By Louis Rumao:
Disruptive technologies, environmental issues, changing demographics and the economic volatility in the emerging markets make predicting the future of automotive industry difficult. Technology-driven trends will revolutionize the way industry players respond to changing consumer behavior, develop partnerships, and drive transformational change.
Nobody can predict the future, still every business needs to plan for the future by studying the current trends, and projecting them into the future. Given the rapid deployment of disruptive technologies, automakers and suppliers are facing some tough questions about the future. At present, there are about 1 billion passenger cars worldwide. By 2030, this number is projected to be 1.2 – 1.6 billion. Many analysts predict no more than two percent YOY increase in new car sales, as established markets are not expanding, and shared mobility may account for up to one-out-of-ten cars sold in 2030. However, significant growth may come from emerging economies, particularly China and India, driven by their macroeconomic growth.
2030 Revenue Pool Estimates
Global new vehicle sales revenue is projected to grow from the present USD 2.7 trillion to USD 4 trillion in 2030. Much of this increase will come from technology premiums paid for electric powertrains and autonomous driving features. A likely scenario would be: Around 50 percent of passenger vehicles sold in 2030 will be highly autonomous, with about 15 percent being fully autonomous. The aftermarket – parts and service – revenue is projected to grow from USD 0.75 trillion to USD 1.2 trillion. It is estimated that electric powertrains will reduce maintenance costs by 20-30 percent.
Autonomous vehicles may lower or eliminate crash repair costs and insurance premiums. The shared mobility – car sharing and ride-hailing – businesses, with a relatively tiny revenue at present, will grow to USD 1.5 trillion by 2030, some contribution resulting from connectivity service providers, such as apps, navigation, entertainment, remote services, and software upgrades.
Digitization and new business models have revolutionized other industries, and the automotive industry will be no exception. For the automotive sector, these forces are giving rise to four disruptive technology-driven trends: Diverse mobility, autonomous driving, electrification, and connectivity.
The way the world gets around is changing rapidly. The rise of shared mobility (as in the case of car sharing and ride-hailing), and urban environments that discourage car use, will result in some decline of private car ownership. Consumers also will demand flexible transportation options, causing significant shifts in the automobile industry. Many urbanite millennials do not want to own cars due to costs and the inconvenience.
Automakers are starting to develop their own ride-hailing and sharing services. Ford will expand its minibus ride-sharing programme, called Chariot, to eight US cities by the end of 2017. “Millennials are seeking practical and functional products that provide both capability and a sense of personal style. As a result, they want a vehicle that can be upgraded as their lives change, and they expect seamless integration of technology in and out of the vehicle, including to home and other devices,” Fiat Chrysler said.
Fully autonomous vehicles (AVs) are unlikely to be commercially available in the next few years. Meanwhile, advanced driver assistance systems (ADAS) continue to be developed by the OEMs and tech giants like Google, making the possibility of fully autonomous vehicles to be available by 2030. Some of these technologies have existed for some time, but they are becoming more sophisticated, said Richard Wallace of the Center for Automotive Research. “We’re moving on to higher levels of challenges now,” he said. ADAS will play a crucial role in preparing regulators, consumers, and corporations for the medium-term reality of cars taking over control from drivers.
The sale of electric cars (EVs) had a slow start, due to high cost and “range anxiety”. Now EVs are becoming increasingly more viable and competitive in the auto market due to longer driving range, stricter emissions regulations, lower battery costs, widening infrastructure of vehicle chargers and greater consumer acceptance due to tax incentives. With battery costs potentially decreasing to USD 150 to 200 per kWh over the next decade, electrified vehicles will achieve cost competitiveness with conventional vehicles, creating the most significant catalyst for market penetration. Advances in charging technology, range, and awareness will further improve the customer value proposition. Hence, in 2030, the share of electrified vehicles could range from 10 to 50 percent of new vehicle sales. Adoption rates will be highest in developed, dense cities with strict emission regulations and consumer incentives (special parking and driving privileges, discounted electricity pricing, etc.). Sales penetration will be slower in small towns and rural areas with lower levels of charging infrastructure and higher dependency on driving range.
Automakers are ramping up their connected car efforts for several reasons. Internet connectivity in vehicles allows car companies to release software updates in real time, which is extremely important during a recall. Second, OEMs, government agencies and insurance companies can use data from vehicles to analyze its performance and obtain valuable data on how drivers use their cars. Finally, more connectivity provides more ways for automakers to cross-sell their products and services to customers. Tech companies will play an increasingly important role in the vehicle industry. For this dynamic to work, vehicle makers will have to learn how to cooperate and collaborate with tech competitors.
Some industry observers think that these trends may mark the decline of some of the current players. A paradigm shift to mobility as a service, along with new entrants, will inevitably force traditional car manufacturers to compete on multiple fronts. Mobility providers (e.g., Lyft, Uber, Zipcar), tech giants (e.g., Apple, Google), and emerging OEMs (e.g., BYD, Tesla) make the industry’s competitive landscape more complex. New market entrants are expected to initially target only specific, economically attractive segments and activities along the value chain, before potentially exploring further fields. The current stakeholders need to make strategic moves now to shape industry’s evolution.
In order to get ahead of the inevitable disruption, incumbent players should prepare for uncertainty by anticipating market trends sooner and to explore new mobility business models as well as their economical and consumer viability. Traditional auto OEM’s are already planning to transition from “hardware provider” to “integrated mobility service provider.” Just as today’s software companies are keeping their products “relevant”, auto OEM’s need to offer up-to-date customer-focused user experience with product differentiation.
The entire industry is undergoing transformational changes, but only those, who develop adaptive organization, leverage partnerships and are prepared for the uncertainty, will survive and grow.