Are Auto Industry Innovation Strategies accelerating their demise?

CB Insights Auto Industry Patents

When faced with Disruption, innovation strategies can accelerate rather than prevent demise. Incumbents may win some of the battles, but can they win the war?

This graphic from CB Insights summarises top patent submissions from two high-end auto players (Audi and Daimler) and one potential disruptor (Tesla). Their analysis notes:

By way of comparison, Audi is less focused on energy related IP referencing hybrid vehicles and electric motors in its patents but at a much lesser rate than Tesla.

Daimler is also less focused on energy storage and electric vehicles based on its patents.  The term that jumped out among Daimler’s patents was “catadioptric camera” which the patent reveals is a camera that is used to monitor the space at the back and front of the vehicle.

More generally, the eclectic mix of Audi/Daimler patents highlight that incumbent automakers have a foot in two worlds. Some R&D efforts are aimed at optimizing traditional ICEs (internal combustion engines) and emissions – catalytic reduction, cam element, lightweight valve. And obviously other patents around hybrid solutions, and bets on alternative (non-electric) powertrains like hydrogen (“fuel cell”) highlight the other areas they need to focus on.

This contrasts with Tesla which is (obviously) full-on electric.

To some degree, this also highlights a bind these incumbents face in spreading R&D between traditional gasoline cash cows / competencies, finding stopgap solutions with hybrid, and figuring out where to commit resources for the future. This is frequently the challenge incumbents face responding to disruptive changes.

This last point is key and probably the single biggest reason that incumbents fail to respond to disruptive start-ups. What Audi, Daimler and their peers face today is what Nokia faced in a Apple a decade ago.

When faced with emerging disruption, incumbents continue to spread their bets and invest across too many fronts. They prioritise the maintenance of their relative competitive positioning on the existing technology S-curve in preference to competing with start-ups on the next S-curve. This dilutes impact and increases the risk of disruption but eh, it’s a battle they know. It’s also a great example of the ‘normalcy‘ bias – a human and corporate bias that features heavily in strategic decision-making when faced with what appear to be uncertain or distant threats.

Disruptors such as Tesla love this response as the incumbents has chosen to fight on several tactical fronts (in this example thermal and hybrid), reducing their chance of success in the disruptive field of electric.

The challenge for incumbents is that it really hard to stop investing in sustaining technologies, especially if traditional competitors continue to do so. Monolithic organisations struggle to change and the perceived low-risk route is to sink or swim with the pack.

Courage and leadership are scarce, pension-fund investors conservative. The S-Curve for thermals is rapidly maturing (even though efficiency has barely reached 40% with the latest hybrids)  and no amount of investment is going to rapidly improve this key performance metric. The battle has shifted to connectivity, autonomous &  electric and Google, Apple & Uber are the new competitors joining Tesla in the race. Almost all have much higher valuations, can out-invest incumbents, have the ability to introduce new business models AND have the digital skills and culture essential to success on the next S-curve.

Incumbents may win some of the battles, but can they win the war?

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