There wasn’t much to show at the North American International Auto Show in Detroit this month. Only 30 new cars launched in front of sometimes nearly empty convention halls, down from 69 the year before. Many name brands didn’t bother to show up. Audi, BMW, Mercedes-Benz, Volvo, Porsche, Jaguar, Land Rover, and Mitsubishi were official no-shows, replaced by pop-up cafes and bored-looking attendees.
While there were highlights—Ford’s beefed-up Mustang, and Toyota’s revved-up Supra—observers were not kind. The Detroit auto show has “run out of gas,” judged Michelle Krebs of Autotrader. Morgan Stanley analysts described it as “eerily quiet.” Velodyne LiDAR, an auto supplier of sensors for self-driving cars, had relegated Detroit to an “afterthought.”
In the US, the auto industry—or rather what is becoming known as the “mobility” industry—is moving west. Analysts commonly condense the future of the auto industry into three categories: electric, autonomous, and shared. One day, they say, fleets of self-driving electric vehicles will patrol our streets picking up and dropping off passengers in ride-hail services controlled by our phones, ending the need to own cars for millions of people. That vision is still decades away, of course, but almost none of the new technology needed to realize it is based in Detroit. That belongs to Silicon Valley. And China. And wherever the digital economy has sunk roots.
You’ll find it on display at the annual Consumer Electronics Show (CES) in Las Vegas, the new nexus for technology and cars, and at the LA Auto Show. At this year’s CES, held earlier this month, Mercedes-Benz trotted out a new tech-forward CLA-Class for 2020 packed with driver assist and infotainment systems. Uber talked flying taxis. Audi joined Disney to design a VR experience, and Hyundai dispatched an emergency-response vehicle that walks on articulated legs.
The Detroit car show, meanwhile, seemed stuck in 2010. For one thing, it wasn’t a car show at all. Most of the big announcements this year were for gas-guzzling trucks and sport utility vehicles (or high-performance vehicles unlikely to enter the garage of those without an existing car collection). That remains the most profitable niche for US carmakers, but one not many analysts expect has a bright future as profits migrate toward services, entertainment, and electric vehicles. Those were all conspicuously scarce in Detroit this year.
The spectacle, too, was underwhelming. Apple has set the new standard for major product launches, and no one in the auto industry except Tesla has managed to match it. Buyers want an event and a dazzling digital experience. A conference-based product launch almost seems passé.
Why launch at a near-empty convention hall in the depth of winter when you can throw your own party? In 2016, Tesla redefined the car debut with the launch of the Model 3. It was the most successful such event in history, netting the carmaker about 400,000 customer deposits worth about $4 billion. That was for a car still years away from production. Now the Model 3 is stealing market share from Toyota, BMW, and others.
Tesla CEO Elon Musk “is creating an entirely new segment of vehicles,” Toyota’s Jim Lentz told the 2019 Automotive News World Congress in Detroit this month. “Those of us who only separate the world between luxury and non-luxury, we’re missing the point. Tesla has created this new category of a technology-driven product.”
Automakers, of course, want some of that magic, but they were unlikely to get it at the North American International Auto Show. This will be the last winter version of the event. The 2020 show will be held in June to attract a new audience, but it may not be enough. Automakers are already following Tesla’s lead. This week, Ford held its own own debut for its redesigned 2020 Explorer at a stadium down the street from the main event going on in its hometown.
It may be that 2018 is remembered as the year when the auto industry gave up on the good old days. Last year, US sales tipped into negative territory after four years of strong sales but no growth. Globally, the auto industry went into retreat. The Royal Bank of Canada (RBC) says production numbers fell for two consecutive quarters, the first time that’s happened since 2009. Hopes of a recovery in 2019 are being dampened by the US-China trade war, rising borrowing and input costs, and softening demand in China, where annual auto sales have declined (paywall) for the first time in 20 years.
The internal combustion engine, meanwhile, may have begun its long farewell. Merrill Lynch analysts warned that investors were starting to skip Detroit altogether: Why go, they argued, when the internal combustion engine was fated to a “fairly predictable obsolescence curve?” If someone predicted a few years ago that a top investment bank would write off Detroit’s core technology as irrelevant for investors’ future plans, it wouldn’t have been believed.
Yet that’s the conclusion much of the world is reaching. Gasoline cars will still haul Americans around for decades to come. Electric-vehicle adoption in the US (only around 2% of new sales) is driven mostly by enthusiasts and subsidies. But in China and Europe, regulators are preparing rules to eventually ban traditional cars from their roads, while spending billions of dollars to accelerate this transition.
In China, fossil-fuel vehicles may have already peaked, RBC analysts told investors. Sales of new-energy vehicles, China’s category for carbon-free vehicles, now represent 4% of total sales. All-electric vehicles should hit 66% of global sales by 2050, the bank estimates. Even diesel-loving Volkswagen plans for a quarter of its cars to be electric by 2025.
Detroit is now stuck between two worlds. Neither self-driving cars nor electric vehicles are quite here yet, but there’s no going back. Ford and GM have announced hefty investments in each area, along with massive restructuring plans ($11 billion and $4 billion, respectively), including layoffs and shuttering factories. But it may not be enough.
The technologies are proving far more expensive than anticipated, and competition from non-traditional players is heating up. Volvo, owned by China’s Geely, aims to take more of the American trucking fleet with commercial electric trucks by 2020. Tesla, of course, is racing to build its own lineup of electric crossovers (the Model Y), pickups, and the semis to steal from Detroit’s lucrative segments.
America’s Big 3 can’t abandon their hometown crowd, but they must prepare for the autonomous electric future they know is coming, just not when. Detroit’s automakers will spend more and more time in cities like Las Vegas and Los Angeles, and scramble to make sure they don’t run out of cash before that future arrives.
In Detroit, Toyota’s Lentz described the dilemma faced by US automakers trying to fulfill the fuel-efficiency requirements now being debated by lawmakers. As California prepares to ban fossil-fuel vehicles by 2040, the Trump administration wants to strip California of its regulatory authority and eliminate Obama-era regulations cutting vehicle carbon emissions 5% annually starting in 2020. Automakers need certainty to make the massive investments required to survive in the marketplace.
“I kind of feel like this is the O.K. Corral,” said Lentz, ”and we’re the settlers walking across the middle.”