Carmakers need to fear for their lives—and it’s not just about getting electric cars right

Obsession
Energy Shocks
Obsession
Energy Shocks

One major carmaker after another—Tesla, BMW, Toyota, and now Ford—is making its cutting-edge electric car patents available for use by their rivals, some with licensing fees and others completely free.

If this were the software business, no one would bat an eye. But why are carmakers, notoriously secretive and possessive about their intellectual property, suddenly so eager to share?

Some analysts smell blood in the water, and see it as a sign of desperation, reflecting the tiny sales of electric and fuel-cell vehicles thus far. Under a slightly more optimistic reading, the moves are a pragmatic recognition that alternative-fuel car business needs to grow like gangbusters before any one company makes them profitable. Tesla, for example, can only be a true success if the electric car industry balloons into the millions of sales per year. So CEO Elon Musk is giving away his patents with the confidence that, when there is a critical mass, he will triumph by making the coolest and most desirable cars.

But innovation and intellectual property, no matter how widely shared, are only part of the story. Much more importantly, the automobile industry appears to be in the throes of a transformation of the type that felled former behemoths like Kodak, Nokia and Sears.

It is a shift that threatens carmakers as we know them, and also oil companies and petro-states, and it has two main aspects: shared travel, as currently seen with the rapid growth of Uber, and autonomous driving, which is on the verge of being rolled out on a major scale.

When you put the two together, you get urban-dwellers tooling around in shared, autonomous vehicles, and—reckons Bill Ford, executive chairman of Ford Motor—buying far fewer cars. Ford has said the company is already having to adapt because of shared driving, and predicts that autonomous functions just short of self-driving will be installed in most vehicles within five years.

For purposes of nuance, this is largely an urban dynamic. Using the US as an example, its middle heartland still buys lots of cars, and shows no sign of giving them up. But in major cities, adults appear to be increasingly content eschewing their love affair with private driving, and moving around with an app-summoned (and perhaps one day, autonomous) chauffeur.

In a note to clients, Barclays analyst Brian Johnson forecast that over the next 25 years, half of the US driving population—those who see their vehicles as purely an instrument of transportation, and not a status symbol—will buy many fewer cars. Johnson forecasts 40% fewer car sales in 2040, along with a 60% shrinkage of the total number of light-duty vehicles on US roads. So rather than the 16.5 million cars sold in the US last year, there will be 9.9 million; the total US fleet will fall to 90 million vehicles from the current 224 million.

Carmakers would have to shrink with them: Johnson figures that Ford will be shriveled by 58%, and GM by a whopping 68%.

And if there are not 224 million cars fueling up on gasoline every week, but 90 million, that means much less income for the oil industry. Doing the math, the industry could experience a drop of 5 million barrels a day of US oil consumption.

As a measure of the potential global reverberations, the current turbulence in OPEC and Russia is largely the result of the addition of 4 million barrels daily of US shale oil since 2011.

Not everyone is forecasting this future. One of them is ExxonMobil. In its most recent forecasts for 2040, the oil giant said the total US fleet (pdf pages 17-18) will be around 260 million vehicles in 25 years, or 16% more than last year’s 224 million.

Barclays’ Johnson didn’t broaden out his forecast globally, but both ExxonMobil and Bill Ford have.

ExxonMobil forecasts that there will be 1.7 billion vehicles on the road worldwide in 2040, more than double the 825 million in 2010. Some 40% of the surge will come from China, the oil company forecast, from 60 million vehicles (pdf page 12) in 2010 to 400 million in 2040.

But Ford suggests that the automobile industry is not linear—demand is not going to proceed in a straight line. Where will so many cars find a place to park? As it is, “30% of all fuel burned in cities comes from cars looking for a parking spot,” Ford told McKinsey last October.

Ford is adhering to a staple of smart forecasting—sometimes you have to put aside the algorithm and judge whether your calculations make common sense. In this case, it is difficult to imagine Chinese fulfilling the ExxonMobil forecast when it may not be practical to own so many cars. And if China follows the US lead and jumps onto the ride-sharing and autonomous car trends, it may not need to.

home our picks popular latest obsessions search