After a century-long tinkering of different technology cores, internal combustion engine (ICE) based creative destruction of automobile invention emerged at the fag end of the 19th century. This wave of creative destruction also triggered the 2nd industrial revolution. At the dawn of the 21st century, we observe the emergence of two waves of creative destruction emerging from the progression of automobile invention. Coincidentally, they are likely to trigger the Fourth Industrial Revolution.
The creative destruction of automobile invention started to unfold at the dawn of the 20th century. Furthermore, after more than 130 years of its birth, new creative destruction waves are gaining momentum.
However, who did invent the automobile? And when did the invention happen? In the global $90 trillion economy, 90 million new automobiles command close to $4 trillion in revenue. The exploration, production, refining, and distribution of petroleum generates another close to $3 trillion revenue for fueling automobiles. Besides, this industry is also responsible for the lion’s share of $1.5 trillion economic loss due to air pollution caused by the transportation industry. Besides offering us comfort, speed, and freedom of mobility, road accidents involving automobiles, also kill a staggering 1.35 million people per year and injure many more. These road accidents alone are causing two to three percent of global GDP loss.
The internal combustion engine based creative destruction of automobile invention emerged to trigger the 2nd industrial revolution
In the later part of the 19th century, inventors were in the race of replacing the horse’s role in transportation. Several inventors developed their own version of practical automobiles with petrol/gasoline-powered internal combustion engines in the last two decades of the 19th century. Eventually, Karl Benz’s patent, received in 1886, gave birth to the modern automobiles’ journey. As opposed to the horse, Mr. Benz used an internal combustion engine (ICE) to propel his three-wheeler. In 1988, he began the first production of automobiles in Germany. Subsequently, to offer us a better substitute for improving our quality of living standards, automobiles’ creative destruction started unfolding to horse wagon industries.
A century-long tinkering led to the culmination of the creative destruction of automobile invention
In addition to ICE, there were also serious attempts to power automobiles using steam engines, electric batteries, and hydrogen. As early as in 1769, Nicolas-Joseph Cugnot invented the first steam-powered automobile capable of human transportation. However, after 100 years in the 1870s, such vehicles were still struggling to maintain an average speed of more than 5 miles per hour (8 km/h) over a 200-mile (320 km) course, which was a minimum requirement for becoming a practical substitute for the use of horses and other animals.
Furthermore, in 1803, Hayden Wischett designed the first car powered by the de Rivaz engine, an early internal combustion engine fueled by hydrogen. Among many attempts of using electric batteries and motors to power automobiles, in 1828, Ányos Jedlik, a Hungarian invented an early type of electric motor. He created a tiny model car powered by his new motor. However, to many, Flocken Elektrowagen of 1888 by German inventor Andreas Flocken was the first true electric car. However, it ran out of battery to win over Karl Benz’s ICE automobiles.
ICE started getting popular because it was highly amenable to progression. Hence, it started beckoning entrepreneurs to get into the race of making automobiles far better substitutes for horse wagons.
The unfolding of Schumpeter creative destruction
Like many other great innovations, automobiles being powered by internal combustion engines emerged in primitive form. In the beginning, ICEs were far weaker than horses. Hence, in the early days, automobiles could not have comfortable coaches. Both the range and speed were questions. The need for refueling stations was also limiting the take-off of automobiles. In America, bicycle mechanics J. Frank and Charles Duryea of Springfield started producing automobiles in 1995. To profit from this idea, entreprenerds started rushing to join the race. In 1899, thirty American manufacturers produced 2,500 motor vehicles.
Interestingly, some 485 companies entered the business in the next decade. By 1900, mass production of automobiles had begun in France and the United States. Subsequently, in 1908, Henry Ford introduced the Model T, and William Durant founded General Motors. The price of Model T in 1908 was $825—equivalent to almost $23,000 in today’s value. The penetration of cars in all major cities started growing exponentially. Consequentially, horses and horse wagon makers started suffering from destructive effects.
Innovation race through redesign and streamlining production processes
In both America and Europe, intense competition started among thousands of Startups. The race started centering around improving ICE, redesigning automobiles, and streamlining the production process. The core focus was to offer increasingly higher quality at decreasing costs to win the race. Soon after issuing a patent to Carl Benz, Gottlieb Daimler, and Wilhelm Maybach in Stuttgart in 1889 designed a vehicle from scratch to be an automobile rather than a horse-drawn carriage fitted with an engine. This led to the redesign race in making automobiles more useful, nice looking, and also comfortable. Moreover, the advancement of ICE kept offering increasing horsepower to propel automobiles at a faster speed. Besides, the 3rd party Externality Effect in the form of supply of petroleum and refueling stations kept adding momentum to the unfolding of automobile invention’s creative destruction.
For ramping up the volume and reducing the labor requirement, Ford innovated modern mass-production techniques. He pursued standardization of products, jobs division, and specialization. Hence, along with the volume growth, the price per unit of Model T kept falling, reaching $290 by 1927 from $825 in 1908. Consequentially, by 1927, Ford succeeded to sell 5 million units of Model T. By this time, the creative destruction of automobile invention succeeded to wipe out horse wagons from major American cities.
Economies of Scale advantage leading to monopolization
Very quickly, the race of automobile making led to winning through economies of scale advantage. Among many, Ford was the forerunner with its mass production system. To stay in the race, many other American automobile manufacturers adopted Ford’s mass production techniques. However, it created serious pressure on others. To leverage scale advantage from mass production, there was an increasing need for capital and a larger volume of sales. Subsequently, this necessity ended the era of easy entry and free-wheeling competition among many small American industry producers.
However, in America, the number of active automobile manufacturers dropped from 253 in 1908 to only 44 in 1929, while about 80 percent of the industry’s output was coming out from the top three: Ford, General Motors, and Chrysler. However, during the latter part of the 20th century, late entrants Japanese automakers have marginalized American automakers. Germans and the Japanese now dominate the global automobile industry.
Creative Destruction of Automobile Invention Continues
At the dawn of the 21st century, we have been witnessing the new waves in the creative destruction of automobile inventions. The first one is the changing of the ICE with electric propulsion. At present, the electric battery is at the forefront. Although electric battery needs to go make further progress in being better and cheaper than ICE, however, there has been a strong signal. The fuel cell may take over the battery to provide electric energy to motors in propelling automobiles in the long run. However, this change of technology core will lead to two major creative destructions.
The first one is in the low-cost labor-intensive competition strategy in the automobile industry. As the labor requirement in making electric vehicles will be more or less halve than ICE automobiles, India’s 37 million workforces of the automobile industry will likely experience the creative destruction of automobile invention. The second one is about the implication of depleting demand for petroleum due to phasing out of ICE. Hence, it’s likely that middle eastern countries having high dependence on petroleum trade will likely suffer from destructive effects.
The increasing role of sensors and software in automobile innovation will likely expand the economies of scale further. Our bid of realizing the dream of autonomous vehicles will turn automobiles into software-intensive innovations. Due to the zero cost of copying software, the scale effect will fuel a high Natural tendency of monopoly in the next generation automobile industry. Consequentially, we will likely witness further consolidation in the global automobile industry.
Automobile invention and its evolution has been driving industrial revolutions—by unfolding creative destructions
Over the 20th century, we witnessed the unfolding of the first wave of creative destruction of automobile invention. We are now passing the uncertainty period during the formation of two major waves of creative destruction. It’s likely that by 2050, we will be witnessing creative destruction caused by EV and Autonomous vehicles. It’s quite interesting to note that the creative destruction of automobile invention triggered the unfolding of the 2nd industrial revolution. It happens to be that the further progression of the automobile will lead to creative destruction triggering the fourth industrial revolution.