20-02-2018, 11:44 AM
I would agree that RND is a greater barrier to entry than supply chain for automakers?
To begin with, automakers typically outsource most components of the car, in order to focus on the things they do best - system integration, the overall design of the vehicles, sales and marketing. To stay competitive, they need to be lean, as well as to minimize the capital intensity. Furthermore, some suppliers can design/manufacture the parts better than the automakers (tires, seat belts, air bags, brakes etc). GM for instance has been selling off parts manufacturing divisions over the years, but still does car assembly themselves.
Even if supply chain is a major obstacle, there are several ways around it:
1) There could be a possibility of "car designing" companies outsourcing the manufacturing and assembly of cars to traditional automakers (one stop turnkey model alike consumer electronics). A similar parallel can also be seen in the semiconductor industry where fabless design the chips, while outsourcing the capital intensive nature of chip manufacturing to foundries.
2) There is bound to be traditional automaker laggards in the EV race, not wanting to lose out, they will most likely form joint ventures or at least taking a minority stake in the EV startup. Besides, there already exists several joint ventures between Chinese and well-known international automakers. It is also worth noting that there are several big Chinese automakers with decades of experience in car manufacturing. In fact, Shanghai-listed Zhengzhou Yutong is one of the most reputable bus manufacturing company.
Production/quality issues?
As an example, Hyundai cars were seen as extremely poor quality in the US in the late 1980s. A change in management in 1998 led to an eventual turnaround in less than 7 years, with heavy investments in quality, design, manufacturing, as well as offering ten-year, 100,000 mile warranty. By 2004, Hyundai achieved one of the top car sales in the US and only second to Toyota in the J.D. Power and Associates quality study. For the timeline to be decades? With strong funding and a good management team, I wouldn't be so pessimistic.
Lastly, I doubt the big name investors did not do their due-diligence, and did not foresee this supply chain "issue" while committing huge capital to it. Then again, who knows given the dot com bubble.
To begin with, automakers typically outsource most components of the car, in order to focus on the things they do best - system integration, the overall design of the vehicles, sales and marketing. To stay competitive, they need to be lean, as well as to minimize the capital intensity. Furthermore, some suppliers can design/manufacture the parts better than the automakers (tires, seat belts, air bags, brakes etc). GM for instance has been selling off parts manufacturing divisions over the years, but still does car assembly themselves.
Even if supply chain is a major obstacle, there are several ways around it:
1) There could be a possibility of "car designing" companies outsourcing the manufacturing and assembly of cars to traditional automakers (one stop turnkey model alike consumer electronics). A similar parallel can also be seen in the semiconductor industry where fabless design the chips, while outsourcing the capital intensive nature of chip manufacturing to foundries.
2) There is bound to be traditional automaker laggards in the EV race, not wanting to lose out, they will most likely form joint ventures or at least taking a minority stake in the EV startup. Besides, there already exists several joint ventures between Chinese and well-known international automakers. It is also worth noting that there are several big Chinese automakers with decades of experience in car manufacturing. In fact, Shanghai-listed Zhengzhou Yutong is one of the most reputable bus manufacturing company.
Production/quality issues?
As an example, Hyundai cars were seen as extremely poor quality in the US in the late 1980s. A change in management in 1998 led to an eventual turnaround in less than 7 years, with heavy investments in quality, design, manufacturing, as well as offering ten-year, 100,000 mile warranty. By 2004, Hyundai achieved one of the top car sales in the US and only second to Toyota in the J.D. Power and Associates quality study. For the timeline to be decades? With strong funding and a good management team, I wouldn't be so pessimistic.
Lastly, I doubt the big name investors did not do their due-diligence, and did not foresee this supply chain "issue" while committing huge capital to it. Then again, who knows given the dot com bubble.