Science uses the term ELE – Extinction Level Event – to describe a scenario in which the Earth’s population faces an existential threat, endangering the dominant species. One such event occurred 66 million years ago, when a massive meteor struck the Yucatán Peninsula, wiping out most large life forms.
A similar existential threat now looms over the legacy Western automotive industry in the coming decade.
My interpretation of the current state of the traditional car industry resembles an episode of American Horror Story: “Be afraid— be very afraid.” Jobs are at risk, and governments may come after your hard-earned money in desperate attempts to prop up a failing sector.
The potential impact cannot be overstated
The automotive industry is critical to Europe’s employment and economy. It once held similar importance in the United States. In the 1920s: the USA had over 100 car manufacturers. That number shrank to around 50 by the 1950s, and as size and technology began to matter more, only the “Big Three” – GM, Ford, and Chrysler – remained dominant by 1985.
Then came the surge in Japanese automakers, flooding North American and European markets with simple, affordable vehicles, aided by the oil crisis. Later, South Korean manufacturers followed suit.
While the American economy is now more diversified, with strong industrial, pharmaceutical, financial, and tech sectors, many parts of Europe, particularly Germany, Spain, France, and northern Italy, remain heavily dependent on the automotive industry.
Fiat, once Europe’s largest car manufacturer in the 1970s, has become nearly irrelevant. One misstep was its fire-sale of direct diesel injection technology to Bosch, which the Germans capitalized on more effectively than anyone else, arguably turning Volkswagen into the powerhouse it is today.
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The UK auto industry faded after consolidating its companies under British Leyland to preserve jobs. This move, intended to save the industry, ironically eliminated domestic competition and stifled innovation. In contrast, Germany’s fiercely competitive environment among its three major automakers fostered innovation and excellence, elevating the country’s global automotive stature.
The coming Chinese invasion
Now, the Western auto industry must prepare for the next shock: the Chinese invasion. This will be far more disruptive than the combined impact of Japanese and Korean automakers. It’s not just coming, it’s already underway. That’s why I believe “Extinction Level Event” is not hyperbole, but an apt term for what lies ahead. The threat combines Tesla’s speed with China’s industrial might. And this time, it won’t be limited to cheap compacts. Every segment, including luxury, is being redefined.
Today’s luxury is no longer about leather seats and chrome grilles, it’s about software, connectivity, and digital experience, as defined by a new generation of IT-savvy customers. The question is not whether legacy automakers will adapt, but when. Because if they don’t, extinction is inevitable.
Those who fail to recognize the urgency, articulate a clear vision, and take bold action will be left behind. Within five years, electric vehicles (EVs) will outperform internal combustion engine (ICE) cars in every measurable way.
The ongoing debate about producing ICE cars beyond 2030 seems increasingly delusional, a dying gasp from a fading industry. Battery technology will soon surpass ICE capabilities by a wide margin. EVs will be cheaper, better, and smarter than anything the traditional industry has produced.
Among Asian philosophies, South Korea’s Kaikaku (radical system innovation) may hold the key to survival, especially when compared to Japan’s Kaizen, which focuses on incremental improvement.
While Kaizen has historically driven excellence, it may now be too slow to respond to today’s rapid changes. Kaikaku embraces disruptive transformation, which is something that Hyundai and Kia are already demonstrating with impressive results.
Next week: Henrik looks at some of the current leaders in the automotive sector. Can they survive and compete?
Henrik Mikkelsen is a Strategist, Investment Advisor and Business Developer with Iridis AG, an investment management and corporate advisory firm in Zug, Switzerland. Henrik has more than 30 years of experience from investment banking and commodity trading, running strategies for clients and himself, as well as writing about markets and giving lectures on technical analysis and risk management.
