Home Economy, Policy & Business Tesla outshines other auto companies in future-readiness

Tesla outshines other auto companies in future-readiness

Howard Yu
We speak with the head of IMD’s Center for Future Readiness about what makes some auto companies more future-ready than others
An interview with
LEGO® Professor of Management and Innovation at IMD

IMD’s Center for Future Readiness tracks which companies are the most future-ready. It recently published the future readiness indicator for automotive companies. Tesla holds top spot for the fourth year in a row, with Toyota a close second.

We speak with Howard Yu, LEGO® Professor of Management and Innovation at IMD, about what the top-ranking automotive companies are doing differently. He also delves into the performance of new players such as BYD on the index, and talks about what they are bringing to the table, before touching upon automakers’ ability to navigate geopolitical developments and deal with supply chain shocks.

Unravel: In the automotive rankings, Tesla has maintained top spot since 2019. What keeps it ahead of the rest? There are also some new players. Please tell us more.

Howard Yu: Tesla is ahead of others for two reasons. Nowadays, building an electric vehicle is actually very easy. Everyone can do that. But what Tesla has unique that everyone else doesn’t have was reflected in the global semiconductor shortages due to the pandemic. Last year we didn’t have enough chipsets. From BMW, all the way to Toyota, they stopped their production line. Tesla, meanwhile, increased production. How could that be? Well, because Tesla is able to buy any chip in the market and using their software capability are able to rewrite firmware. So, they could use any available chips and keep that production line going. Others don’t have that deep knowledge and capability, and software. And they don’t know how to manufacture chips. So that just exposed who actually has the capability going forward.

Automakers will tell you that the future car is a supercomputer, and only Tesla has the deep tech capabilities to do it all in-house. The pandemic and the ensuing chip shortage really exposed who has the in-house capability and who doesn’t.

Another interesting company is BYD from China. They have been surging, big time, not quite on the top rank yet, but they have made enormous inroads towards the top and it is also in part driven by a mega semiconductor team. They’re not just building the battery, or making the EV. They actually have a setup that can fabricate semiconductor chips, and they are self-sufficient. They’re also selling this chipset to Fiat and Toyota in China. Really interesting company.

Unravel: So, you’re saying the companies who have the capability to write their firmware on to chipsets are the ones that are going to come out on top?

Mr Yu: Yes! Every company needs to be good at something. In the past, the top automotive companies were great at building engines and internal combustion engines – and these could all be outsourced. Today, if you outsource your internal combustion engine, you’re not even a car company. Everyone can build a vehicle. But if your software, semiconductor design, and the entire fabrication is not in-house, you aren’t ready to become a future car company.

Unravel: What are some defining features of auto companies that have done well in the rankings?

Mr Yu: Software is key. Semiconductor is key. I think in 2022, the other element we need to focus on is how resilient is your supply chain in general, because of geopolitics, or due to the unpredictability of another COVID-19 flare up. So, there are lots of factories in China that have been forced to shut down. That could have a severe impact on your global supply. Whether a company has a plus one strategy, for instance, to serve Asia, or whether they are able from a political standpoint to continue to win in both markets, despite the strong narrative around decoupling becomes key. In short, the ability to navigate the geopolitical landscape while ensuring supply chain resiliency will determine the winner versus the industry average.

Unravel: Not surprisingly, many Asian companies feature in the future-ready automotive index. What are these companies getting right?

Mr Yu: Let’s start with Toyota. Toyota takes second spot because they are so good at supply chain management. They practically know when the chipset shortages are coming, so they are able to stockpile now in 2022. That ability to monitor your supply chain globally remains absolutely key to being future-ready.

So, this is where the automotive sector is quite different from other sectors because automotive remains labour intensive, manufacturing intensive – and these are historic advantages of the region. In fact, the whole cluster is residing in Asia, if you want to scale up battery access or battery players – they are in Asia. So, the whole cluster advantage is actually already present in Asia which is why you see many Asian automotive companies on this particular ranking.

Unravel: On the whole, do you think companies are thinking differently about the future this year given the myriad challenges they have been faced with over the past 12-18 months?

Mr Yu: Yes! It is also reflected in our ranking – this idea of business diversity. So, if your business is more diverse across the world, and when you face issues like this, you have much higher buffer. I was actually talking about geographical diversity and also business line diversity. Now, one element that I do have to mention, which seems to be playing out better in the western world, is board diversity. Management teams in Asian companies tend to not be very diverse. The problem is—when the top management team is very homogenous—it’s very hard for the team to either think outside the box or innovate. With the local auto industry now becoming very, very high velocity, a diverse management team is also quite important.

The first part of this conversation was around the future readiness of financial service companies, and can be read here.

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Howard Yu
LEGO® Professor of Management and Innovation at IMD

Howard Yu is the LEGO® Professor of Management and Innovation at IMD. He is the author of the award-winning book LEAP: How to Thrive in a World Where Everything Can Be Copied. He is also a two-times (2013-2015) prize-winning case writer awarded by the European Foundation for Management Development (EFMD) - Europe's largest network association in the field of management development, with more than 800 member organizations. In 2017, Yu was awarded for his work in the "outstanding case writer on the hot topic Big Data - Risks and Opportunities" category at the Case Centre Awards, which are called the business school Oscars by the Financial Times. He delivers customised training programmes at IMD for major global companies in Asia and Europe including China's TravelSky, China Resources, COFCO and Tencent; Japan's Nitto and Recruit Holdings; Singapore's Temasek, ASML, Daimler, Bosch, Electrolux, LEGO, Sanofi and Novartis. Professor Yu is a Hong Kong native and has worked in the Hong Kong banking industry.

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