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Electric Cars – The War Will Be Fought on the Operations Front

Recently, there have been three big announcements in the automotive sector as it relates to electric cars. First, several major contenders that are challenging Tesla in the Chinese automotive electric car market have made plans to ramp up production. I’ve looked at the cars and read about them. They look quite impressive, and I think competition is always good. While I’m sure Tesla will do very well, it’s good to see competition for electric cars because it spurs all players, including Tesla, to do better, greater work.

Helping the markets understand that it’s a serious player in electric cars

The next big topic is that Hyundai made an announcement that they are in advanced talks—although nothing has been finalized—to build electric cars for Apple.

The last big story is that GM has rebranded itself as part of a greater push to show that the new GM is going electric and isn’t wedded to the GM of the past.

These stories are all about electric cars. Hyundai made that announcement to help the markets understand that it’s a serious player in electric cars. People have questioned Hyundai’s electric credentials, but these talks with Apple communicate that Hyundai is thinking about entering the electric vehicle space, so they must know what they’re doing. Only Hyundai would know if that was the right decision to make.

We don’t know if GM’s rebranding is a good or bad decision, but they know what they’re doing and given the big push into electric, they do need to make a break from the past. They know what happened to Cadillac brand. Cadillac, a luxury brand, was pulled down because it was associated with what consumers thought were lower quality GM cars. The question is whether younger consumers will see the new GM and its logo as a new company instead of GM simply trying to reinvent itself.

Chinese startups—which serve the world’s largest consumer market for electric vehicles—can only be a good thing because anything developed in China eventually gets around the world.

You can produce electric cars in China and other parts of the world by maintaining tough specifications and requirements

The deep insight is the discussion taking place between Apple and a variety of electric car manufacturers. Until Apple started doing this, people thought high-end manufacturing must be done in-house. For example, Intel epitomized American advanced manufacturing prowess by keeping the manufacturing of semiconductors in-house, but now they’re reconsidering that decision because they’ve fallen behind in their ability to manufacture more advanced nano chips.

Apple has shown that you can produce precision equipment like iPhones, iPads and iMacs in China and other parts of the world by maintaining tough specifications and requirements. By talking to Hyundai, and probably many other contract manufacturers, they’re showing that it’s going to come down to the operations—the ability to build a car.

The battle for electric cars leadership is going to be fought on efficiencies

You need to think about the latest technology in the electric car debate as a ball at the top of a hill. As the ball starts rolling down the hill, it gains more manufacturing prowess and the volumes increase. At a certain point, the battle for automotive leadership is going to be fought on efficiencies—that is cost per unit/car produced. You can have the fanciest technology, and you can even scale it up. But if you can’t get your unit costs of production down, you’re not going to be able to play in the consumer market.

Apple clearly knows this. They don’t have any operational capabilities. They can’t manufacture to the right price point. They could probably set up a manufacturing facility in Texas, but could they get the same efficiencies and volumes at the price point they want? That’s very unlikely. Whether it’s Tesla, Hyundai or Chinese manufacturers—and I’m sure there are many other companies, including one of the Chinese companies we’re involved with, which FC Insiders can watch on strategytraining.com—it’s going to come down to efficiencies.

Operation strategy example

Firmsconsulting SLIDES members will have access to an entire operation strategy we put together for a metals company.

And what SLIDES members will be able to see is how we came up with a new operations strategy. We show what you can do to increase your return on net assets, and then we group them into growing effectively, optimizing efficiency and stabilizing the organization.

Electric cars manufacturing: if you want economies of scale, you have to be big

The bottom line is that if you want economies of scale, you have to be big. That’s about growing effectively. But as you get bigger, you cannot extrapolate the mistakes you made when you were small. You have to become better at what you’re doing. That’s optimizing efficiency.

Third, stabilizing the organization means you cannot have unpredictable events in your operating facility. An unpredictable event, in a system that’s working with very little inventory and short timelines as you switch production, you quickly get bottlenecks building up. So you want to limit any spikes or drops in the system. SLIDES members can see the entire strategy from start to finish and our thought process for what this company needs to do to improve its operating efficiency.

Electric cars battle – it really comes down to price

This study is relevant to electric car companies because when a facility starts up, you have to distinguish between being a startup toward having a fully commissioned set of factories that are producing as planned. That’s phase one. Phase two is once you are fully commissioned, how do you run those facilities to get maximum efficiency? If you get maximum efficiency, you can lower your unit cost of production and obviously take those savings and invest into the car or pass those savings on to the consumer so you can compete on price. It really comes down to price. If you price your product too high, you can’t unlock the consumer market. If you price it too low, you become a commodity. But if you price it too low and it matches the brand positioning and pricing, you can do very well. That’s where the battle is going to be fought.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #11. 

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