GM's New Groove
GM's new Everybody In campaign underlines a once-in-a-century paradigm shift for automakers
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Last Friday GM unveiled a new logo and marketing campaign:
The “Everybody In” campaign has three objectives:
To generate interest in electric vehicles (EVs), specifically battery electric vehicles (BEVs)
Establish GM as a leader in EVs
Highlight GM’s new Ultium platform - the comically oversized skateboards that Malcolm Gladwell and Bethany Hamilton were standing on
Many casual observers are wondering why GM would run an ad campaign that amounts to not much more than PR. Sure, it features the Ultium platform that underpins GM’s $27 billion dollar push to launch 30 new EVs by the end of 2025, but when did an automaker ever run an ad campaign for just a combustion engine? And, crucially, why is GM investing $27bn into electric vehicles when it has no regulatory mandate to do so?
A cynic might answer that GM is simply jealous of Tesla’s valuation (which is a competitive advantage in and of itself). By rebranding itself as an EV leader, GM’s stock can benefit from a halo effect. The strategy has worked for Volkswagen, who leaned into electric cars with its own dedicated MEB platform and whose stock enjoys a premium relative to its European peers that stems in part from its perception as an EV winner.
A more sober answer might be that GM believes that EVs are inevitable and they want to get ahead of their competition. That still doesn’t change the fact that EVs are more expensive to make and consumers require financial incentive to adopt them. Their functionality (driving range, recharge time) and supporting infrastructure are subpar to traditional vehicles. In fact, Tesla makes more selling EV exposure to other automakers than it does from the actual vehicles (1). This is a strategy that is difficult for GM to replicate – one more automaker with a surplus of credits to sell is one less to sell to. So then why not maximize profits by selling traditional internal combustion engine (ICE) cars until either BEVs are cost competitive or it is forced to by regulation?
The answer is EVs are shifting the locus of competition for automakers. Technological innovation is suddenly becoming relevant to an industry that was built to compete on cost. This paradigm shift has huge implications, the least of which is we should expect to see more green rebranding and commercials for car platforms.
A brief history of the auto industry
The last period of technological innovation in autos was in the late 1800s – early 1900s, when the internal combustion engine was patented in 1864 by Nikolaus Otto. Later developments included the first four-cycle engine in 1876 (a collaboration between Otto, Daimler and Maybach), the two-stroke engine by Karl Benz in 1879, the electric starter in 1896 and the diesel engine in 1893 by Rudolf Diesel. Notice how familiar some of these last names are?
In 1913 Henry Ford introduced the moving assembly line, shifting the locus of competition from innovation to cost efficiency. There are a couple reasons for this. Combustion engine technology was roughly the same across automakers, and all of them were superior to the incumbent mode of transportation – horses. The incremental revenue opportunity of improving an already superior technology and selling it to the people who could afford to buy an early auto was a drop in the bucket compared to the huge addressable market that could be captured if automakers could bring down their costs of production and make cars affordable to more people.
Scale was the name of the game and this change in the industry’s competitive dynamics was a death knell for the hundreds of automakers you’ve never heard of (helpfully memorialized in this Wikipedia list of defunct automobile manufacturers). This competition has only intensified in fits and starts, first with the introduction of globalization in the ‘70s and ‘80s, which flooded the market with inexpensive vehicles and prompted automakers to shift production to lower cost countries. Vertical integration was unwound since automakers could achieve better cost by outsourcing production of undifferentiated components to suppliers unencumbered by unionization.
Yes, there has been innovation during this time period. We have automatic transmission and Bluetooth and rearview cameras. But these were incremental innovations that only occurred when it was profitable to do so or when it was forced by law, as was the case with seat belts and side marker lights. Product differentiation in autos is a mirage created by branding and massive sales and marketing investments. Nothing has come close to unseating cost efficiency as the predominant competitive force in the industry. The tell-tale sign of an industry that competes on innovation is vertical integration – your product is differentiated and commands a premium for it, so you don’t want to give away your secret sauce. Even autonomous driving advancements, collectively called ADAS (Advanced Driver-Assistance Systems), the frontier of automotive innovation, are developed at the supplier level where any automaker can purchase them (2).
Now we are back at the present day where hopefully the significance of GM’s new campaign is coming into focus. The Ultium technology is proprietary. In-housed. Vertically integrated. For the first time in over a century we are seeing a reversal of the outsourcing trend – the locus of competition appears to be swinging back to innovation.
You may point out that Tesla already called the insourcing trend quite publicly in its Battery Day on September 22, 2020, where Elon Musk announced a plan to vertically integrate its battery design and production that reached all the way back in the supply chain to mining its own metals. That’s true, but electrification and innovation and announcing moonshot projects that will later be scaled back is Tesla’s thing. This move from GM is a much weightier acknowledgement from the old guard that the industry is changing.
To be sure, the calculus for this pending period of innovation is different from the last. First, it’s “pushed” by regulation, not “pulled” by consumer demand. Battery vehicles are not a clear improvement on ICE cars from the consumer’s perspective in the same way that ICE cars were a significant improvement on the horse and buggy. For this reason, consumers will not pay up for a BEV relative to an ICE car and automakers have largely outsourced their batteries to South Korean businesses like LG Chem. But consumers will also not pay the same price for a BEV than has a worse battery than a competitor. This creates a market for innovation from other automakers, who need to be mindful of their costs and simultaneously can’t afford to fall behind in innovation. GM spoke to this in the final bullet point in its press release announcing the Ultium battery: “By vertically integrating the manufacture of battery cells, the company can reach beyond its own fleet and license technology to others.”
The auto industry is experiencing a once-in-a-century paradigm shift that will require companies that spent decades building their competencies in cost efficiency and supply chain management to reorient themselves around technological innovation, lest they be overthrown by Tesla or any of the other EV startups that have debuted in the last couple of years. To return the opening question of why GM would run an ad campaign that doesn’t sell a product – the ad isn’t for you. The ad is for the engineering talent GM needs to attract, the automakers it hopes to sell its platform to and the investors it needs to convince it won’t be relegated to the Wikipedia list of defunct OEMs.
Footnotes
(1) Tesla sold $1.2bn in regulatory credits in the 9 months ended September 30, 2020 and earned an income from operations of $1.4bn. Since they have minimal incremental costs, they account for 83% of operating income or 26% of auto and services gross profit.
(2) I’m referring to technology that’s commercially sold, not the fully autonomous technology being developed by the likes of Waymo and Cruise that is unlikely to be commercially available in the next ten years.