It is not easy being an automotive executive today… from government pressure to produce safer and more efficient cars to customers needs to increase connectivity levels and reduce prices at the same time. Let’s not forget about competitive pressure either: startups are entering the space fueled by technology changes such as the electric powertrain. How does an automotive executive go about keeping at least constant profit margins to satisfy investors while investing in R&D to satisfy customer desire through innovation?
To keep up with today's fast paced automotive environment, the ability to innovate quickly is critical. OEM executives rank each other’s innovation ability on different metrics. KPMG, a global consulting firm, surveys automotive execs once a year for its annual automotive report. Last year, they asked automakers to rank leaders in the field of connectivity and autonomous driving to capture that innovative capital. Connectivity and autonomous driving are among the five most important enablers for future success as identified by Mckinsey 2014. Last year, 24.5% of automotive execs believed that BMW was leading the field, followed by Daimler and GM. Tesla was 6th in the list, getting 6% of the votes and Google was last with 0.5% of the votes. Oh and by the way, 0.5% means they received a single vote from one brave car executive… a single vote from the leaders in the car industry... Chery has received two...
I am inclined to test check car OEM perception by first taking a look into brand value assessments to test which companies are the front runners in brand perception. Second, lets test how independent experts rank companies by their ability to innovate. Finally, we should understand which companies/cars rank highest in customer satisfaction to complete the circle of brand perception, innovative capability and product excellence.
Ok lets start by ranking brand values. Interbrand, one of the world’s leading brand consultancies, publishes the yearly top 100 most valuable brands. This is a widely accepted ranking of brands. When filtered by automotive, Toyota, BMW and Mercedes (Daimler) are leading the field. Interestingly, Tesla is not in the top 100. Google, is not ranked among automotive firms, but is ranked second overall, just behind Apple (another potential car manufacturer). While, this ranking is helpful in understanding overall brand values, it helps less establishing which brands are innovative. On the other hand, the top 3 automotive brands, Toyota, BMW and Daimler, are also among the top 5 most companies leading the connected car and self-driving revolution according to OEM executives. So, there might be a correlation.
Second, lets try to get a measure for the degree of innovation. BCG, one of the most prestigious management consulting firms, ranks large companies every year based on their innovation level. After filtering by automotive companies, Tesla leads the pack followed by Toyota, BMW and Daimler. However, overall, Apple is the frontrunner followed by Google and Tesla. Now, when specifically looking at the innovation level, Toyota, BMW and Daimler are outplayed by the automotive entrant Tesla. Now that is a little surprising. Assuming that leadership in connectivity and autonomous driving are outcomes of an innovation process, wouldn't it make sense for automotive executives to rank Tesla (and maybe Google) hire? Maybe, but I am still not convinced.
Finally, we should analyze consumer satisfaction. But before we do, you might ask how consumer satisfaction is correlated with the ability to innovate? Fair question. From a company's perspective, I would define the innovation process as successful only if results of the process get incorporated into consumer facing products; thus, when becoming more than R&D spending.
On the consumer side, expectations for products that shape their lives have reached all time highs. Customers expect more personalization, more options and more control over their products. In summary, customers desire more than ever from their products.
Companies that can successfully innovate to meet the high customer expectations are able to score highly on consumer satisfaction ranking. Google and Apple, as example, are not only leading Interbrand's brand rankings, BCG's innovation rankings, but also leading customer satisfaction in their respected industries.
So, lets assume that there is a correlation between true innovation and customer satisfaction. Looking into consumer satisfaction ratings in automotive, Tesla is the clear leader. 98% of Model S owners said they would definitely purchase it again. Next-most-satisfied were drivers with four sports cars: The Chevrolet Corvette and a trio of German models from Stuttgart, the Porsche Cayman, Boxster, and 911. Rounding out the top 10 were the Mercedes-Benz E250 BlueTec diesel, Porsche Cayenne SUV, BMW 328d (another diesel), Dodge Challenger, and Chevrolet Volt.
In summary, Tesla, among car firms, is leading on innovation and cosumer satisfaction, while Toyota, BMW and Daimler are ranked highly on brand value. But, they are behind Tesla, Apple and Google on innovation and customer satisfaction. So why do OEM executives still believe that these traditional leaders are also leading a technological change that happens largely outside of their comfort zone of pure hardware?
1. Hypothesis: Tesla, Apple and Google are not perceived as competition
It is not unlikely that Tesla is still perceived as a small player. But, Tesla has sold 25,508 Model S in the US last year. It has outsold the Audi A6, only trailing behind BMW's 5-series and the Mercedes E-class in the luxury segment.
What about Apple and Google? Well, they are not offering vehicles to customers as of today but at least Google seems to be leading the herd in self driving efforts. With over 70 vehicles it has at least 7x more self-driving vehicles on Californian streets than any other manufacturer. Also, lets not forget that most Model S are equipped with the autopilot feature (over 80% take rate) and passengers of the Model S have driven over 47M miles using it. Thus Tesla's are equipped with sensors that generate data that can be used to improve autonomous driving.
2. Hypothesis: Little diversity and years of automotive experience reduce ability to perceive change
5% of OEM executives are female, executive OEMs have 15 years of average experience in the firm, and only 43% have international experience. CEO's are showing even worse statistics: 2% are female, have an average age of 60 years and 60% spend their whole life in one firm. Are those leaders able to recognize change and perceive new industry leaders, or will they stick with traditional business models and perception of leaders? I will let you be the judge.
In summary, a multinational's ability to perceive change and react to it is core to its ability to survive in long term. As the automotive industry is changing from feature cars into platform vehicles, it is shocking but not surprising that car OEMs perceive change leaders differently than the public. Pre-order numbers for Tesla's mass premium electric car and public's interest in Google's autonomous fleet are glimpses into new customer desires. In Norway, for example, most new vehicles sold in March 2016 were hybrid or BEV! Change is on its way! Automotive insiders are reporting it since years, the public interest in the automotive sector has never been higher, but how willing are automotive executives to accept and embrace the change?
PS: Google search trends can help capturing brand interest which shows that Tesla has overtaken Chevrolet and BMW in searches last month (through the Model 3 launch). Fastcompany has, in my opinion, done a better job ranking the most innovative automotive firms (Tesla, Toyota and then Google), while Interbrand failed to list Tesla in its brand rankings.
Sini Ninkovic analyzes the EV market and its customers since 2012. He helped bringing BMW's i3 and i8 to market and currently works as Product Planner for Lucid Motors.