Electric cars and the Retail apocalypse

In 1908, Ford Motor Company started producing the Ford Model T, which is considered the first produced car accessible to the masses. One of the reasons Henry Ford could build a more affordable and easy to maintain car is because of moving assembly lines. It was not only about the car industrial design, with interchangeable parts, it was also about they way it was build, cutting costs and being much more competitive in prices than anyone else. In 2008, a century later, Tesla, a now well known brand, launched the Tesla Roadster, which was just a Lotus with an electric power train and Lithium-ion batteries. Then came the Model S, X, and finally, in 2018, the Tesla Model 3 (which was going to be called E, but apparently Ford blocked the naming option).

In this ten years gap, traditional automakers where watching Tesla without much consideration, some of them invested as a way to keep an eye on the topic (Both Daimler and Toyota put $50M each, for a 10% and 3% of the shares, respectively). For the rest of the industry, Tesla was considered just yet another Silicon Valley hyped company, and electric cars were something of the far future, it was not the time to invest, yet. But the consumer eco-conscience started to raise in the western countries, batteries started to be cheaper, and charging stations were being deployed all around Europe. The fight against CO2, with a great effect at a global level, started to shift into the fight against NOx and other particles, which affected much more at local levels. People didn’t want to have polluted cities, and the Dieselgate scandal, mainly caused (but not only) by the Volkswagen group, gave the final push to the consolidation of a trend. People not only wanted a car, they wanted a non pollutant car.

For the rest of the industry, Tesla was considered just yet another Silicon Valley hyped company

We have to admit Tesla has much to say in this cultural transformation, they have been pushing for this for the last 10 years, they even released all the patents so other automakers could benefit from their technologies. Many said Tesla was going to disrupt the industry and traditional car manufacturers were going to bankrupt, that the old, petrol based, dirty car industry was dead without knowing. Well, some of them did almost die, but not because of Tesla, just because the big crisis the industry suffered some years ago. Today, regrouped, those car brands are producing, selling and servicing almost as before. Nothing has changed, apparently, but a couple of years ago we started seeing prototypes of electric cars on the motor shows, some brands even launched electric vehicles in their portfolios, nothing as massive as Tesla volumes, which, by the way, were pretty humble if we compare them with the combustion engine cars. In 2018 Tesla produced around 250.000 cars, only a quarter of total sales of the Ford F-series pickup truck.

For Tesla, 2018 has been the year of the model 3 (half of their production), and what Elon Musk called the production hell. Because one thing is being a small (and good) car maker and another one is being a mass producer of cars, a kind of shift Henry Ford made when producing the model T. By the time Tesla will be able to produce Model 3s full speed, the other automakers, with a long history of building and optimizing production lines (and it’s not only the line itself, it’s also about the logistics of part supplies, most of them made by 3rd parties), will be producing electric cars without much problem. We’ll see a bunch of models in 2019, made by those traditional automakers that were supposed to be bankrupted by Tesla, and 2020 will definitely bring the big consolidation of the segment.

Let’s now look at the retail industry, and particularly grocery retail. There has been a lot written about the retail apocalypse that pure online players were going to bring. Amazon and others were supposed to disrupt the industry to a point where the traditional players would all have to close, because the only way a shopper would buy would be online, and there, pure online players would win the battle because their long and most advanced technology and experience. Thanks to this competition pressure, most traditional retailers have now an operational e-commerce, more or less good, but losing money with every purchase (because most of them are just adding the e-commerce layer on their traditional operations, so picking and delivering are extra costs). Nevertheless, on the other direction something happened: pure players were opening physical stores, or directly buying grocery chains, such as Whole Foods.

Thanks to the competition pressure, most traditional retailers have now an operational e-commerce

Even if the pure online model was cheaper to operate (which might be discussed), the kind of experience expected by the shoppers today, still includes the store, and there, like the automakers with their production lines, the traditional retailers still have a chance, because it is their traditional business. Yes, proximity formats are winning the battle against big hypermarkets, but the business is still very similar, and managing the suppliers, the assortment, the layout or the private label products still confers the traditional players an undeniable advantage, more impactful on the business than the advantage Amazon could have by installing hundreds of cameras and making a cashier-less experience.

Just like Tesla, Amazon and others came to disrupt the market with the Silicon Valley (or Seattle) mentality, but instead of smashing their competitors, they just made the traditional brick and mortar players move faster (or just move) and be prepared to share a part of the cake. And this will mainly benefit the shopper, offering new ways of experimenting in the stores, and leaving to the machines the boring part of the purchase experience.

The only true threat coming from Amazon is their insane cash generation capabilities (most of them by the way, not coming from retail, but from cloud services), enough to buy many of the existing retailers which valuations are much suffering with the current paradigm change. This is the reason some of them are reaching strong agreements with Amazon AWS competitors, such as Google with Carrefour or Walgreens with Microsoft.