How will mobility evolve over the coming decade? What ideas will emerge as winners in this fast-changing environment? These are the questions that Regina Savage asks every day in her role as head of Morgan Stanley’s global automotive and mobility technology business.
“We are looking to propel innovation forward,” says Savage. “We aim to make sure that companies with creative ideas and great leadership teams access the capital and partnerships they need.”
Savage focuses on helping mobility players grow by unlocking capital structures that will support their ambitions. And she is working in the industry at a time of accelerating change, in which rising demand for greener mobility coincides with the advancements in battery technology that will enable the industry to scale. However, OEMs are grappling with challenges including capacity constraints and the need to adapt operating models to a new paradigm, while ensuring that electric and autonomous vehicles are safe and meet customer expectations.
McKinsey’s Andreas Breiter recently interviewed Savage at the M30 Mobility Summit to discuss the powerful transformations currently playing out in the space. An edited transcript of their conversation follows.
The electric vehicle market is expanding rapidly. How are automakers shifting their priorities?
For a long time, electric vehicles were viewed as something for the future. It has been amazing how quickly priorities have shifted. However, early in the COVID-19 pandemic, amid widespread production shutdowns, there was a realization that there is a limited amount of capital to go around. Automakers became aware that they needed to find a different way of doing business.
The pandemic served to crystallize their priorities. There was a sudden recognition that this was now the clear direction of travel. Demand was no longer an issue, as there was clearly consumer appetite for electric vehicles.
Since then, you will have seen that seemingly every major automaker has announced plans to accelerate their development of new EVs [electric vehicles], as well as to phase out their ICE [internal combustion engine] production. It is at the heart and soul of their innovation plans.
But the questions they continue to wrestle with are: How do you adapt traditional infrastructures and organizations that have existed in a fairly static landscape for decades without losing what you are really good at? And how do you ensure EV technology is safe and reliable? These have been the biggest challenges and pieces of dialogue that we are having with incumbent players.
Do you expect battery supply to become a challenge?
Absolutely. We’re already seeing constraints. There is a finite capacity of metals for EV batteries, so production requires massive investment, new mines, and new facilities.
I do think that this constraint is going to be one of the big variables that determines the winners and losers in EV production. This not only applies within individual product categories but also to the overall pace of the rollout of commercial vehicles and passenger vehicles.
OEMs that take a progressive approach and can secure battery supply are going to have an advantage. If you look at EV production targets and compare them to the capacity of source metals and batteries necessary to support those aspirations, there is a massive disconnect.
I think we will figure out the challenge over the long term. But in the medium term, as automakers wade through the transition, addressing this disconnect is going to be a crucial factor in how quickly they can roll out EVs.
The other big disruption on the horizon is autonomous vehicles. How far away do you think we are at this point?
I have been saying we are five years away from an available commercial service for at least ten years. But I do think we’re getting closer now, mainly due to the recognition that this is a complex problem and there is no magic answer.
There is a lot of innovation taking place. People are saying, “I don’t need to solve the whole problem. I’m going to focus on the part of the problem that makes sense for me, and for my business and particular use case.”
We are seeing a lot of business models crop up that are focused on different use cases. Public players, such as TuSimple and Aurora, are focused on the movement of goods and services on a specific route. Once they have solved this use case and absorbed the learnings, they will expand. I do think we will see the mass-scale delivery of goods on specific long-haul routes before we see rideshare services for passengers, for example.
Rideshare services will be hyperlocal. We’ve seen this with Cruise in San Francisco and Waymo in Arizona, where you will have limited deployment in specific neighborhoods. You will also see a lot of use of this technology for shuttles, on campuses, and for other enclosed ecosystems.
I think this state of play is going to set the pace for a while. But eventually, the technology will converge and demand for autonomous vehicles will rise.
You already mentioned that safety is a top concern—for developers, but also for potential customers. What needs to happen to overcome this challenge?
The biggest hurdle seems to be around communication. People need to understand the technology they are using, what guardrails have been put in place—and their limitations—to feel safe. Part of the problem is that the industry has not been good at communicating this to consumers. Some of it is language—you have 26 different terms to describe one thing.
There have been moves within the industry to agree on one specific language, particularly when we talk about active safety—a feature that may inhibit consumers from feeling safe and therefore inhibit adoption. Ultimately, car companies want you to pay for these features because they are investing a lot of money in them. But the consumer is not going to invest if they don’t feel safe about it.
I do think that companies are, for the most part, trying to do the right thing in putting safe solutions in place. I just don’t think they have necessarily been effective in consistently communicating that to their customers.
What is the new development in mobility that you are most excited about?
How incumbent players are transforming their organizations. Five years ago, I wouldn’t have expected them to have made as much progress. But I’ve seen an urgency that has filtered down into organizations—it’s both startling and invigorating.
These are companies that are making millions of cars a year. For them to take on this challenge, and take it on with gusto, is impressive. You don’t see wholesale business transformations like this often, and it is exciting to watch. And it’s interesting to see how different companies are approaching the challenge.
