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The Auto Industry Is Showing Its Potential To Increase Clock Speed Pace

The Auto Industry Is Showing Its Potential To Increase Clock Speed Pace

The auto industry is often criticized for being risk-averse, slow and defensive in its response time to customer trends, macroeconomics, and public policy.

The criticism typically continues that the auto industry’s clock speed is a fraction of that of Silicon Valley companies. Well, maybe the clockspring has not been wound tight, but several stories involving General Motors and Honda this year, if woven together, show the multiple fronts the industry is fighting to increase the industry’s clock speed. auto industry

The common denominator in these stories is capital and technology – the two catalysts that are fueling the industry’s transformation.

  • The first story was the January announcement of the GM and Honda $85 million investment to form the 50-50 joint venture Fuel Cell System Manufacturing to target in 2020 fuel cell stack production in Michigan. Small numbers for the automotive industry. But, the ability to bring niche vehicles and niche propulsion systems to market will require partnerships like this between the OEMs and the suppliers alike. And, with the recent United States-Mexico-Canada Agreement including R&D in rules of origin calculations, I wonder if we will see similar investments to keep advanced R&D close by first-generation manufacturing while supporting North American trade.
  • The second story to think about is the June 2018 announcement that Honda would team up with GM to develop advanced chemistry battery cells and modules and commercialize for future GM and Honda electrified vehicles. If this effort works, it has the opportunity to lower the risk of ramping up production scale with two customers and bring together some of the best vehicle component packaging engineers with some of the best vehicle powertrain calibration personnel. I would think there will be other such tie-ups so that the industry can leverage tight engineering resources to keep their current product line up competitive while reinventing vehicle architectures and propulsion systems for tomorrow.
  • On October 3, 2018, GM announced that Honda injected $750 million of equity into GM Cruise Holdings LLC while committing to $2 billion over 12 years to projects to commercialize autonomous vehicle technology. Honda, which had often been singled out as being too small to play in the brave world of autonomy and too provincial in their product portfolio opened the door to develop a vehicle specifically for the emerging Cruise global network. Clearly, this partnership is an example of the types of partnerships that can jump-start companies and technologies going forward.

A fourth example – not including Honda – but of an enabler assisting the industry’s clock speed is the May 2018 SoftBank Vision Fund investment of $2.25 billion into GM Cruise Holdings LLC. With this announcement, the question relating to how the traditional vehicle manufacturers can raise the funds from a skeptical equity market or drive enough free cash flow from their current operations to fund the massive development costs related to creating new autonomous vehicles and mobility services begins to soften. All the major vehicle manufacturers and suppliers have corporate venture funds for outgoing investment. I wonder how far the traditional autos can go in creating corporate entities to attract private equity investments.

For the industry to truly increase its clock speed these examples of R&D, manufacturing and investment partnership mechanisms must spread across the industry and be institutionalized. Otherwise, they will remain just interesting examples and not standard operating procedure.

Author: Dave Andrea

Sources: Forbes