Tech companies and automakers join forces to reduce costs

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More and more automotive giants are investing billions into partnerships with tech companies, as we are gearing towards the domination of autonomous and electric vehicles. 

The latest deal of this type was agreed between GM and LG Chem. The $2.3 billion joint venture will see the latter producing battery cells and is considered “more than a collaboration”, but a necessity, considering the current status of the industry. 

The announcement between the two companies just adds to a constantly growing list, as automotive companies are trying to share the costs of electric and autonomous models, claims a report from CNBC.

Constant focus on new technologies

Annually, car manufacturers, such as GM, spend billions on emerging technologies, trying to gain an upper hand on what looks like a multitrillion-dollar business, the same source reveals. Even though a lot of people believe that there’s room for a complete transformation of transportation and lowering global carbon emissions, it’s still too early to think about such plans. Not to mention that the electric and autonomous branch is still unprofitable. 

Investing in new technologies and managing to keep traditional business operations profitable can be considered one of the main drivers for these latest automotive partnerships, says Mark Wakefield, managing partner and global co-leader of AlixPartners’ automotive and industrial practice. 

“All these things take this tremendous investment and aren’t going to pay off with a top-end profit next year of the year after that,” he said for CNBC

“But they are somewhat existential if you want to be in the game 10 years from now. That’s where partnerships come into play.”

Earlier this year, AlixPartners revealed that the automotive industry’s annual costs for investing in autonomous driving technologies and EVs revolves will reach a total of $85 billion by 20205. 

Are we fully prepared for embracing EVs and autonomous cars?

The interesting part is the entire amount spent on electric vehicles is almost equal to the total spent by automotive companies on capital expenditures, as well as research and development. 

“To invest in these electric vehicles and CASE (connected, autonomous, shared, electric vehicles) in general, you’re taking one years’ worth of investment out of every five out of the picture,” Mark Wakefield added. 

“That’s an extraordinary amount to take out and keep the trains running on time of your vehicle programs and traditional business.”

So far, some of the most important partnerships of the year have been, as mentioned above, between automotive companies and big names in the tech industry, as they were looking forward to sharing costs. 

We should, of course, mention the planned merger between PSA Group, which owns brands like Peugeot and Citroen, and Fiat Chrysler. This would lead to the creation of the fourth-largest automaker, valued at around $50 billion. 

As for GM’s partnership with LG Chem, it includes a joint development agreement to conceive advanced battery technologies but is also expected to drive cost per kilowatt-hours, otherwise a key metric for reducing the price of EVs. 

“It marks the beginning of a great journey that will create an emission-free society and transform the global automotive market into an eco-friendly era,” said Hak-Cheol Shin, LG Chem Vice Chairman and CEO.

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