The Big Changes in the Car World#

Over the last twenty years or so, the car market has gone through some seriously massive and expensive shifts. We’re talking about changes that are pretty widespread.

Here’s a quick look at what’s been happening:

• A big push towards electrification (meaning electric cars).
• Lots of new major competitors popping up, especially from China and South Korea.
• Developing and trying to implement self-driving technology.
• Tighter regulations being put in place.
• Hundreds of billions of dollars in investor money pouring in, trying to shake things up.

All these changes happening at once have made it super tough for companies to keep up and adapt to every single one, and still manage to deliver a car that isn’t… well, terrible.

Dozens of companies are betting their entire future on how things go over the next five years. But here’s the twist: a lot of folks are still paying off their last car (they’re “underwater” on it), so they’re not exactly rushing out to buy a new one.

Technology is changing so fast that a cutting-edge car you buy today could feel completely old-fashioned or “redundant” in just a few years. For most drivers, the smart move right now seems to be just sitting back and waiting.

Meanwhile, the investors who threw billions at the market to disrupt it are starting to realize something: if you try to disrupt a market, you probably shouldn’t be surprised when it actually gets disrupted.

(Brief mention) Speaking of tech changing things, you might have heard CEO Elon Musk talking about something called the Cybercab – like the taxi of the near future. It shows where things are heading, focusing on electric and new ways of getting around.

(Another specific detail) There was even a recent recall of about a million hybrid vehicles because they might catch fire. This included models like the Prius, Prius plug-in hybrid, and the CHR SUV model. They all needed repairs on their electrical systems.

Case Study: What’s Going On With Jaguar?#

A few months ago, the British car company Jaguar made a big announcement: they were stopping production of cars until they could completely rethink their whole product lineup.

• Past Status: This is a prestigious automaker. It used to be seen as the main British competitor to fancy German brands like Mercedes, Audi, and BMW.
• Current Ownership: Even though it’s British, the company is technically Indian owned.
• Recent Problems: In the last few years, Jaguar cars have been hit with lots of reliability issues, quality screw-ups, and generally weren’t as good value for the money compared to the premium brands they were trying to compete with.
• The IPace Example: Their IPACE compact SUV was supposed to be the future, their “mass market” electric car. But it ended up having worse driving range and less advanced tech than most other small electric SUVs, while also costing a lot more.
• Fading Brand Power: The only thing really helping sell the cars was the premium image of the Jaguar brand, but that only lasts so long. Last year, the company’s own Chief Creative Officer admitted in an interview that the company had “no brand equity left whatsoever.”
• Staying Afloat (Until Now): The only reason the company was still alive was its shared ownership with Land Rover. But eventually, the Jaguar cars were just taking up valuable space on dealership lots that could be used for cars that actually sell.

So, in response to their sales numbers basically hitting rock bottom, Jaguar stopped selling cars. The plan is a complete brand relaunch.

• Relaunch Phase 1: The first step of this plan happened last week. They launched a brand new logo and a marketing video. Reviews were… mixed.
• Bold Strategy: Advertising a “new and improved” car company without actually showing any cars is definitely a bold move.

Now, a British car company making unreliable cars and then struggling isn’t exactly news you’d make a whole video about – some might say that’s just kinda what happens sometimes. But Jaguar’s situation is actually a symptom of a much bigger problem affecting the entire industry right now.

The Wider Problem: Nobody Knows What’s Happening#

The core issue affecting the whole car industry is simply that… well, nobody really knows what the heck is going on.

Think back to just a few years ago, say 2021. Companies like Ford and Volvo were some of the first big, traditional car makers to promise they’d switch their entire lineup to electric vehicles in certain parts of the world. Back then, demand for EVs was higher than the limited supply, and government credits made them pretty affordable.

But just last month, those same companies had quietly scaled back those plans. Why? Because the market for electric vehicles changed significantly in three main ways:

Why the EV Market Shifted (3 Big Reasons):

1. Sanctions and Tariffs: Electric vehicles, especially cheaper ones coming from China, have been targeted by major sanctions and tariffs in different parts of the world. Even though Volvo has Swedish branding, it’s actually owned by Geely, a huge Chinese company. A lot of Volvo’s EVs are made in China because the supply chain for batteries is much more developed there. This makes their fully electric cars less competitive in markets like the USA unless they move production entirely, which is difficult for many models.
2. Subsidies are Shrinking: At the same time tariffs are going up, the government help (subsidies) for buying EVs is coming down. In many places, the higher price of an electric car used to be largely balanced out by tax credits that covered a big chunk of the cost. These credits are becoming less popular because people see their tax money going to help someone buy an expensive car – sometimes referred to as subsidizing “some tech bro’s Model 3.”
3. People Just Aren’t as Eager to Buy EVs: The group of “early adopters” (people who jump on new technology first) is relatively small, especially for something as expensive as a car. Even customers who were happy to deal with some hassle or pay a higher price to help the environment or just show they’re forward-thinking aren’t necessarily sticking with EVs. A survey done earlier this year by the McKenzie Center for Future Mobility found that a surprising 46% of current EV owners said they’d consider going back to a regular internal combustion engine car for their next purchase. Their main worry? Issues with charging infrastructure.

Look, people who like driving big trucks and making a lot of exhaust smoke (“rolling coal” in lifted F350s) are probably never going to switch to an electric vehicle unless they literally have no other choice (short of something completely unthinkable like public transport). But even the group that did make the leap and bought an EV is now considering switching back. This is making car companies across the board rethink if they should go “all in” on electric vehicles right now.

Even Tesla, which is the undisputed leader in EV sales in America, is starting to see new deliveries level off. The first three months of this year (Q1) marked the first time since they launched the Model S that they delivered fewer cars than they did in the same three months the year before.

Newer EV companies like Rivian and Lucid Motors, who hoped to compete with Tesla, are still losing tens of thousands, or even hundreds of thousands, of dollars on every single car they sell. This is because they’ve had to price their cars really competitively to try and convince buyers to take a chance on a relatively unknown company. The cars they are making are some of the best engineered machines you can find, but right now, they’re only staying in business because of multi-billion dollar investments from foreign governments or older, established car makers. These investors are likely more interested in the new companies’ technology than in actually selling their cars long-term.

This puts every other car maker in a tight spot. They have to compete with companies that are okay with losing money on every car they sell, which makes it really tough for even very well-known and established automakers.

The High Cost of Constant Newness#

To get new customers, car companies have to spend billions developing new models and updating existing ones constantly. This is designed to make their older models seem… well, irrelevant by comparison. But just as many people are put off by this because they figure, “Why buy now? Next year there will be something even better!” So, there’s no harm in waiting, especially when things can go spectacularly wrong.

Take Fisker, for example. They were another new EV company offering alternatives to Tesla’s lineup. They’ve already gone out of business. Their cars were priced competitively, but now they’re pretty much worthless because there’s no after-sale service anymore. And highly technical, specific EVs like theirs can’t easily be fixed by just any independent mechanic.

The whole “move fast and break things” idea might work for software where the cost to the person using it is zero. But the average new car costs almost $50,000 right now. That’s happening at a time when most people are struggling just to keep up with their daily cost of living. What people really want is simple: a car that works and doesn’t cost a fortune.

So, why are car companies finding it hard to provide that? Let’s dig a bit deeper.

Sponsor Segment: ODU#

(Clear topic shift)

Alright, before we keep going, this week’s explanation was brought to you by ODU. Think of them as the all-in-one solution for businesses. They bring together a full package of connected apps to help manage pretty much every part of your company’s work.

• They cover everything: sales, CRM (that’s managing customer relationships), accounting, and a whole lot more.
• ODU makes complicated business stuff simpler by putting it all together in one platform that’s easy to use.
• You can manage your sales leads with just a few clicks.
• They can help you automatically score leads and even suggest what your next best step should be with potential or current customers.
• ODU really makes streamlining everything in your company a top priority.
• Their MRP (Manufacturing Resource Planning) tools let you easily plan production, set schedules, and track inventory in real-time to keep your business running smoothly.
• ODU was built to be customized and easy to use. Whether you need tools for sales, inventory, managing projects, or even creating your own app with something called ODU Studio, the platform can adapt to what your business needs.
• You only pick the apps you need, so it can be as simple or as comprehensive as you want.
• And here’s the best part: you can try out how easy and powerful ODU is without any commitment. You can get started risk-free with a 14-day free trial (no credit card needed!). Plus, you can use any single app for free forever.

Click the link in the description (of the video this text is from) or ask for a demo today to see how ODU could totally change how you do business.

It’s Not Just EVs: Old-School Cars Have Issues Too#

It’s not only electric vehicles that are struggling to keep up with the changing market. Since EVs are the newest thing, they’re being updated the fastest, especially because many car makers have cut back on researching and developing traditional gasoline engines.

But even old-fashioned cars have created their own set of problems. Cars are weirdly lasting longer and getting outdated shorter life cycles at the same time.

• A study by the automotive data company Cap HBI in the mid-2010s found that the cycle of new car models getting updated is significantly shorter than it used to be. On average, a new model only takes about 2 years before an upgraded version comes out.
• Lots of models get a “refresh” every single year. Manufacturers will make small changes to how the car looks (styling), the dashboard tech (infotainment), and tiny tweaks to the engine and transmission (drivetrain) just to make the current year’s model different from last year’s.
• More frequent rule changes around emissions and safety mean these constant updates are necessary.
• But obviously, companies know that if they can make last year’s model look old with just a few styling changes, they totally will.

The sheer number of different car models you can buy has also shot up by over 50% in the last 20 years. This is partly because of all the new EV models, but also because car brands are trying to offer a car for every single part of the market.

• Twenty years ago, the idea of a luxurious SUV from a brand like Bentley, Aston Martin, or Ferrari would have sounded ridiculous. But now, those SUVs are actually their bestselling cars!
• This trend is happening across the industry. Carmakers are trying to use their valuable brand name to sell more models, even if some of them are still super expensive (like maybe a half-million dollar V12 Ferrari that someone uses for commuting – hard to call that “mass market”).
• Even at regular prices, manufacturers are making a huge range of sizes, especially for SUVs. It’s totally normal now for one single brand to have four or five different SUV models, from compact to full-size. And each of those models will have several different options for how it’s equipped (“trim levels”) and what kind of engine/motor it has (full gasoline internal combustion, hybrids, and EVs) all within the same model line!

The Bottom Line of All These Changes:

What this all adds up to is that across every price point, car manufacturers are:

• Making more cars.
• Which are being updated more often.
• While also having to follow more regulations.
• Across more markets.
• With more competition from more startup companies that have way more funding than you’d expect.

This means brands have to spend a huge amount of money on research and development (R&D) just to stay relevant. And if they can’t keep up, even big global brands like Nissan can quickly lose a lot of their market share.

The Cost Gets Passed to You#

Since not every car company has the luxury of selling their cars and losing money on each sale (like some startups funded by outside investors), this growing cost of doing business is getting passed directly to you, the customer.

Here’s an inconvenient truth about new technology: sometimes, when it first comes out, it’s kind of… crap.

Case Study: Toyota’s Reliability Challenge#

Toyota has become the world’s bestselling car brand mostly because of its legendary reputation for being incredibly reliable.

• Their Method: Generally, Toyota develops cars pretty slowly. This means their models stay in production for a long time. Even if something feels a bit old-fashioned, they keep it around as long as it’s reliable.
• The Benefit: This combination of reliability and the fact that their cars usually don’t look drastically different year after year has also helped them keep the value of their used cars very high. That doesn’t directly help the company’s profits much from selling new cars, but it does mean they have a really dedicated customer base who won’t drive anything else.

But even reliable, legendary Toyota hasn’t been able to completely avoid the disruption happening in the car market. They’ve had to change with the times.

• The Change: They’ve had to phase out many of their big, simple, not-very-efficient, but extremely reliable engines.
• The Replacement: They’re replacing them with smaller engines that are more complex or “highly strung” (meaning they work harder with less).
• The Consequence: This shift has led to several very public, high-profile engine failures. This has definitely put a dent in Toyota’s reputation for being “invincible” when it comes to reliability.

Now, if you look at the numbers, Toyota’s reliability is still among the best in the industry. But a viral video of someone’s brand new, say, $30,000 Corolla catching fire on the side of the highway tends to stick in the mind of the average person a lot more than statistics do.

The Current State: Not Great for Most#

Right now, aside from the small group of people who are happy to just lease a brand new car every two years, this market isn’t really working out great for anybody.

• Most Car Buyers Want: A simple, reliable car that gets them where they need to go without breaking down or costing a fortune.
• Most Companies Want: To be able to provide that kind of car.
• Investors: They’re playing a billion-dollar game that feels a bit like “Last Man Standing.”

And it’s all happening because, frankly, some industries just don’t really need to be disrupted in the way technology has disrupted others.

(Final Note) Oh, just so you know, some folks who used to work here at How Money Works have actually left to start their own channel! They’ve even made a video that shows how this kind of disruption we’ve been talking about is happening in every industry, not just cars. I’m sad to see them go, but their new videos are genuinely good, and I want them to do well. You should definitely check it out if you’re interested.

And while you’re at it, make sure to like and subscribe to this channel (How Money Works) to keep on learning about… well, how money works!