The surging share price of Tesla, now the world’s most valuable carmaker, provides a
big incentive for incumbents and newcomers to catch up. Tesla may lead in battery
technology and software, but to make those advantages stick it must prove that
“production hell” is behind it. The firm’s boss, Elon Musk, dreams of making 20m cars a
year; in 2019 he made 370,000. Scaling up manufacturing has caused Tesla its biggest
headaches. Will its new “gigafactories” in Texas and near Berlin come online as
smoothly as a new plant in Shanghai, providing proof that Tesla can expand at will?
Tesla may have some catching up to do in large-scale production, but established
carmakers face an equally daunting challenge: learning how to write software. Electric
cars require integrated software, not just to ensure that batteries and motors work
together to provide the best performance, but to connect the car to the outside world.
Incumbent carmakers are struggling to combine disparate electronic systems from
different suppliers to create the seamless experience offered by Tesla, which constantly
improves its cars with smartphone-style “over the air” software updates.
Pivoting from mechanical engineering to developing software and providing the
mobility services that customers will increasingly demand (such as ride-hailing and
ride-sharing) is not the only challenge. Incumbents must also wind down investments in
combustion-engine technology and make the alliances needed to catch up on batteries
and software. Expect more joint ventures and investments in startups, as they try to
share costs, shift away from petrol power and bring in new thinking.
And what of the Tesla wannabes, from China’s Li, Nio, WM Motor and Xpeng to
American firms such as Fisker, Lucid and scandal-hit Nikola? Cash from excitable
investors has poured in and established carmakers are also taking stakes—as are tech
giants, keen to get involved as transport goes digital. But which companies will have
staying power? Can the wannabes persuade investors that they have proprietary
technology that will give them a long-term advantage?
Flashy launches of vehicles are one thing, but as the industry’s travails show, working
out how to make cars at scale, when bits and bytes are as important as brakes and
bodywork, is quite another. Establishing retail and maintenance networks is no joyride,
either. The coming year will make clearer which of Tesla’s competitors, new and old,
can stay in the race.
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