Marketing and innovation

able range, and indeed a few examples are available from specialist
manufacturers. But their costs are relatively high, which is
unsurprising given that they are built on tiny production runs. What
is noticeable by its absence is a viable medium or lightweight
urban electric vehicle produced and marketed in large numbers
by one of the major automobile manufacturers – a product which
has the potential to open up whole new market segments.
We cannot be sure whether greater focus on R&D spending
in the key areas such as fuel cells or electric propulsion would
have produced better results. But it is not unreasonable to believe
that we could be far closer to success, if these projects had benefited
from the R&D resources that were instead devoted to adding
a few extra features to adjustable electric seats, or to designing
the shape of yet another SUV, or creating yet another voice
variation for the SatNav system.
Next innovation driver will be ecological compatibility
Safety has become a key issue in the automobile industry, but
environmental friendliness is garnering more attention too. With only
few exceptions, most obviously the United States, all major countries
signed the Kyoto Protocol, which is now in place. With the
current technology, it will be very difficult to reach the set targets
of 6%–8% lower emissions by 2012 compared with 1990.
Safety and technological features are very often developed
by one of the supplier companies. The latest example comes from
Valeo, which produces a start/stop alternator that automatically
shuts down the engine when a car is stopped at traffic lights
and re-starts it when the driver presses the gas pedal. This offers
up to 10% fuel savings for mini and small cars. The system is
already available in the Citroen C3 and will soon be available
from Ford in its latest Fiesta model. Continental has a start/stop
system available as well, but it is only used in a single GM light
truck model so far. Safety features such as airbag systems and
seat belts are dominated by Autoliv. The two large US suppliers
Johnson Controls and Delphi are very active in safety and
comfort equipment. Delphi has a special interest in the development
of fuel cells and batteries technology. These constitute
good examples underpinning our premise that innovation is
currently originating from suppliers and to a lesser extent from
OEMs. The exceptions are Japanese manufacturers, where
Toyota and Honda heavily invest in hybrid technology. In general,
OEMs try to use synergies resulting from cooperative agreements
in key areas of technology such as engines and power-trains.
This harbors the advantage that new developments become
available to a number of OEMs within a short period of time,
though this first-mover advantage from OEMs does not last very
long. The implication for investors is that the more innovative
parts suppliers may offer better medium-term prospects than the
auto majors.
Diesel boom in Europe; still no interest from rest of world
Diesel engines are a real success story in Western Europe, where
market share reached 43.7% of new car registrations in 2003.
One reason for this success comes from improving technology,
where suppliers such as Bosch and Beru once again supported
the development significantly. French manufacturers, especially
Peugeot, are the key driver behind the trend, overwhelming the
competition by introducing a diesel catalyst system. Peugeot has
offered this technology for four years now, and it seems to
become a set standard for the European market as a whole.
Figure 5
Ballard Power and S&P 500
Source: Bloomberg
GLOBAL INVESTOR 2.05 Automobiles—27
Figure 4
Average age of light vehicles in the
USA since 1970 and average age of cars
in Germany since 1994
Source: Polk (USA); VDO (Germany)
9
8.5
8
7.5
7
6.5
6
5.5
5
4.5
1600
1400
1200
1000
800
600
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
Average age of cars in the USA
Average age of cars in Germany
01/97
01/98
01/99
01/00
S&P 500
Ballard Power (r.h. scale)
01/01
01/02
01/03
01/04
200
180
160
140
120
100
80
60
40
20
0