is going. Those who have been on the fence whether customers even want autonomous driving, will now frantically start changing their models to integrate sensors. But this will take time, since the decisions which sensors and processors to select need to go through clumsy internal processes, and terms and conditions with vendors have to be negotiated. Until the first cars equipped with that kind of hardware two or more years will go by
Tesla’s market capitalization will reach up to $70bn and be worth more than BMW, GM, and Ford and close to Mercedes.
Phase 3 – Starting 2018
During 2018 Tesla will succeed with ramping up production numbers to approximately 200,000. New orders driven by customers who have been observing Tesla so far will order in this second wave another 400,000 vehicles. At the same time sales of traditional car makers will plateau or even experience slight decreases.
Tesla’s Autopilot will improve and become safer, at the same time we see the first accidents and even fatalities. Some countries will try to prohibit the Autopilot, but will ultimately fail with that. After analysis of the fleet data regulators and the public will realize that vehicles operated in the Autopilot mode already drive safer than humans.
In the same year the first manufacturers who have not given self-driving the necessary amount of attention, will now start partnering with Google, buy self-driving technology startups, or try to collaborate with other car manufacturers. Latter strategy won’t be that much successful, as it won’t really be the software but the data collected that’ll become important. Manufacturers with big autonomous fleets have exponentially increasing advantages.
Tesla’s market evaluation will reach $100bn, at the same time the market value of traditional manufacturers will be half. BMW, Mercedes and others will become attractive acquisition targets for Apple, Google & Co. Unless one of them acquires Tesla first, before they become too expensive.
Mercedes, BMW, GM, Ford & Co. are in grave danger of becoming contract manufacturers for the digital behemoths.
Just as a comparison: five of the six largest US companies are digital companies, all located on the US West coast. Amazon, Microsoft, Apple, Facebook and Alphabet/Google. The combined market value at the end of April is 2.7 trillion dollars. The DAX 30 companies in Germany are worth all together 1,1 trillion dollars, with SAP as the largest digital company being worth $100bn. GM and Ford were worth less than $100bn, the German car makers approx. €180bn. One more fact: Apple and Microsoft are a bit over 40 years old, Amazon, Facebook and Alphabet/Google less than 25 years.
Phase 4 – 2018 / 2019
Starting 2018 / 2019 the profits for traditional manufacturers will tank. Those manufacturers who struggle with high costs, proportionally higher numbers of employees, and low margins such as Volkswagen will see their numbers turn red.
The prices for used cars of manually driven internal combustion engine cars will drop. The owners will drive their cars longer, as the turn in value when buying a new car will be too low. At the same time we will see cities prohibiting fossil fuel cars to enter certain areas to lower harmful exhaust emissions.
Some corridors and areas will be accessible only for autonomous cars during certain times of the day. Autonomous retrofitting kits for manual cars will surge in demand.
In Tesla’s wave new manufacturers from China and the US will follow, aggressively trying to get a piece of the cake. Germany itself has currently no startup that is developing a fully self-driving AND electric vehicle. The US and China both have several.
The first commercial sharing models for autonomous cars enter the market. Lead by the Tesla, Google-Waymo and maybe Uber, car ownership will become less attractive.
Phase 5 – 2020 to 2022
Around 2020 to 2022 Volkswagen and other car makers will be forced to sell of valuable property to accelerate and finance the switch to electric propulsion and autonomous drive. Manufacturers such as Volkswagen and Mercedes also will have to finance damages and fines for their involvement in the Diesel-scandal.
At the same time strikes will start, as each of the traditional manufacturers has to downsize a third of its workforce. That includes all employees who today work on the internal combustion engine and all parts that keep it running. We are talking about a wave of layoffs that will hit in Germany alone at least 300,000 employees.
Economically and politically there is no way to prevent those layoffs. The workers will go on strike. Labor unions and works councils will fight hard, but ultimately without avail.
While traditional car makers are fighting internal battles, Tesla, Google & Co. keep marching on and occupy the market. Tesla is now the most valuable car company on the globe.
At this point most taxis have switched to electric propulsion systems. They are cheaper, quieter, require less maintenance, and are allowed to drive in all zones, where fossil fuel cars are not allowed anymore.Private ownership of cars is decreasing. More and more people switch to the cheaper and more comfortable robotaxi mobility service providers. The number of cars manufactured by automakers who cannot offer such services is decreasing.
Phase 6 – Around 2025
Latest 2025 either Ford or GM, and two of the three German car makers will either have disappeared or lost their independence. Volkswagen itself will be gone, Mercedes and/or BMW will have been acquired by one of the digital behemoths.
Of the one million chauffeurs in the US (250.00 taxi drivers in Germany), and 3.3mio truck drivers in the US (540.000 in Germany), 50 to 80 percent will have gone in 2025. Car repair shops will have lost up to 70 percent of their business.
The sale of new gas or Diesel cars is outlawed.
Phase 7 – Around 2030
After 2025 the used car market for internal combustion engine cars is virtually dead. Around 2030 manual driving of cars will be prohibited in most cities, and only autonomous electric cars will be allowed to drive there. Public transport will cease to exist and be dismantled and replaced by robotaxis. The reduction of street sizes will start, traffic signs and signals be removed, garages be dismantled and parking spaces transformed for other uses.
The last person makes a driver license.
Maybe (hopefully?) all this won’t play out like describe, but most of it will unfold exactly like it, unless the automakers start making drastic shifts and start tackling the challenges as fast as possible. Currently – especially after record sales for many car manufacturers, especially the German automakers – it does not seem as if the industry has realized the existential threat it is facing.
This article was also published in German.