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The Once Complacent Auto Industry - Disrupted by The Future

Over 120 years ago, we were faced with a health problem. Cities were overwhelmed by the stench of horses. Some historians suggest there were over 100,000 horses in New York City in a given day, not including what they hauled, either people or goods. The problem was severe. All of these animals were also leaving behind a lot of bio-matter. And each day clean, crews working to remove all that manure would find horses dead. Disposing of the animal excrement and dead horses created other issues as well. There were insect and rodent infestations, and the rudimentary sewer systems would carry the urine of horses, although not very effectively. Changes were needed, and they arrived in the early 1900s.

Relief was in development in the form of mechanized carriages. When automobiles arrived, it wasn't just the gas car; there were also electric and steam engine vehicles. The Detroit Electric car was one of them, with a range of 80 miles. Some battery tests were showing ranges over 200 miles. Then there was the White Model O steam engine. Of course, the famous Ford Model-T was in mass production, with the lowest cost and better range. However, when it came to horsepower, speed and comfort, they were all very comparable. They all cost more than a horse and buggy, which would cost about $100-$200. The Model T would cost about $850, and the other two would cost two choices to three times as much. Consumers balked at all of it, complaining about the noise from combustion engines and the pollution! In addition to the danger they posed to pedestrians by drivers, there were no rules on the road.

Now it wasn't difficult to see why we chose gasoline over all other options. However, pollution and smog worsened, and we knew we had a problem. In fact, in 1896, Swedish scientist Svante Arrhenius wrote a paper on the impact of CO2 on the climate. And a few others followed with similar research. We had theories. However, our focus was on advancing human life and leaving behind archaic ways of life and risks to health. It wasn't until the 1950s that Smog became a breathing problem. By the 1970s, clean air acts were imposed in the US and Canada.

Fast forward to 2008, an obscure car company called Tesla came with a battery-operated sports car. The automotive market hardly paid attention. By 2018 Tesla produced under a quarter million vehicles. And that trickle has now become a steady flow. Something was happening, but many still saw it as a niche-rich person's vehicle. However, what was missed was these consumers didn't just want to drive electric cars; they tried to save the planet.

By 2019 investment broadcasting programs, they had advisors, former legacy automotive experts, and executives who would get on different media channels and say that Tesla would fail. One analyst bellowed that "the big boys are coming" after Tesla, and they would take their future away from them. In 2022 Tesla sold over 1.3 Million vehicles that year. Today Tesla isn't messing with risks to their market share; they want more of it and are willing to sacrifice some profit to be the leader. We saw a similar strategy with many tech companies and even telecoms. Many more are still retooling their plants, with a few competitors ready to roll out mass EV production.

The other problem for legacy manufacturers is they are also late for this technology play. For example, in 2022, over 10 million EVs were sold globally none of the legacy manufacturers were in the lead. Now, of course, a lot of that will change. However, their cost structures and value propositions may hurt them. Automakers have outdated business models clad with dealerships, heavy marketing and design redundancy. And an added pinch of economic woes with consumer credit getting tougher. Nevertheless, legacy automakers are not ready and may not be for a few more years. Therefore giving companies like Tesla and BYD room to grow. However, BYD has State Owned Enterprises and Government Support, and all have had a hand in making this brand a success. Advantages that many do not share in this industry. And just this week, FORD's CEO praised a direct competitor for being better than Telsa in China. There is no question that many legacy automakers will snuggle up to BYD because they want to gain similar advantages in that country. However, legacy manufacturers should tread cautiously in making inroads into relationships that can create issues back home with Government officials and the public.

In Conclusion, the auto sector is not as ready as they believe. There are many barriers to success in the Western World, whereas BYD in China is supported locally and nationally by the government despite denials of interest, intent and investments. And consumers globally are likely to shift much faster toward EVs than the industry is prepared to maneuver comfortably. In addition, they will likely miss opportunities to market strengths of greater sustainability, which many buyers will seek. The once-stable auto sector is being disrupted by competitors and consumers who want to stop filling up at gas stations. This may also mean consumers will hold on to their electric cars longer than they did with their combustion engine vehicles. This poses another problem for automakers who thrive on obsolescence and consumers who can only afford to pay so much for a car. In the end, if demand increases faster for EVs than is expected, then that spells more problems. That's the big message.

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