All of us who believe that the electric car (EV) is the future of transport focus our hopes on the rapid reduction of battery costs that will make the average price of an EV lower than traditional internal combustion (ICE) in a few years. But this scenario has a small problem: it assumes that the ECIs do not improve (or do so at the rate we know). And what is clear is that a much improved ICE in fuel consumption, noise and price would be the real competitor to EVs.

 

According to Bloomberg, EVs could be cheaper than ICEs in 7 years.

But as shown in the graph above, the price of ICE is assumed to be flat. It is true that the automobile sector has never stood out for its technological leaps or for its sudden competitive advances, but to assume that the world’s largest industry will not improve its products is quite risky.

There are many theories that try to explain why the automobile is comparatively one of the technological inventions that has least evolved over time. In more than 100 years of life, the basic concept with which it was born remains today. Progress has been relatively modest compared to other similar inventions such as airplanes, trains and telephones and has always been based on new materials, electronics and safety regulations. Beyond conspiracy theories circulating on the Internet, I believe this is due to two fundamental reasons:

  • It is a high-volume, capital-intensive industry where the goal is not to seek a revolution that makes all assets obsolete but to find ways to make the investment more profitable. That is why cost reduction is always a priority.
  • There has never been any pressure from customers or other competitors to seek something radically different. Competition has been based more on brand building and segmentation than on technological revolutions.

But suddenly this has changed: there are new competitors with new concepts, the market expects a change, customers demand clean transport options, regulation pushes to eliminate emissions…is it the end of ICE?

 

Let’s travel at the end of 1998. I had just finished my degree and started working in Madrid at the telecommunications company Lucent Technologies. I would arrive in a city that was already starting to be upside down in the ditches of cable companies. In the midst of the .com boom, Spain as a whole was a big ditch that aimed to bring cable (fiber + coaxial) to all homes and with it a package of services very competitive for the time: telephony, internet up to 300kbps, multitude of TV channels, pay-per-view, etc….in short, new competitors offering a new and higher quality product than the existing one so far… Doesn’t it sound similar to the EV vs ICE case?

 

Telefonica, until that time with the monopoly, faced a competitive pressure unknown until then. It had a copper network that reached all the houses in Spain but the truth is that no one gave a damn about that asset: it was an obsolete network that could never, experts said, support speeds of more than 50kbps (who doesn’t remember those 33kbps modems?). But in the same 1998 a standard is published that will be familiar to all of you: ADSL. Suddenly the copper lines could support up to 8Mbps with minimal investment. Telefonica launched its first ADSL offer in 1999, In Lucent we hardly could cope with the demand for equipment and the rest is history: ADSL devoured cable with successive improvements and It was in 2017 when number of fiber connection surpassed for the first time xDSL lines. Even so, ADSL is still being improved, offering speeds of 300Mbps commercially and with laboratory tests of up to 1 Gbps!!

Number of Internet connection in Spain by year

 

The funny thing about this story and that many people don’t know is that ADSL was invented at Lucent’s Bell Labs in the 1980s and was kept in the drawer until the competitive pressure of cable made the big TelCos need a solution to upgrade their copper network services. ADSL was a great deal of business for Lucent and Alcatel as manufacturers, but especially for Telefónica which amortized its copper network, eliminated competitors and earned 15 years to build a winning fiber offer (Fusion).

 

The lesson of this story is that it is certain that some car manufacturers will struggle to amortize their current assets and I would bet that in a few years we will see the ADSL of the car: perhaps a new generation of gasoline engines with consumption of <1 l/100km, low noise and reduced maintenance? We will see but if that is the case, the massive eruption of the EVs would be delayed a few years, new competitors would have a hard time surviving and traditional manufacturers would have achieved their goal: transforming the revolution into what they do best: another evolution.

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