What do they have that we don’t?

Innovation performance hinges on a company’s ability to transition from old to new business models.

New players have the freedom to fully focus on disruptive products for the future mobility ecosystem (green curve), within a culture that supports fast ideation and execution. The challenge for them is to rapidly respond to customer feedback and improve their product’s performance to make it relevant at scale.

Traditional companies, by contrast, have built their success on past disruptive innovations, which they now need to sustain to run their existing business (red curve) while also transforming to meet future customer needs. As a result, they face multiple challenges, including competing projects and resource requirements, developing future skills and building collaborative partnerships.

High market share allows companies to realize lowest costs per unit. However, as the competitive mobility landscape is changing with new products, services and technologies, automotive players need to understand their own cost position relative to their competitors’.

Traditional automobile manufacturers are paragons of productivity in several ways: they have deep engineering and industrial know-how and unrivalled ability to scale up to large production volumes. However, with the increasing need for new capabilities and partnerships along the value chain, they need to find ways to collaborate more closely with suppliers and close existing capability gaps.

In contrast, new players often have a lack of system and process know-how related to the automotive value chain, leading to great challenges to get products ready for series production. However, with greenfield operations set-ups and the flexibility to informally reshuffle resources, they have the opportunity to set up their operations for future productivity leadership.

The right people are at the heart of every successful company. But, with the increasingly high number of employees in the industry looking for new jobs, leaders must be very clear about their value proposition not just to their customers, but to existing and prospective employees alike.

The most competitive new players are already talent magnets. They have a compelling company purpose and culture, are fully focused on core priorities, and have flat team hierarchies. Rewards are high for star performers, who are paid according to their talent and skills, rather than length of service and seniority.

Traditional players have well-known brands and very good reputations as employers, as well as offering stable jobs. The bad news is that traditional companies typically suffer from convoluted corporate structures with multiple management levels, while internal politics often prevents a sharp focus on customer value. At its worst, this leads to directionless and demotivated teams.

Liquidity and cash flow represent a key success factor in operational management, in particular when it comes to the short-term success of the company.

In the past, traditional manufacturers were cash machines during strong periods of growth, able to generate their own liquidity from the business. To some extent this is still true, but they are operating in a market where their expensive infrastructure and high vehicle turnover increase the risk of costly bottlenecks, at a time when the pandemic and the war in Ukraine have severely disrupted supply chains and triggered spiraling inflation.

New players have a different challenge in the current volatile market conditions. They still need to prove that their value proposition will establish a viable business model in the long term. This will be an ever-greater challenge in the face of the looming recession, with more difficult access to capital.

In addition to liquidity, annual profit is an important factor for measuring short-term success. The effects of high market share and economies of scale are particularly evident here.

New players must invest heavily in R&D to build up their operational capacities and supplier networks. At the same time, they have limited turnover and production volumes and no opportunity to realize economies of scale. As a result, their profitability is generally low or they are loss making.

By contrast, traditional players leverage their deep industry experience to develop efficient operations. Their leading market positions and high vehicle volumes strengthen their negotiating power with suppliers and increase their ability to realize economies of scale. At the top end of the market, luxury models generate higher margins and profitability.