Executive Summary: The auto and mobility sectors are undergoing a noteworthy transformation that offers lessons applicable to leaders from all industries. Critical factors in the evolution include global competition, technological advances, and significant investment in electric vehicle (EV) and autonomous vehicle (AV) innovation. Both well-established automakers and mobility startups are presented with numerous opportunities: investor enthusiasm, strong auto sales, technological advances in vehicle connectivity, expanding sources of consumer data, and potential new partnerships with tech companies. Still, there remain ongoing challenges, including low consumer awareness about and comfort with EVs and AVs, data privacy concerns, and supply chains and infrastructure insufficient for today’s demands.
The ability to move people and goods easily is key for thriving in business and society today. The worldwide disruption caused by travel restrictions due to the coronavirus pandemic is stark proof. At the Mack Institute for Innovation Management’s Future of Mobility conference in June 2021, industry professionals, researchers, and policy experts discussed current mobility challenges and opportunities.
With a commitment to joining rigorous research with practical applications to help established firms navigate the risks and rewards of innovation, the Mack Institute regularly convenes meetings with stakeholders across many industries, including our corporate partners and the Wharton School’s global alumni network. At every event we seek to better understand impacts of trends and share insights with today’s business leaders.
The online Future of Mobility conference was organized by John Paul MacDuffie, Director of Mack’s Program on Vehicle and Mobility Innovation (PVMI), and Wharton Professor of Management; Rahul Kapoor, Wharton Professor of Management; and Harbir Singh, Mack Institute Co-Director, Mack Professor of Management at the Wharton School, and Huntsman Program Faculty Director. Attendees gathered from around the world to participate in four sessions:
- Mobility Trends: Capital, Consumers, and China
- Emerging Technologies
- Navigating the Data Value Chain
- Chip Shortage Plaguing the Auto Industry and the Mobility Sector: Bridging Strategy, Technology, and Geopolitics
A lineup of distinguished speakers from industry and academia joined the faculty to discuss the future of the auto sector’s incumbents and mobility startups; consumer adoption of electric and autonomous vehicles, and connected vehicle technology; strategies for global competitiveness and collaboration; leveraging data and AI; and supply chain challenges. This report offers an overview of each session. To learn more about managing innovation and mobility trends, subscribe to receive updates from the Mack Institute and PVMI.
Mobility Trends: Capital, Consumers, and China
For well-established automakers and startups that more recently entered the mobility space, we are in what Toyota CEO Akio Toyoda referred to as “once-in-a-century transformation.” MacDuffie kicked off the first conference session, “Mobility Trends: Capital, Consumers, and China,” with Toyota’s quote, and the panel readily echoed the sentiment.
“From the perspective of General Motors, we believe that we are definitely standing at the start of a new era, and it has the potential to introduce the biggest transformation in personal mobility that we’ve seen in the last 100 years,” said Deborah Wahl, Global Chief Marketing Officer, General Motors. Wahl highlighted GM’s commitment to zero crashes, zero emissions, and zero congestion, as well as its recent increase in investment in electric and autonomous vehicles.
John Casesa, Senior Managing Director at Guggenheim Securities (and former Chief Strategy Officer at Ford Motor Company), pointed to the way technology is transforming the automobile, and in turn industry business models. “The technology revolution is just getting to auto. We’ll see restructurings, failures, and exits. The implications are profound, and they will play out over a long period of time. That has happened in other industries. If history is any guide, that’s what we should expect in auto,” he said.
Regarding auto industry shifts, MacDuffie suggested considering current trends related to capital, consumers, and China in light of three ways the sector is changing: the growing number of relationships between automotive companies and tech companies; automakers embracing being software companies; and enthusiasm for electric vehicles.
“The capital requirements for this transformation will be enormous, and funding will accelerate change,” MacDuffie said, noting financing examples such as sustainability-linked bonds tied to EV investment, and special purpose acquisition companies (SPACs). MacDuffie also asked Casesa for his perspective on the notion that incumbents benefit from tapping into their own profits to provide some of the capital needed for innovation.
“I think it’s hard to say that it’s an advantage to have the incumbent business, unless it produces excess cash flow. Incumbents are challenged to optimize that core business to produce cash flow for as long as possible to fund the new business,” Casesa said. He said GM’s setup of autonomous vehicles company Cruise as a separate business is one example of how companies can navigate this challenge.
Regarding whether SPACs will play a long-term role in funding new mobility businesses, Casesa sees them as an addition to the box of finance tools that can be “overdone” in the way that all shiny new things are. “At Guggenheim, we believe that the market is going to get much more discriminating. Weaker companies are not going to be able to access that SPAC market,” he said.
Amid strong auto sales, consumers are also influencing the sector. According to Wahl, there is data to support growing interest in EVs and in assistive technology for vehicles. Challenges to an all-EV market in the U.S., such as lack of charging infrastructure, purchase price, and lack of consumer awareness are, MacDuffie said, opportunities.
“Prices are coming down with battery costs dropping and more sales volume. Charging infrastructure is an area of considerable interest in both the public and private sectors and becoming a focus of federal government policy. And lack of experience with EVs is a matter of education,” MacDuffie said.
Wahl addressed each of MacDuffie’s points by offering examples from GM. The company accelerated its Ultium EV battery platform to “drive down production costs and scale to deliver the range of new EVs we plan to release by 2025,” she said. In addition to programs to support customers with setting up in-home chargers, GM has collaborated with seven providers to provide drivers with access to 80,000 places to charge, and they are working with dealers to install 30,000 chargers across 3,000 communities. Wahl predicted: “People will be able to learn how to integrate charging into their lifestyle just as we learn to integrate stops at the gas station into our lifestyle.” GM started the “Everybody In” campaign to “raise awareness,” Wahl explained. “As we really make that transition from innovation to real-world impact, we have to make sure that everyone is part of it. It is going to take all of us collectively as a world to make this happen. We need lots of different industries engaging on this.”
MacDuffie and Wahl both affirmed that regulation has a role in consumer willingness to buy EVs and AVs. “We believe that good relationships with the regulators, in terms of safety for everyone, is more important than a speed or a first-to-market,” Wahl said. “We have to gain consumers’ trust. The regulatory barriers are there to help us.” She noted that the state of California has greenlighted Cruise to conduct driverless tests with passengers on board.
China’s influence on the auto sector worldwide stems from its EV leadership and its role as a competitor strong enough to spur other countries to innovate further.
There are nearly three times the number of EVs in China as there are in the U.S. According to MacDuffie, this is fostered through eight times the number of public EV chargers, large charging stations close to interstates and population centers, and a clear national plan for public-private investment. He also explained that the growing rivalry with the U.S. could spur mobility trends in each country and momentum in the U.S. Notably, the Innovation and Competition Act of 2021, which encourages tech competition, particularly with China, passed the Senate with a bipartisan vote.
“From our perspective, there’s a great deal that we can learn from China in terms of consumer expectations, habits, and behaviors,” Wahl said. “And we have our own joint ventures in China where we’re on the ground actually participating and learning lessons that we can apply in the U.S. and elsewhere.”
Technological advances in EVs, AVs, and connected vehicles are impacting the auto sector, with implications ranging from business models to data privacy regulations. Kapoor began the second session, “Emerging Technologies,” by outlining three main challenges that both established and new players in any sector face in a changing landscape: uncertainty; adaptation to a new business model as well as a new regulatory environment; and managing the interdependencies among different players in the ecosystem.
“This is really a very steep learning curve for every part of the business … in terms of how the product is designed, how the product comes to market, how you can sell a product in various parts of the world — what’s legal and what’s not,” said panelist Jessica Nigro, former General Manager, Technology & Innovation Policy, External Affairs – Americas, Daimler North America Corp. (Nigro is now Head of Public Policy at Lucid Motors.) “I would argue that as long as every part of the company tries to look through the lens of a policymaker, and simultaneously, the lens of a customer, that the product and the output will be significantly improved.”
Regarding the difficulties of transitioning from “traditional auto company to new mobility company,” panelist Stephen Zoepf, Head of Policy, Lacuna Technologies, Lecturer at Stanford University, and a Mobility Fellow at MIT, gave the specific example of employee reskilling.
“They’ve got a building full of people that are good at building internal combustion engines. You can’t just take those people and say, ‘OK, you’re now going to go do a market design for our new mobility service.’ It’s a different set of people. And so how do you actually retrain or slowly migrate your employees to a business that actually has expertise in this area that you’re trying to evolve to?” Zoepf said.
As he moderated attendee questions for the session, MacDuffie raised the issue of preparing future workforces for maintenance on EVs and AVs. He said work on complex electronics, including camera and sensor systems, could lead to the creation of new jobs that are difficult to envision right now.
Nigro agreed that the skills automakers need is changing and that new technologies could be useful behind the scenes in manufacturing. Workers can learn through augmented reality training. “So they understand the equipment they’re dealing with and really get a feel for it with a headset, before they have to operate it, which I think is really fantastic,” she said.
Both Zoepf and Nigro said that automakers have to focus on regulation with regards to all emerging technologies too.
According to Nigro, her role of lobbying on innovation and technology policy in Washington for Daimler is now a common position at many automakers due to issues like artificial intelligence, privacy, data use, data access, and automation. She said that in the U.S., navigating legislation often comes down to the state and city level too, noting that the city of Baltimore recently banned facial recognition, a technology used in AV development.
“We have seen stronger CO2 regulations, stronger safety regulations coming out, and these regulations do take money to comply with. As companies are facing these new constraints on their traditional businesses that will take money to comply with, it’s going to be even harder for them to make that evolution to a new business model,” Zoepf said.
When it came to discussing the current technological landscape and potential future progress, Nigro said that traffic situations remain a challenge for AVs.
Overcoming such roadblocks could occur through more data sharing among competitors and, Nigro said, action at a national level. “Automakers and systems manufacturers are looking for federal regulation so that we have one strong DOT regulation to have to deal with across the entire country,” she said.
Zoepf said he’d like to see AV technology improve to compensate for the studied effect of drivers becoming less vigilant on the road with increasing levels of assistance in their vehicles. “The real challenge here is to make sure that the automation systems and the user interfaces are getting better faster than the human drivers that are backing them up are getting worse,” he said.
Data in the Evolving Mobility Ecosystem
As technologies evolve and enable companies to collect, store, and mine more and more data, there are monetization opportunities and regulatory challenges.
Data can be a powerful tool in regulatory oversight but consumer privacy must be protected, Zoepf said. For example, information collected about where on-demand rides are picking up customers could highlight inequities in service and environmental impacts.
“The ability to protect privacy is a very rapidly advancing field,” he said. “I think it’s important to develop a community of experts that can debate these issues and really advance the state of practice as quickly as possible.”
Data minimization — limiting what is collected and for what — is a trend in this area that we should expect to hear more about in coming years, according to Nigro and Zoepf.
Meanwhile, Nigro said, tech-savvy consumers want features on privately owned vehicles like opening a car door via a fingerprint. However, with the trend toward “opt in” instead of “opt out” for such enhancements and a growing menu of user preferences to manage, buyers can easily get confused about what is and isn’t working on their vehicle because of the tick of a digital box.
“In the government affairs space, a lot of people would say, ‘There’s so much data. I don’t like it.’ But if you go to a dealer, the customers love it,” she said. “They want these convenience features, and they get upset if it looks like they can’t have them.”
Navigating the Data Value Chain
Thirty terabytes. That’s the eye-catching number that panelist Scott Snyder cited at the start of “Navigating the Data Value Chain” to emphasize data’s role in the future of mobility.
“Predictions are that a connected car will throw off about 30 terabytes of data a day. I think that could actually be low, depending on how aggressive and visionary we want to get in terms of infotainment, vehicle sharing, behavioral data, diagnostics, and how much drivers are willing to share data from their vehicles,” explained Snyder, Mack Institute Senior Fellow, and Penn Engineering Adjunct Faculty.
Snyder and Michael Mandel, Mack Institute Senior Fellow, and Chief Economic Strategist at Progressive Policy Institute, teamed up for the session to offer a two-sides-of-the-coin look at data: the value to auto companies and public policy that guides how it can be used. “Cars have become computers on wheels just in time for a new wave of data privacy regulation,” Mandel noted.
Snyder characterized the relationship of data collection and consumer acceptance as a matter of “give and get.”
“People are willing to give a little bit if they can get the benefit back,” he said. “If we could get individuals comfortable with sharing data and making sure they’re controlling the benefit they get in exchange, and they feel like it’s fair, then could we really ignite this whole data value chain? In many ways, people think the car is the data generator. I would argue, in some cases, it’s actually the driver. If it’s a community-based car or a ride-sharing vehicle, maybe it’s the fleet owner. But either way, the individual has to participate and agree to the generation of that data that goes into the value chain.”
Snyder said data minimization and anonymization practices as well as data cooperative platforms are all necessary ingredients for full participation in the ecosystem in a way that unlocks real value. As examples he cited the potential of digital products like Digi.me, an app that allows individuals to manage what they share. And Ocean Protocol gathers multiple players in one data marketplace. “Let’s say it’s an automotive company, a municipality that owns the infrastructure and roadways, and possibly retail outlets, and they want to participate in an open data sharing forum on consumers and on locations that might be of interest that would help each other optimize their behaviors and activities,” Snyder explained. “Ocean Protocol allows that to happen in a way that everybody is allowed to control their own data. And they calculate a market price for the data.”
Whatever individuals may choose to share personally, governments around the world are certainly expanding regulations, according to Mandel. He presented the recently issued guidelines by the European Data Protection Board on personal data from connected vehicles and mobility-related applications. They are, Mandel said, “an extremely broad view of the data and how it has to be regulated.” With EU privacy models influencing U.S. state regulation, the guidelines are certainly worth a close look, he noted.
“For example, there is the ‘right to erase.’ If a car company collects data from a connected car, they are now obligated to give anybody who is mentioned even directly or indirectly in this data the right to erase that data if the data subject withdraws the consent on which the processing is based,” Mandel said. He believes “we are heading for a perfect storm in which the broad definition of personal data associated with connected cars, plus expensive privacy regulations, makes global collection and monetization of data value chains much more difficult.”
Despite his skepticism and with a nod to Snyder’s more optimistic outlook, Mandel said, “I think this is one area where innovation and regulation may turn out to be the key in achieving value.”
Snyder remains positive about the potential for responsible data monetization. He said there are several reasons, such as Google eliminating cookies. “You will earn the right to collect first-party data by delivering benefit, by responsibly innovating with data, whether you’re a bank, an auto company, an entertainment company,” Snyder said. “I think it’s going to force companies to not be lazy about how they engage customers and advertise.”
Chip Shortage Plaguing the Auto Industry and the Mobility Sector
By May 2021, the current semiconductor chip shortage was preventing nearly one million vehicles from rolling out of plants to consumers.
This supply chain challenge was addressed in the conference’s last session of the day in a discussion between organizers MacDuffie and Kapoor, moderated by Singh. They covered the context of the chip shortage problem, potential solutions via companies and national policy, and new lessons from Toyota.
For decades, as automakers produced semiconductors in-house and then moved to outsourcing, the link between electronics and vehicles has been a close one. But with a growing general demand for semiconductors to make all kinds of electronic devices, they aren’t the only customer in town. Major players like Taiwan Semiconductor Manufacturing Company (TSMC) have invested billions of dollars in their facilities and they want large customers who order high-end semiconductor chips. Largely, that’s computer brands and not the auto industry, so when shortages arose due to COVID the latter was often on the losing end of fulfillment. But while COVID shined a spotlight on these supply chain issues, Singh pointed out that disruption can easily occur again in the future for any number of reasons and that companies must prepare.
“Everybody is scurrying for different options,” Kapoor agreed. “But building a new semiconductor line takes six months to two years, depending on the complexity, and billions of dollars.”
The chip shortage’s impact on the auto industry, according to MacDuffie, is changing week by week. On one hand, consumers can put off auto purchases for a while. The demand won’t disappear as automakers are delayed in vehicle deliveries. “But there has been a burst of demand for personally owned vehicles post COVID as people have returned to transportation and mobility and haven’t wanted to rely on public transit or ride-sharing as they did before,” he said. “So for the auto companies, it’s an important time potentially for them to catch up on lost sales due to the pandemic.” Those post-COVID purchase desires could evaporate, however, “and that’s a real loss of profits at a time when these companies are trying to invest in these new technologies we’ve discussed today,” MacDuffie said.
Going forward, Kapoor believes the specialist nature of producing custom semiconductors required for vehicles presents a “very important structural issue for the auto industry. There is an increasingly high dependence on semiconductors going forward, but very limited control/leverage about a key strategic asset within their ecosystem.”
The U.S. auto sector could benefit from federal investment and incentives designed to boost semiconductor manufacturing closer to home, but what will it take, as they shift toward EVs and AVs, for them to focus on minimizing the bottlenecks experienced amid the pandemic?
“I think it makes a lot more sense going forward to start finding new ways organizationally, whether it’s joint ventures, long-term strategic partnerships, to actually get the semiconductor companies and the automotive companies to support each other,” Kapoor said. “Sharing costs, sharing risk, but leveraging each other’s capabilities in a much more stable, highly coupled manner.”
MacDuffie suggested that automakers also look to Toyota for recent lessons. The company has faced major supply chain disruptions in the past, due to disasters like the 2011 Tohoku earthquake and tsunami, and a plant fire. Though famous for its just-in-time manufacturing model, Toyota was perhaps the company least affected by the semiconductor shortage. “After the 2011 tsunami, Toyota launched a big project to improve real-time updates of every single company in their supply chain down to the smallest supplier,” MacDuffie explained. “And they incorporated factors such as length of recovery time and lack of available substitutes into their inventory management.” The approach was key during the current chip shortage.
“Based on this very deep knowledge of their supply chain and the capabilities of specific factories, Toyota made a different set of choices that seemed surprising — because they were adding chip inventory,” he said. “I think this very sophisticated, deep knowledge of your supply chain and using it for differential inventory policies is one thing we can learn from Toyota.”