McKinsey Quarterly 2023 Number 1

Lessons for cars and the future Looking back helps sharpen our perspective going forward. Steam travel powered, and was encapsulated by, one age; internal combustion advanced and epitomized another. Yet there are remarkable parallels between the dawn of the 20th century’s transition from steam to ICE and the 21st century’s challenges of moving from ICE to electric (or, possibly, to—or in tandem with—hydrogen or to other non-carbon-emitting fuels). First is the challenge of form and function: What exactly does a great car mean ? It should be a reliable, well-running vehicle to move people and goods, to be sure. But a great car is fundamentally about providing mobility that people will want, enjoy, and can afford— both individually and as a society, particularly as we confront the societal costs of traffic accidents, the repercussions of carbon and other emissions, and the urgency to move to a net-zero world. And increasingly, a great car is a platform, bringing technologies to bear that enhance driving safety and efficiency. Second is the challenge of resources to make and to run the vehicle. As Henry Ford recog nized, but the Stanleys seemingly never fully grasped, making a great car requires not - only operating a great factory but also thinking in terms of both physical and human capital. Today, given immense interdependencies across the automotive industry, potential raw material shortfalls, and supply considerations, taking a holistic approach to production is increasingly becoming a point of competitive advantage—particularly for those who move early. That challenge ties into another parallel: the need to consider supporting infrastructure. Great vehicles—vehicles that are fun to drive, fun to be in because they can drive themselves, and fundamental to productivity because of the multiplier effect they have in efficiently moving people and goods—are not self-contained. In the early 20th century, steam powertrains failed and ICE succeeded because an entire infrastructure developed for ICE automobiles. Even as market demand for electric vehicles today catches up to forecast expectations, leaders know that they must do everything they can to advance investment in effective supporting infrastructure, which connects cars to the electric power grid for refueling convenience, bolsters the grid’s resilience, and provides new electric-power utility via the power plant within each vehicle. Disruptiveness at the turn of the 20th century used the same recipe that disruptions follow today, including launching a “good enough product” that others are disincentivized to copy (because it disrupts their value pools), and expanding the way that people perceive a product and how it affects their lives. Cars, after all, are not self-contained. Cars have consequences. A great car can create great change, but the future always has the last word. Imagine the ecosystem of the future, and you can imagine the car of the future. In exactly that order.

Russell Hensley is a partner in McKinsey’s Detroit office, Moritz Rittstieg is a partner in the Chicago office, and Shivika Sahdev is a partner in the New York office.

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McKinsey Quarterly 2023 Number 1

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