When Incumbents Try To Disrupt an Industry

When Incumbents Try To Disrupt an Industry

VW CEO Herbert Diess will step down. This news is hardly a surprise as legacy Auto OEMs struggle to transition to the EV world. The transition to EVs is difficult for legacy Auto OEMs from a financial, cultural and operational execution standpoint.

Tesla (ticker: TSLA), capitalized on the first mover advantage to capture the market-leading position in the EV space. EV mania subsequently took hold when the Fed eased and mailed checks to individuals as part of the COVID stimulus packages of 2020 and 2021. Billions of dollars made its way into speculative stocks, crypto currency (a purely speculative vehicle with zero intrinsic value), housing and more. Tesla was one of the speculative asset plays that saw its equity value appreciate by 1,311% from January 2020 to its peak in November 2021.

Automotive CEOs took notice of Tesla’s stock appreciation and quickly declared EVs the future. The problem is that the legacy Auto OEMs were not architected as EV companies from the ground up and therefore are having to undergo expensive, messy transitions, changing operations and corporate cultures in the process.

This transition is a tall task for the legacy OEMs. EV factory builds are expensive and more importantly the learning curve to EV success is steep – it is a new industry segment after all.

Incumbents are rarely industry disruptors. Therefore it is no surprise that VW CEO Herbert Diess will step down. Transitioning VW from internal combustion power sources to battery powered vehicles is no small task – especially as it relates to remaking the culture at the largest German auto OEM. It’s the cultural transition that will provide the major obstacle to legacy OEMs transitioning to EVs. The cultural element is always most difficult. Ford (ticker: F) is doing it the right way by having divided the enterprise into two separate entities – Legacy Ford and EV Ford.

Video of the new EV Chevy Blazer.