I decided to write this with so much “Big Data”, i.e. noise around electric vehicle disruption, TESLA, BMW, autonomous vehicles, etc.
With all the news around Tesla, GM, BMW, Audi, et al I want to get you folks to understand the business 101 of really understanding who and which business model in the profit pool will win. Is it better to be an oil company or a car OEM? It is better to make batteries or make cars or printers or mobile phones?
First the news.
Now let’s look at the fundamentals of a the Automotive Profit Pool. You see that all the value capture is really downstream in the “Utilities Ecosystem” of the financial services, insurance, MRO, et al, not what is often thought the Upstream and Midstream.
So what will this look like for the electric auto ecosystem?
From durables to fast moving consumer goods – what’s changing the face of the automotive industry
If this is the shifting profit pool of the auto industry then the business model is clear that no OEM is going to make any ROI upstream, rather the EBITDA margins are in low single digits. The real value is going to be downstream in the battery, electricity utilities, MRO, finance, insurance, et al. Those who don’t really the writing is on the wall as the key will be Cash Conversion Cycle, Stock Turns & Gross Margins on Stock Turns. The rest will be just passing fads.
From CISCO – A Business Case for Connecting Vehicles
“With soaring fuel prices, urban gridlock, polluted cities, and changing climate, the time is right for a transformational approach to personal transportation. Cisco’s Internet Business Solutions Group (IBSG) believes that connecting vehicles internally and externally on a unified communications network platform can help abate many of the personal and societal costs of personal mobility—and create new profit opportunities for many industry players.”
The companies that win will be downstream. leveraging analytics that connect the dots of the Upstream, Midstream and Downstream. So will companies like TESLA and others really become analytical engines connecting where the power is, when is the next recharge, at what price, which street, what insurance and what finance, all into a marketplace around a social phonebook? A combination of Google + FB + OnStar + Apple Appstore? Look at the Profit Pool, the answer is staring you right in the face!
GM CEO calls on programmers to develop apps for vehicles
The really smart investors (closed networks) whether banks, PE, etc. will now know where to put their capital. The rest will just try and ride a wave that does not exist. That is however the opportunity and you know what I am advising people I know where to put their capital.
Personally I believe the next mobile is the “Auto-Mobile”!
PS: All my columns are not meant to be advisory in nature, just thoughts documented so folks out there can get to constantly understand the 101s. After all its; the fundamentals that always disrupt the fashion.