General Motors: Cars that kill the planet, or cars that kill you?

General Motors (“GM”) has committed to a lower-carbon future, making all its 350 facilities 100% powered by renewable energy by 2050 and released an eight-point plan to do so. However, this will most likely force the GM to make a fundamental change in the way it has been doing business since its inception over 100 years ago.

General Motors (“GM”) has committed to a lower-carbon future, making all its 350 facilities 100% powered by renewable energy by 2050 [1] and released an eight-point plan to do so [2].

Why does this matter?

Global warming sucks. Need I say more [3]?

The automotive industry is moving towards electrification, with the US electric vehicle (“EV”) market growing at a 32% CAGR between 2012-2016, approaching 40% in 2017; if this is maintained for the next six years, EVs will represent ~10% of US vehicle sales by 2023 [4]. From the below graph showing YTD sales of EVs in 2017, we see that numerous automakers are well-aware of this trend and are actively moving the industry, whereas government regulation is lagging, a welcome change for the industry [5] [6].

Management’s short-term actions (and implications)

GM produced 11 vehicle models with some form of electrification to date, including the Chevrolet Bolt EV, which is the current 2017 Motor Trend Car of the Year, getting ~240 miles on a charge [2]. The company is continuously innovating towards a lower-carbon future in the near term, going beyond EV reliance, but also finding other ways to maximize output per given unit of energy input – both through internal initiatives such as “lightweighting” which cut 3,600 pounds across 10 vehicles across the product line, as well as through pseudo-inorganic means, which led to the formation of Maven, the company’s car-sharing service, which transported riders 4.2mm miles driven in the first seven months after launch [7].

Clearly, in the short run, GMs management is all over this; they also have incentivized key managers to stay on top of these trends by linking environmental performance with compensation [2]. However, management needs to be wary of competitors in the EV market (see the numerous brands in the above graph), as well as incoming new entrants such as Volvo, who have announced that by 2019, every car launched will have an electric motor [8]. As the price of battery and EV production decrease with improving technologies [9], as well as the eventual removal of government instituted subsidies for EV vehicles, management should be wary of erosion of their leading market position. As such, simply producing EV vehicles may not be sufficient in the short-term; GM must continuously improve and move down the production curve, both in terms of efficiency in producing more units, as well as sourcing lower cost inputs (resulting in a lower sticker price for customers once these protections are removed). Considerations should also be taken with respect to the location of future manufacturing locations in the name of environmentalism, depending on their proximity to the end user; and who that customer of the future may be – more on that to come.

 

Management’s medium (to long)-term actions (and implications)

This is where things get interesting.

Extrapolating environmental consciousness trends to the consumer out to 2030 results in a decrease in private ownership of vehicles, dropping by 80% by 2030 in the US, while electric ride shares will be 4.0-10.0x cheaper than buying a new car by 2021 [10]. Cars sold in the US sit idle for more than 95% of the time, an extremely wasteful proposition [11]. Reconciling this with GM’s commitment to environmental initiatives means fewer cars on the road – a problem if you are in the business of selling cars.

Naturally, GM requires a fundamental business shift going forward. Acquiring companies such as Strobe (laser-radar technology) [12] and Cruise Automation (automated driving) [13], GM has plunged headfirst into the world of autonomous vehicles, and by using an EV Bolt as a starting base [14], GM fleets are being tested across the nation, in an attempt to be the leading provider of vehicles that will shape urban transportation.

Extrapolating this out a decade, if/once safety, regulatory, and ethical kinks are worked out, and autonomous EVs are commonplace (a big if), GM’s supply chain will have to be completely inverted. No longer are they manufacturing for the individual, but rather for a city, county, or public entity; and once enough vehicles are on the road to satisfy the government entities constituents, there will be no more need for factories; no more need for new models released each year. Rather GM will have to reorganize its supply chain as one of a service company – providing maintenance for existing vehicles, offering support (advertisements, food, movies, phone, internet?) to riders as a part of the service, but occasionally, maybe the new model of autonomous vehicle, as after all, they still are General Motors.

Food for thought:

  1. Setting aside rider/user safety aside, how do you think about the ethical ramifications of programming into a machine the value of a human life?
  2. What will auto transportation look like in the future, assuming car ownership declines according to the trends identified previously?

 

(Word Count: 799)

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[1] “General Motors commits to 100% renewable energy by 2050,” http://www.gm.com/mol/gm-commits-to-renewable-energy.html.

 

[2] “GM 2016 Sustainability Report,” http://www.gmsustainability.com/_pdf/landing/highlights.pdf.

 

[3] “Global Warming: Feature Articles,” NASA, http://earthobservatory.nasa.gov/Features/GlobalWarming/page2.php.

 

[4] Lambert, Fred. “Electric Car Sales Reach 40% Growth in the US and It’s about to Blow Up,” Electrek, https://electrek.co/2017/07/21/electric-car-sales-us/.

 

[5] Schmitt, B. “Germany’s Bundesrat Resolves End Of Internal Combustion Engine,” Forbes (2016) https://www.forbes.com/sites/bertelschmitt/2016/10/08/germanys-bundesrat-resolves-end-of-internal-combustion-engine/#84cdaad60bd8

 

[6] Condliffe, J. “China and India Want All New Cars to Be Electric,” MIT Technology Review (2017) https://www.technologyreview.com/the-download/608839/china-and-india-want-all-new-cars-to-be-electric/

 

[7] Etherington, Darrell. “How GM’s Maven Car Sharing Service Got to over 4.2M Miles Driven in 7 Months,” TechCrunch, 24 Aug. 2016, https://techcrunch.com/2016/08/24/how-gms-maven-car-sharing-service-got-to-over-4-2m-miles-driven-in-7-months/.

 

[8] “Volvo Cars to go all electric”, Volvo, https://www.media.volvocars.com/us/en-us/media/pressreleases/210058/volvo-cars-to-go-all-electric.

 

[9] “Accelerating US Leadership in Electric Vehicles (2017),” Union of Concerned Scientists, www.ucsusa.org/accelerating-us-leadership-electric-vehicles-2017.

 

[10] Arbib, James, and Tony Seba. “Rethinking Transportation 2020-2030,” https://static1.squarespace.com/static/585c3439be65942f022bbf9b/t/591a2e4be6f2e1c13df930c5/1494888038959/RethinkX+Report_051517.pdf.

 

[11] Morriz, David Z. “Want to Know Why Uber and Automation Really Matter? Here’s Your Answer,” Fortune, 13 Mar. 2016, https://fortune.com/2016/03/13/cars-parked-95-percent-of-time/.

 

[12] Felton, Ryan. “GM’s Gearing Up To Dominate The Self-Driving Car Industry.” Jalopnik, 9 Oct. 2017, https://jalopnik.com/gms-gearing-up-to-dominate-the-self-driving-car-industr-1819280778.

 

[13] Wayland, Michael. “GM Lets Its Autonomous Unit Be Autonomous.” Automotive News, www.autonews.com/article/20170619/MOBILITY/170619761/gm-cruise-automation-relationship.

 

[14] Etherington, Darrell. “GM and Cruise Announce First Mass-Production Self-Driving Car.” TechCrunch, TechCrunch, 11 Sept. 2017, https://techcrunch.com/2017/09/11/gm-and-cruise-announce-first-mass-production-self-driving-car/.

 

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6 thoughts on “General Motors: Cars that kill the planet, or cars that kill you?

  1. While I applaud General Motors’ commitment to a “low-carbon future”, I can’t help point out the irony that this is a company that many popularly believed to have played a heavy hand in dismantling the extensive public trolley system that permeated the Los Angeles metropolitan area in the 50’s. They’ve re-imagined how Americans move from point A to B once in history, it’s conceivable that they may be able to pull it off again with autonomous EV in the near future.

    [ http://beta.latimes.com/me-2003-los-angeles-streetcar-history-story.html ]

    With this context, I think GM has a tough job ahead demonstrating its authenticity in this era of hyper-scrutiny over perceived green-washing antics. I agree with you that given current consumer trends, car ownership rates will likely fall as environmental consciousness and urbanization takes a stronger hold globally, and that GM must fundamentally shift its strategy to more service-oriented / data-driven offerings to accommodate this macro change. The need for conducive public-private partnerships, supportive regulations, appropriate infrastructure, and receptive consumers is ever important for autonomous EV to diffuse from a novelty proof-of-concept to a new standard reality of mobility.

  2. I find your article extremely interesting. While there are many ways the future could pan out, GM’s supply chain will definitely need to change to accommodate these trends. You propose that in the future GM will be serving cities, public entities, etc. I’m imagining a world where people only call a car when they need it, and once it drops them off it drives itself back to a centralized government-owned parking lot and/or picks up its next passenger.

    While that is definitely one possibility, I challenge the concept because I believe individuals will still have an interest in owning or leasing their own autonomous vehicles (even if it’s more expensive than ride-share). Since the cars will be energy-powered and less harmful for the environment, families will not feel particularly guilty owning them. In fact, different households will have different car-related needs (some will want many seats, some will want few; some will want different specs). Some household will also want to have access to their same car at any time, so that they can store their belongings (say a computer, books, or anything they might want to do while the car drives itself…). Therefore, I believe GM will need to keep serving the individual consumer. Its supply chain will need to adapt in order to incorporate new demands from a very diverse and technologically savvy customer base. Customers will be excited to trade-in their model for new and improved vehicles.

    That said, I agree that these cars will need to be much more service-oriented than before. Cars will be differentiated by the interactive offerings they can provide to make the ride experience more fun than the competitor. It will be interesting to see how supply chains might evolve to include partnerships with gaming systems, internet companies, etc.

  3. Jason, thank you for writing this essay. Very interesting!

    One question I have is: would GM start lobbying to change the standards for EVERY car manufacturer? I imagine that there is always a tradeoff between environment and profit, and there will always be customers that choose the best option by financial value. Could GM create a society where everyone has to play by the same rules when it comes to saving the climate?

  4. Thank you, Jason! I thought the most interesting aspect of your article came at the end when you began speculating about the future of the automotive industry beyond efforts to use more renewable energy and create more electric powered cars. Will private ownership of vehicles decrease in the future? Your point that electric rid shares will be 4-10 cheaper than buying a new car by 2021 completely shifts my understanding of what the automotive industry may look like in 10 years. This may be particularly true in congested cities like New York or Los Angeles. Your point about how cars sold in the US sit idle for more than 95% of the time reminded me our discussion of Airbnb in class this week how hotels are only utilized at select times, while Airbnb allows properties to have higher utilization rates. Perhaps the Airbnb model could be successfully applied to the auto industry, as it has to other industries such as the restaurant industry (OpenTable, Resy). I do disagree, however, with your point that factories could become obsolete and the focus of auto companies will be for maintenance rather than new production. We can’t assume that the next shift in innovation will be the last one.

  5. Very interesting article Jason. I was very surprised to learn that electric ride shares will be 4 times cheaper than buying a new car in the very near future (as soon as 2021!). While I agree that there is a shift consumer tastes in the automotive market, I believe it will still be a while before we are all driving electric vehicles. It will certainly be a while before we are driving autonomous cars.

    Making these vehicles available globally means that public charging stations will have to be built throughout the world. This will require significant capital investments. Additionally, many emerging markets do not have the capabilities for maintaining electric vehicles.

    With regards to autonomous vehicles, I agree with HBS 2019’s argument that a lot of consumers still have a desire to own a car, perhaps because they live in an area where public transportation is not readily available, or perhaps just as a show of wealth.

    1. While we wait for electric vehicles to take over the world, GM should continue to focus on making its current non-electric vehicles more green.

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