A New Era in the Automotive Industry - Why GM + Lyft is Just the Beginning

My advice to the automotive industry on an entirely new mobility mindset I call the "Big Shift"...

Back in October, I made an apparently controversial public recommendation that Old Detroit should move in, propose marriage and put a ring on it with the new, upstart Silicon Valley automotive industry - The End of an Era for American Carmakers--A Silicon Valley Perspective.

Personally, I didn't see that advice as controversial at all--it just seemed to make good business sense. As a longtime tech entrepreneur who has started and successfully run automotive-related companies like Autoweb and One Planet Ops, I know the power of the industry and understand its reach. But so should everyone by now. After all, the continuing ascendancy of multiple Silicon Valley brands like Apple, Google, Uber, Lyft, Tesla and many others should be pretty obvious at this point, even to the staid old guard.

But my suggestion wasn't received all that well by some, at least online. The article drew a few scathing, unseemly responses from those entrenched in the old-school automotive industry. A couple of readers even had some strange racially-motivated comments. Weird.

Here's the kicker, though: on the first business day of 2016, General Motors announced that they had taken my advice, investing $500 million in Lyft. Ford will also reportedly soon make a similar major announcement, following on this initial recommendation for the Detroit automakers from my October article:

You cannot compete with Google, Apple and yes, Tesla. Let those Silicon Valley innovators own the technology, and focus on becoming the builder of their cars. That's your core competency. On top of that, you could also become great logistics companies, and make a serious effort to compete with Uber or acquire Lyft. You can probably have them for $5B--less than 10% of your market cap! That's the best money you can spend now, while you can still afford them. That will put you in a leadership role amongst the current innovators in the space. Do it now, and don't say I didn't warn you.

Instead of buying Lyft and putting a ring on it, GM made the can't-we-just-date-for-a-while decision to invest only 10% of what I recommended, $500 million, and became a minority shareholder of Lyft. According to the New York Times, GM's minority shareholder status (Lyft's valuation now stands at $4.5 billion) gives them a board seat, an insider perspective, and, maybe more importantly, a partnership for working on "developing a so-called autonomous on-demand network of self-driving cars, an area of research to which companies like Google, Tesla and Uber have all devoted enormous resources in recent years."

Ford, it turns out, may have beaten GM down the increasingly well-trodden westward path from Detroit to Silicon Valley by a few days:

Google and Ford will create a joint venture to build self-driving vehicles with Google's technology, a huge step by both companies toward a new business of automated ride sharing.

Last week I took a factory tour and picked up my second Tesla, a new P90D. Yes, it does have the Ludicrous Speed option, which means supercar acceleration--0-60 mph in 2.6 seconds. It has all wheel drive, Tesla's famous self-learning, downloadable update capacity, and is packed with amazing technology--and it will never use a drop of gasoline.

I drove away using the new Tesla autopilot feature, my hands off the steering wheel, the car perfectly composed, centered and straight on the curves and the freeway. I drove--or I should say, the Tesla drove itself--through bumper to bumper traffic from Fremont to Oakland, CA. I also drove away even more convinced that the future of the automotive industry belongs to Tesla and companies like Tesla. Logistics will be run by Uber and companies like Uber and Lyft.

You see, Tesla doesn't just produce an electric car. They have already fundamentally changed what we can expect from a car. Frankly, I drove away believing that anyone who spends the same dollar amount but buys something other than a Tesla is making an amazingly uneducated decision. Yes, I know they're expensive, and out of reach for most consumers, but the prices of all that great technology will inevitably drop, just like they did with personal computers, and Tesla's game-changing tech will eventually proliferate into less expensive cars. We're on the road to an entirely new future in the automotive realm, and there will never be a better time to make the transition.

But don't get me wrong--it's not only about building another electric car; it's not only about self-driving cars; and it's not only about smarter cars--it's about fundamentally changing the entire transportation industry.

It's about an entirely new mobility mindset I call the Big Shift, which will transform us from car owners to car users, agnostic transportation consumers with ready access to convenient, inexpensive, clean and efficient on-demand modes of movement. With self-driving cars, smart grids, revolutionary logistics and new shared ownership models, we can drastically reduce our capital expenditures, our traffic, our carbon footprints and our fatality rates. We can own 80% fewer cars, along with all the environmental benefits that confers. We can free ourselves from the old tyranny of the buy-it-or-walk imperative.

This Big Shift will fundamentally change twenty percent of the global economy.

The automotive industry as we know it is on an irreversible path, and in one or two decades it will be completely different. That means the existing automotive leaders need to move now, and in a major way. Becoming roommates with Lyft and casually going out with Google--already worth ten times Ford's valuation--will not cut it. The Big Shift will require serious commitment and major risk, taking the plunge on a completely new paradigm and knowing full well that the existing one hundred year old paradigm will die. The old-school car companies will need to do something much more significant than frankly just be taken by the newcomers for their know-how; and in the case of start-ups like Lyft, for their cash.

So now that Detroit is obviously listening, here's my next round of humble advice:

  • Over-spend if you have to, and partner with Uber in a major way for logistics. Form an exclusive relationship. Commit (don't just take it for a test drive) now for the Big Shift--it's already here.

  • Build partnerships and joint ventures with Tesla or Apple or Google for making their cars, their factories, their subassemblies--they will own the future, and trust me, you will want to be married to it.
  • or make a much riskier bid and start a consortium of car companies in Silicon Valley building your own competitor to Uber and Tesla... but you'll have to move right now. Something similar (but much less complex and less capital intensive) was done by Classified Ventures, a consortium of newspapers, about 15 years ago. While not overly successful, a lot can be learned from that model. It would have to be well capitalized--somewhere on the order of3-5 billion--to start. Take the leap. Begin now.
  • Let's face it, though--the smartest Silicon Valley talent might have a hard time eagerly jumping at an opportunity to work with the traditional automotive world whether in Detroit or Stuttgart... so you will have to over-pay. Whatever you do, you'll need to move fast, put a ring on it and locate your new ventures in Silicon Valley. On behalf of all of us upstart tech nerds, welcome. We look forward to working with you.

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