[Lee Myung-ho's Future Preview] COVID-19 Accelerates the End of the Old Economy

There have been ongoing claims that the COVID-19 pandemic has marked the end of the analog era and the beginning of the digital age. Recently, Peter Thiel, a venture capitalist considered the elder statesman of the PayPal Mafia, stated that COVID-19 signaled the true start of the 21st century. Although similar claims have been made frequently, the phenomenon he highlighted is intriguing. The surge in electric vehicle company stocks is a sign that the new economy is genuinely replacing the old economy. The U.S. electric car manufacturer Tesla surpassed a market capitalization of $100 billion in January this year and overtook Toyota in July to become the world's largest automaker by market cap. Tesla's vehicle production in Q1 this year was 103,000 units, only about 4% of Toyota's 2.4 million units. However, its stock price continued to rise, reaching a market cap of $608 billion earlier this month, surpassing Alphabet, Google's parent company, and entering fifth place behind Apple ($2.1 trillion), Microsoft (MS), Amazon, and Facebook. The top five companies are all new economy, digital firms.

COVID-19 Ends Analog Era
New Economy Digital Age Begins
Tesla Leads Auto Industry in Market Cap
Amazon Tops Retail Industry

Recently, autonomous driving sensor company Luminar went public at $600 million, making its 25-year-old CEO the youngest self-made billionaire in the world. This year, Tesla's stock price has surged 600%, leading to expressions like the 'crazy bubble' in the electric vehicle industry. Tesla's market cap exceeds the combined market caps of the 2nd to 5th largest automakers. Luminar was listed through a Special Purpose Acquisition Company (SPAC), and many electric vehicle-related companies are going public in this manner. Hydrogen truck manufacturer Nikola, which has faced fraud allegations, also raised funds via SPAC, as did Velodyne, a leader in lidar for autonomous vehicles, and Aeva, a lidar startup founded by two former Apple engineers. Many other electric vehicle technology companies are raising capital through SPACs. Unlike the traditional Initial Public Offering (IPO) process, which takes about a year, the SPAC method skips the listing procedures and facilitates easier fundraising. This reflects the rapid technological advancement in the electric vehicle market and the intense competition to gain market leadership.

The new economy and digital industries first emerged prominently during the dot-com boom in 2000. The computer-related industries that appeared in the 1980s met the internet in the 1990s, giving rise to a new industry: e-commerce. Although the bubble burst, surviving e-commerce companies have replaced traditional retail methods and become the definitive standard in distribution. Amazon surpassed Walmart in market capitalization in the retail sector in 2015 and has since grown larger than the combined market cap of nine major U.S. retailers. In U.S. consumer spending, Walmart held the top spot with 2.7% last year, but Amazon is closing the gap at 2.3%. In South Korea, e-commerce accounted for 42% of retail sales this year, with Naver's online shopping platform experiencing rapid growth.

Myeongho Lee, Planning Committee Member, Yeo Si Jae Foundation

While e-commerce represents a new digital-based business model becoming mainstream in distribution, the electric vehicle industry is notable for the emergence of new technology-based competitors within the traditional manufacturing economy. The existing automotive industry is based on mechanical technology. The superiority of internal combustion engine technology, drivetrain, handling, and cornering relies on accumulated mechanical, i.e., analog technology, making it difficult for competitors with superior technology to emerge. Automobiles were considered beyond the reach of digital technology, but Tesla broke that convention. The advent of electric vehicles changed the competitive landscape. The powertrain, consisting of batteries and motors, is integrated with digital control technology, and a new automotive standard has emerged that can perfectly combine with autonomous driving technology. The value standard is shifting from driving enjoyment to safe driving and convenient transportation that moves passengers to their destinations without driving. As this convention was broken, startups developing sensors and control technologies related to automobiles and autonomous vehicles have flocked in, attracting capital.

Amazon Cloud Develops Web Services
Tesla Uses Others' Battery and Motor Tech
Electric Vehicle and Autonomous Driving Performance Improvements
Companies Restructuring Business Based on Digital Technology
Winner-Takes-All Effect Expected to Grow

What stands out in the successes of Tesla and Amazon is that digital technology is being used to integrate business and enhance overall competitiveness. Amazon developed cloud technology as a core competitive advantage in its e-commerce business, which evolved into Amazon Web Services (AWS). Tesla succeeded in improving performance by integrating others' battery and motor technologies into the electric vehicle system. It enhances vehicle performance and autonomous driving technology through software updates.

Digital technology is newly emerging as a technology that integrates business and systems. Especially after the COVID-19 pandemic, the importance of digital interaction has increased, blurring industry boundaries and integrating value chains into platforms or related business ecosystems. In South Korea, Naver and Kakao expanding into commerce and mobility services is just the beginning. Alibaba has already transformed into a business providing a broad lifestyle service ecosystem, including retail, payments, and credit evaluation. Apple, together with Goldman Sachs, launched the Apple Card, an extension of Apple Pay, and BMW is creating shared mobility ecosystems with several startups. A new lifestyle business linking e-commerce, payments, content, and value-added services is being built.

To survive, companies must strengthen cooperation. According to McKinsey, this integrated network economy will reach $60 trillion globally by 2025, with its share of the total economy rising from about 1-2% currently to approximately 30%. The winner-takes-all phenomenon, where companies restructuring their businesses based on digital technology reap all the benefits, is expected to grow.