When Steve Jobs announced the first iPhone in 2007 and Google leaned all in on Android soon after, most of the tech world saw change was on the horizon.
But few could predict just how thoroughly and quickly smartphones would sweep away everything in their wake.
An entirely new form factor combined with new consumer preferences, supply chains, and business models threw once invincible industry titans off balance for just long enough to let new entrants from Apple to Xiaomi enter and take the entire industry for themselves.
The car industry today is roughly where the phone industry was in 2009. It has passed its iPhone moment already, its Android moment is happening now and there are parallels everywhere if you just look close enough.
It is no coincidence that every major smartphone company in the world from Xiaomi to Huawei, LG, Sony, are all entering the car business now.
The major trends of the car industry; electrification, self-driving, on connectivity, and the increased adoption of screen and software – these all have two things in common: One, they fundamentally change the business of both making and selling cars, and two, they have nothing to do with the core strength traditional car makers have accumulated over decades.
There are few visual metaphors more striking for this than BMW, a few years ago lighting up their iconic headquarters building modeled after the cylinders of combustion engines to present them as if they were batteries instead.
Sure, cars of the past will have a lot in common with the cars of the future. After all, they will have wheels, seats, windshields, and such, but much like the feature phone sharing components with the smartphones wasn’t enough to save industry titans like Nokia and Ericsson, it’s far from certain that being great at bending metal plates or designing blinkers for example, will let car companies like BMW or Toyota, survive the onslaught of the dozens of new competitors that are coming straight for them.
Last year, 40% of the cost of the average car was already spent on electronics which was up from 27% a decade ago, and 18% a decade before that, so from a cost perspective cars are already on track to become more consumer electronics items than they are a collection of engines and seats.
Drivers will spend less time looking at the road ahead of them and more time looking at the internet connected to giant screens in their vehicles in the future. It is likely that revenues will soon follow too.
Some companies already let users upgrade self-driving software over the air or purchase upgrades for things like their headlights via paid software updates and it is not hard to see that trend accelerating in the future.
Phones were almost entirely a hardware business at first, but once they connected to the internet and our wallets conveniently and open up their app stores to third-party developers, they became an internet and software business too, spawning a real cottage industry of third-party software companies around them.
”Software eats the world,” as the famous quote from Mark Andreessen goes, and it will inevitably eat the car business too where consumers will buy software, get bombarded by ads, and will likely choose cars based on the tech that they have. At least as much as they will choose them over the luxurious wooden panels or heated leather seats.
In other words, both the costs and the revenues of cars will be increasingly tied to the tech, making the car business of the future more similar to the smartphone business of today than the car business of the past.
Traditional car companies can of course already see the iceberg on the horizon and they are trying desperately to avoid it. They are adding electrification, self-driving, and better software to their cars.
But, if the phone giants of the past have taught us anything, it is that big ships are really slow to turn and just seeing the iceberg doesn’t mean that the company will be able to avoid it.
Interestingly, the car industry is starting to parallel the phone industry in yet another fundamental way too. When the iPhone first launched, it quickly became clear to the industry that this fundamental model could and in fact had to be emulated.
So, a web of suppliers from Google, to Qualcomm, MediaTek, Foxconn as well as thousands of manufacturing companies across Asia sprung into action and brought around the Android revolution in record time.
Their important achievement was componentizing and standardizing this new form factor. Suddenly, making a smartphone became less like art and more like assembling Lego blocks.
New startups like Xiaomi could have access to the same apps, processors, camera sensors, etc.. as Nokia and Sony Ericsson for example, and they could even have contract manufacturers like Foxconn assembled the phones for them at similar quality levels too.
So they just had to focus on designing and selling their phones, this componentization leveled the playing field and almost exactly parallel revolution is happening in the car industry right now as well.
The iPhone moment of the car industry came of course in the form of Tesla, much like with the iPhone, it took a few tries to find the necessary polish. But not only was Tesla incredibly right about the fundamentals from electrification to self-driving and software driven interiors, they also emulated Apple’s business model by aggressively pursuing vertical integration and ecosystem building.
Tesla builds its own software, it designs its own chips, it develops its own self-driving algorithms to run on those chips, it makes its own batteries lately and it has an exclusive ecosystem of fast charges on the road, batteries to mount at home, and soon, an exclusive tunnel system to shuttle Tesla owners around the underground as well.
Tesla is a vertically integrated exclusive ecosystem business just like Apple is and now that it has shown the world what all the building blocks of this new form factor are and created consumer demand for them, the rest of the industry is jumping in to compete in the same way too.
Seeing Tesla’s rise from nothing to becoming the world’s most valuable car company in just a couple of years, has really opened the eyes of everybody in the industry and they all realize that this model, not only could but it had to be emulated.
So the car industry as a whole is experiencing its own sort of Android moment right now.
Few months ago, Nvidia announced Orin and Atlan, their next generation System on a Chip (SoC) for cars as well as their reference kit called Hyperion which also includes all the necessary sensors, circuitry and software to let car makers basically add intelligence and self-driving capabilities to their cars like a Lego.
A few months before that, LG and contract manufacturer Magna announced they will be working on electric powertrains including motors, inverters, and on-board charges, that companies could easily build into their own cars and are rumored to have the Apple car as one of their first customers.
Before that, Volkswagen surprised the world by making its entire MEB electric platform available to license. This includes the motors, the batteries, the powertrain, etc.. of their most mass-market electric car the ID.3 and Ford has already singed on to build a car on it.
There are startups like AI motive that develop the entire self-driving capabilities on behalf of their clients, contract manufacturers like Foxconn who are getting into the business of assembling cars on behalf of others and standardized charging networks are being built out all over the world by industry alliances to take on Tesla’s supercharger network.
The Android moment of the car industry is truly upon us. And it will likely be just as disruptive for cars as it was for phones about a decade ago.
Componentization and standardization has created a default operating system on computers and phones so it’s likely to do the same on cars in the future too – replacing most of the weird custom user interfaces manufacturers of the past have pushed on users over time with Sony, Huawei, and many others are trying their hands at the modern solution already.
Soon, as new entrants will have access to basically the same world-class engines, batteries, charging networks, self-driving tech, manufacturing, etc.. as the big guys, the playing field will well and truly be leveled and there will be nothing holding back these small companies from taking on the established giants.
Not only that, the consumer psychology will likely change too, devaluing the decades-long brand building exercises car makers have spent billions on. After all, if new brands use the same core components as the existing ones and consumers actually know about that, they will be much less likely to believe that a Mercedes or Audi is actually worth paying double for.
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