Episode 165: Nina Leffers helps design the next generation of cars

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April 8, 2019

Our guest today is Nina Leffers, a McKinsey alum and partner in a boutique consulting firm Stahl Automotive Consulting.

Nina’s firm works with auto companies around the world on developing the vision and key specifications for their future models, and in this episode she walks us through some examples of how her team works with clients to design the key aspects of cars we’ll see on the road five years from now.

You can learn more about her work at Stahl Automotive Consulting.

HIGHLIGHTS

Will: Hello, Nina. It is great to have you on the show.

Nina: Hi, Will, it’s my pleasure.

Will: Nina, I’m so happy to have you on the show, because you work on a topic that I really know nothing about, so I’m really fascinated to learn about it. You and a partner run a firm, and you work on like one of the main things you do is sort of concept car design, the early phases of designing a new car. Tell me about how that works and about your practice.

Nina: Well I mean first of all we haver to understand, while typically our clients they have an idea in mind. They for example, they’ll say why is there no luxury electric vehicle that is targeting this and that customer group and in this and that country. That is typically the starting point. They say there is a need for a new car. Right? And obviously in many cases, our clients, they have a pretty good understanding on what a good car is and what the market needs. But we would, typically when we define new cars, we would typically start with the brand value of the company if there is one already. I mean obviously of our clients, they develop their cars from scratch.

Then we would go on and understand what is … how attractive is the target group? Really. How big is the target group? What are the target group’s needs? That would be another typical source in the early stage market research. There is a couple of readily available off the shelf research such as the [inaudible 00:02:08] model used for the China or for Germany but in many cases we go out and do our own market research.

Another source then would be benchmarking. We would look at are there any available cars and if so, in what dimensions would we need to beat them? I don’t know, for example, maybe we found out that the most important aspect for development target group is, I don’t know, it’s the screen or the cockpit, then we would go and look how do comparable screens, how do comparable cockpits in other cars look like what do we have to do in order to be better than competitors? Then of course, once the whole … once we have an early idea of the car, we would go out and probe that with a couple of experts that have … we have a rather deep network, a broad network of experts from the automotive industry, then we would start the discussion with them, to see whether the car is really reasonable.

Will: So what are the different kind of aspects that you’re looking at? I suppose there is kind of regulatory aspects. There is the shape or the size. Are you trying to figure out what does the price point have to be. Tell me a little bit … when you say the different dimensions, what are some of the dimensions that you’re looking at?

Nina: Well, this is a pretty structured approach, so you can imagine a car as consisting of a lot of different modules and then we would go through all of these modules. I don’t know, let’s start with the interior. The engine. So the car can be really broken down in many different tiny aspects and then we would go through all of them and yeah basically develop our view on every single aspect that makes a car, right?

Will: This is amazing to me. I guess I totally would have thought that a car maker would have teams of, I don’t know, 100 people doing this sort of product early design.

Nina: Well they do but not all of that, well they do have that right? Of course there are probably thousands of people working at BMW doing exactly that, but not all, but right now and this is the fascinating thing about our market, right now there is so many new players popping up and there is rather leans ways to produce a car without having a multi billion dollar automotive company in the background, so there are companies that … the big engineering providers so you could call them and say hey this is Will. I’d like to build a car. I have a couple of ideas. Can you do that for me? So I say, it became … in the last couple of years it became so much easier to design and build a car and bring that to the market. Some of those new market entrants do not have that big teams that work on defining the car. We call that the brand and product attribute profile.

Then we run through all of the different attributes and we break that further down into the sub attributes and then tiny, tiny little items. And we go through all of those items and define what makes a good car.

Will: That’s amazing. Could you give us some examples of you know the brand and product attribute profile? What would some of the high level categories be that you’re looking at and then give some examples as you break it down, level by level.

Nina: Well as I said, of course it depends on the customer group that you’re targeting but one of the main attributes could be comfort and then you would break down comfort down to different sub attributes. One would be interior and then you’d say, how should the control’s tactile feel? That means how easy is it to switch control? Is the steering wheel covered with leather? Things like that. So, I think you get an understanding by now, this is pretty, pretty much in detail.

Will: How do you go about doing the market research? Is it traditional surveys or focus groups or something else? How do you go about understanding those customer segments that you’re targeting?

Nina: As I said, for many markets, there is what we call re use. I hope this is the right English translation. So for example, well a pretty straightforward one would be upper class non traditional avant garde, you would probably call that target group and then we already have a pretty good understanding of the needs and desires of that specific target group, but then we would go out and if we say this is a relevant target group then we would definitely have to talk to a couple of people in that target group.

Will: You mentioned how things are changing and it’s become possible to do this whole, this process, instead of with a team of 100 at BMW, to do it in a much more lean way. Could you give an example of something that’s changed where something used to take big team, it can now be done by you and your partner?

Nina: Well of course we still work with the client organization if it’s there, right? I wouldn’t say that now the automotive industry is the leanest industry on Earth. So we don’t do that all by ourselves. There is still people at the client organization that are doing exactly that thing and maybe we just show them how to do it and they would still do it themselves. Nevertheless, maybe there’s … I don’t know maybe there are companies right now, that they are more but bolder and they say why not just try it and why not just build a car and see whether it works.

Will: Just build it and see if they will come. That’s pretty cool. Give us a little bit of a background of you and your partner in your firm. And how did you kind of get the expertise to start doing this kind of work?

Nina: Martin has founded the company in 2013 and well he by now has about, oh I don’t know, 20 years of experience in the automotive industry. So he has been working with BMW for 10 years and after that he joined McKenzie where he also focused on automotive projects. While I joined the company a bit later, Martin and myself we met at McKenzie where we were both part of the automotive practice. So this is what our background comes from.

Will: And now you’ve been independent. Tell us about the range of projects that you’ve done outside, in addition to the concept car work. I think you’ve told me that you’ve also done other work on kind of cutting edge, auto topics.

Nina: I’d say another important topic right now is to basically understand where the automotive industry is heading. And, if you just imagine yourself, I assume you have a car. And let’s say it costs you, just to make it easy, it costs you 50 cents per kilometer to … I know you don’t have the metric system. It costs you 50 cents per kilometer to take your car and to go somewhere. And all of the sudden there is these robo cars and there are autonomous cars. They have such a good utilization and they are produced in a very lean way. And then I’m telling you it costs you 30 cents to be driven. So that means you have individual mobility available whenever you need it and that robo taxi would take you wherever you wanted to go or they would even take your kids to school or to their piano lessons for 30 cents a minute.

I think chances are very high that if you decide, I don’t need my own car anymore. What I need is a, I don’t know, is a kind of membership in that robo taxi company. So I’d say that sounds still like very, very future thinking but if you just look at the Chinese automotive market, the question of whether you use a robo taxi or a regular taxi, isn’t that important because the employment costs are so much lower. So in China by now, we already have 30 million rides a day with a company called DP. Which is you could say, is maybe the beginning of those robo taxi companies.

They still use human drivers, but in the future you have a lot of cars running around in the US, in Europe, without a driver and the cost per kilometer are lower than if you would drive yourself. So, as I said, chances are high that you would sell your car and get a membership in that robo taxi company.

So and we are helping clients to understand the consequences of that development and we help them to understand what niche they could focus on when they want to build ride hailing or robo taxi companies. That is another aspect that is becoming more and more important.

Will: How are the auto companies thinking, worried about that world? Because I could imagine that we’ll just collectively need fewer cars. What kind of is the thinking in the industry?

Nina: Well what we see is right now that many of the companies, they have absolutely understood what is going on and while many of them, how do you say preparing their forces, trying to get ready, trying to get ready in that market. So it’s definitely not the case that this comes unexpected to the automotive industry. We are, I say we are proud to say that maybe we have been a bit earlier than others to understand that but I would say by now, most of the automotive companies, they are absolutely aware of exactly that development and the funny thing is there’s, so the automotive companies they either start building their own mobility providers.

For example in the German market, the [inaudible 00:14:55], had their own mobility provider. They recently joined forces with BMW and many of the OEMs, they start partnering with mobility providers so for example Fiat Chrysler has recently started working together with Wimo, I think you are familiar with the mobility provider Wimo. And they want to integrate their full self driving system into the Chrysler hybrid mini van, then Robert Degger is partnering Wimo. Wimo is partnering with Uber. Volkswagen is partnering with DD. So automotive companies are pretty active.

Will: What are some of the other kind of merging trends that you’ve been spending time working on?

Nina: Well I think what I’ve just described, this is already such a big disruption that will really change the automotive industry completely. That is really my strong belief. Another aspect that we haven’t worked on with our clients but that is just … I don’t know maybe a side aspect that I’ve started working on is the question on who is owning that ecosystem. So you will, you don’t want to have a car anymore. What you want is mobility. Cheap, seamless, eco friendly, safe mobility. My hypothesis is that yeah there maybe one app on your smartphone and who is owning that app, an app that in the end integrates as I said, seamlessly your short distance, maybe that connects you with a robo taxi, with a train, with a plane. Maybe with a bike.

That is really something that I find extremely, extremely interesting. Who is in the end the leader in the new mobility ecosystem? And my perspective is that also the local governments, city governments could play a very, very important role in that battlefield if they want to.

Will: You know one thing that I noticed just traveling around Europe recently, in a slightly different area, in terms of bicycles, how city by city, kind of different solutions has emerged. So in Zurich, Lime was really big and you could find a Lime bicycle all over the place which was awesome. You unlock it with an app. And ride around. And then in Munich, there was I guess Donkey bikes could be found but those would be at specific locations you’re supposed to leave them, I think. And then other cities, you could rent bicycles by the day and it was a little bit less easy to find.

So using that as an analogy, I wonder if we’ll end up where there will be just different solutions locally, city by city where in some cities you can just walk up to a parked car and open that one up and other cities there would be robo taxis driving around. Do you think they’ll be like one winner across the board or might it be very sort of just contingent on local circumstances and individual local markets there is different landscapes emerge?

Nina: Well, I would say there is two important aspects. First of all, once the car is nothing you need for your personal ego anymore. I think this is the case. These days are over where you need to have a big Mercedes standing in front of your house to show that you are someone, right? Once this is over, mobility is driven by cost per kilometer. Most people that act reasonable will simply look at the lowest cost per kilometer and if the robo taxi is the cheapest vehicle to get on then a lot of people will buy that robo taxi. So first thing, what is the cheapest transportation mode? Then the second question in the second sector and here is where I think the cities play an important role is then local regulations.

I’m not sure if you’ve been following the discussions in Germany that diesel was a very, very strong German technology and now city by city diesel cars are being banned from the city centers. So when we have a situation where robo taxis are even cheaper than individual transportation, that in the first place would not solve the problem of traffic jams. So I could imagine cities saying, I mean I’m not sure if you’ve been to Paris lately, I found there was very little cars in the city center and the parking is so ridiculously expensive. So I consider Paris as a rather car unfriendly city.

So as you rightly said, these are decisions taken by the cities and the city governments can definitely shape how the ecosystem will look like if they say yes you can go with a robo taxi but not in that three or four kilometer range in the various city centers, or you can only go on this and that roads and you cannot park here and there. So I do agree with you. I could imagine that the mobility eco systems look different from city to city.

Will: One thing that I’ve been … I mean I kind of worried about I guess a little bit is, as we think about this transition to self driving cars, it occurs to me that when I started to drive, I was a pretty cautious not very good driver, right? Then after awhile it becomes to second nature, just like everyone. So that 98% of the people driving around now on the roads, are people that have been driving for awhile. So they are pretty capable. So most people are pretty capable and then you have a few cautious new drivers. So, is the industry worried? What do you see happening as more and more people maybe end up not driving very much at all or even maybe never? Then in the case where sometimes if the car, like some of these cars, they revert to driver control in an emergency or something but if they revert to driver control and that person is basically a 16 year old driver and has barely ever driven, then it will be reverting to someone who is a total novice and you get this whole population of being really kind of novice drivers.

So in the real end game, when self driving cars are awesome and can totally drive themselves then we’re fine. But what happens during that transition? Are my kids ever going to really learn to drive? How is the industry thinking about how that whole transition will happen when there’s a lot of people who are kind of novice drivers?

Nina: Actually I haven’t thought about that aspect, that people, I don’t know, kind of lose the skills in driving. Frankly speaking, I haven’t thought about that. What we discuss is, maybe this is a slightly different aspect, what we discuss is what happens when we have perfectly rational or simply perfect robo taxis and they start driving in pretty chaotic systems. For example, I don’t know if you’ve driven in China lately but I think it’s hard to imagine that you follow every single rule, you still get along in Chinese traffic. So when we talk about transition, it might be interesting to see how, you know how the perfect robo taxi is [inaudible 00:24:18] in a rather chaotic driving system. But maybe coming to the core of your question, I think that a lot of people, they won’t have driver’s licenses anymore.

If I think about my kids, I don’t expect them to have a driver’s license at all.

Will: That’s amazing. A little bit sad in some way that a driver’s license was kind of the ticket to freedom for teenagers and the ability to get away from parental control and off on your own. It’s a little bit of a sad thing for the culture when that goes away.

Nina: Well yeah but then there is something new. I mean now they have their cellphones and likes on Facebook. They have different things to define themselves with.

Will: I wanted to turn to another industry where I know you’ve done some work and what fascinates me and I think maybe you’re not working on this now so much, buy you’ve done a fair bit of work around ports.

Nina: Mm-hmm (affirmative).

Will: Tell me, that’s an area where I almost hadn’t even really thought about ports until I recently read the book Boxed that came out several years ago about a container and how that revolutionized shipping. But tell me a little bit about the business of ports and the kinds of questions you worked on.

Nina: Well, first of all, I think it’s important to understand the different roles in the ports industry. So first of all, there’s, as you said the container shipping. I think it was introduced in the 50s or 60s. And this is the basic method, the most common method for transporting products by sea. As you said, it really revolutionized global trade. So first of all, there is the container shipping company and then there is the terminal operations. When we think about the terminal operations, then there is the company that actually owns the physical port. You could say [inaudible 00:26:38] play infrastructure.

Then there is the handlers, right? That own the big cranes. That move the containers from the ships and navigate the containers in the ports. So it’s basically these three different roles. The container shipment. The terminal operator. Yeah you could say the infrastructure business. Obviously to build a container terminal is extremely expensive. So this business is to a large extent, subsidized. The container terminal hardly makes any money. It just costs you billions to build the terminals. So, yes this is the three different roles.

And, the project that I have been involved with was to think about where should ports be, just in a very simple physical sense? Where should they be? How many berths are necessary? So you would need to forecast the container streams going into a country and then also think about trans shipment routes. So if a container comes to Hamburg, chances are higher that from there it’s been trans shipped. So there is basically two categories of containers. These are the so called OD. Original destination containers. And the trans shipment containers. So the OD traffic. This is simply containers that are moving to and from the hinterland. And the trans shipment containers are sent obviously, this is obviously throughput to other ports in the same region.

So first of all, it’s important to understand what kind of traffic and what demands do I have? What are the perfect locations for the berth? Where are they needed within a country? That is one aspect. The other aspect is, the other aspect that I’ve been working on is if you think about the ports that you are familiar with, many of those ports are in simply fantastic locations. Think about the port of Hamburg. It’s just in the middle of the city, right? So the port authorities they start to think about what is the best possible use of that precious piece of land in the middle of the city?

Will: And in some cases they might say, well rather than having one extra berth we will turn that into some beautiful condos, right?

Nina: Absolutely. Yeah, yeah, yeah. I’ve had exactly those discussions. Definitely. Yes. And interestingly, maybe a berth, you could say is the make or break of a port. So you simply have to have a berth in relevant numbers. You have to have the right capacity to keep the port alive. But there are certainly logistic areas within the port, that could as well be somewhere else right? So if you think about, I don’t know, let’s say textile companies that bring their shirts to the Hamburg ports, do I really need that very, very expensive area right in the middle of the port to have my logistic centers put the labels on my shirts and ship them to their end destinations or could I do that somewhere else and build another fancy apartment on that piece of land where the logistics area was before?

What you do here to answer these kinds of questions is, while you of course you look at the GDP per square meter that can be or the income per square meter that can be generated with different users.

Will: That sounds like amazing work with those ports. Back to the auto industry. How do you and your partner continue to stay up to date on the industry and also raise your visibility? Are you going to industry conferences? Or publishing or creating content? Tell us a little bit about how you kind of stay engaged and up to date?

Nina: Well, luckily in that very niche where we were operating, we were able to build a bit of a reputation. So it’s a rather specialized thing and if someone needs help in that area they come to us, of course not everyone, right? So that’s the one thing. Then of course we try to be active in all kinds of industry events. From time to time we try to publish little articles in business magazines. So for example, I had recently a short interview on the block chain or the relevance of the block chain in the automotive industry, so we try to do, you’d probably call that public relations, right? So we try to be seen more and more in the industry.

Will: Fantastic. Nina, what is the best way for listeners to find out more about your firm? Do you want to give a website or any other links?

Nina: Sure. It’s sic-crew.edu. It stands for Stahl Automotive Consulting. If what I said was of relevance, if you’re interested in getting in touch with me, just drop me an email. Very very happy to have a conversation.

Will: Fantastic. And we’ll include that contact info in the show notes. Nina, thank you so much for being on the show. This was a fascinating discussion.

Nina: It was my pleasure.