There was a shocking statistic in my colleague Pete Bigelow’s story last week about CES that should cause ulcers in automotive investors around the globe.
Automakers and others have committed those resources, investing more than $530 billion across autonomous, connected, electrified and shared mobility technology since 2010, according to the McKinsey Center for Future Mobility in the Americas.
But that massive number — $530 billion — is not the cause of global, gastrointestinal distress; it’s not a surprise. It’s the little number buried in the next sentence:
But just 6 percent of that investment came from automakers, McKinsey said. The remainder came from venture capital, private equity and technology players. For those accustomed to working outside the automotive business, the speed at which the industry moves remains a frustration.
Over half a trillion dollars spent over a dozen years chasing things such as autonomous driving, electrification and the nebulous catchall of “mobility,” and of that total, a paltry $32 billion came from automakers? Over that time frame, that’s an average of well under $3 billion a year.
Either automakers have gotten the deal of the millennium, or investors are so driven by uninformed greed chasing “the next Tesla stock” that they’ve abandoned common sense and cautious due diligence. And it’s worth noting that those alternatives probably aren’t mutually exclusive.
The story also notes that those same investors — including venture capitalists, hedge funds and other major and minor players — are growing frustrated with the slow speed at which the auto industry moves to adopt the technologies and innovations their money has enabled. You know, allowing said investors to reap a return.
“Other sectors say, ‘Let’s go, this is fantastic, we want to own this space,’ ” said Russell Pullan, CEO of eLeapPower, a Canadian startup that showcased an integrated inverter that allows EVs to charge directly from the grid without an onboard charger and increases range. “Automotive says, ‘This is great, but have you done it for 15 years?’ ”
There it is, the central friction point between the heavily regulated, safety-prioritized-because-we-learned-the-hard-way automotive industry, and investors who mistakenly believe Moore’s Law applies to all technology, including automotive, and not just to computing. (Moore’s Law, by the way, is a nearly 60-year-old observation that the pace of computational power would roughly double every two years, getting smaller, cheaper and more efficient along the way. It has mostly held up, but not always.)
This central tension has played out repeatedly over the same dozen years, usually cast in some “Why can’t Detroit be more like Silicon Valley?” tome bemoaning the broader industry’s reluctance to adopt a fake-it-till-you-make-it approach to innovation.
Put differently, automotive safety and reliability are getting in the way of returns on investment, and investors find that annoying.
The truth is that the pace of innovation in the auto industry is always going to be slower than other forms of technology. It has to be, if for no other reason than the stakes involved in terms of capital investments and personal safety. It doesn’t matter if it’s a legacy automaker pumping out millions of vehicles annually across the globe or an electric vehicle startup making its first few vehicles. The rules for both are the same because of the regulation involved and the fundamental need not to kill one’s customers.
So have all those hundreds of billions of outside dollars been wasted? For the most part, I don’t think so.
But investors better recalibrate their expectations for just how quickly the automotive innovations they have funded will generate a return.