Baby, You can't Drive my car (it drives itself)

How digital is affecting the auto industry - Top 4 trends

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Like many other industries, the auto industry is currently undergoing massive readjustments as a result of disruptive digital technologies that are bringing with them innovative new business models, not only revolutionizing manufacturing, but the entire supply chain. New players are aggressively bringing new products and technologies to the industry, leaving old players scrambling to catch up. It will take some time before we can understand the complete ramifications of this phase of digital disruption, but one thing is for sure: the traditional auto industry will never be the same. Companies that don’t embrace the opportunities posed by digitalisation and take the necessary steps to aggressively innovate will become the dinosaurs of this new digital age.

Below we compiled the 4 trends that companies need to watch out for in the auto industry.

Trend 1: Autonomous vehicles will soon be a reality!

Autonomous vehicles have been the subject of human fascination for a long time. Once considered a figment of imagination and mere Hollywood fiction, autonomous vehicles are now on the way to becoming a reality. Still in the development phase, autonomous vehicles, especially cars, are expected to come to market by 2025, according to the CEO of Renault-Nissan. As per Euromonitor International, by 2045, 100% of cars are expected to be autonomous, driverless cars. According to ATKearney, the market for autonomous vehicles will grow to $560 billion by 2035. These statistics point towards a future where autonomous vehicles are the norm, generating billions of dollars every year.

Traditional auto players have taken note of the changing dynamics and are scrambling to get their hands on driverless cars. Toyota and GM are spending $2.8 billion and $100 million, respectively, while Volkswagen has earmarked $40 billion to invest in autonomous technologies within the next 5 years. In their push to get access to the latest technologies, big automakers are either acquiring or partnering up with technology startups working on autonomous vehicles or related technologies. GM´s acquisition of Cruise for $1 billion and Ford´s $1billion investment in Argo are examples of how incumbent players are trying to get ahead of the curve. Nonetheless, big automakers are not the only players in this race to advance the driverless vehicles market. The attractiveness of this new market has ushered in technology companies, the likes of Google, Tesla, and Uber, who are aggressively and successfully pioneering driverless technologies. Only time will tell who wins in this fierce race to the finish line, but for now traditional auto players have to press on the gas to catch up with these technology firms.

Image source: shutterstock.com

Trend 2: Increasing momentum in electric

Another trend that is reshaping the auto industry is the rise of electric vehicles. With every passing year, the demand for electric vehicles (EVs) is increasing-  at 1.2 million in 2017, it is expected to rise to 1.6 million by the end of 2018, culminating in a whopping 25 million by 2025. The proliferation of EVs is expected to be the result of the converging price gap between EVs and conventional fuel powered vehicles. According to Mckinsey, over 55% of cars sold will be electric by 2030, a shift that will transform the entire auto industry. Players which cater to the larger ecosystem built around EV´s, such as charging stations, batteries etc., stand to considerably gain from this new trend. Traditional auto players, such as GM and Volkswagen, are aggressively investing in EVs – Volkswagen brand Porsche plans to shift 50% of its production to electric cars by 2022. Despite rising investments in EVs from traditional players, they face fierce competition from players outside the industry, such as Tesla, which is leading the way in this new market. According to Bloomberg, Tesla will stand out amongst its competitors by 2021, with EV sales that are projected to reach 709,000. This stresses the need for traditional players to commit to continuous innovation, or risk being outrun of this lucrative market by external players.

Trend 3: Shared mobility is the future - Get ready for it!

With advancements in digital technologies, sharing platforms are multiplying from accommodation to ride sharing providers. There is a huge shift towards mobility as a service, and this trend  is likely to accelerate with more and more people opting for ride sharing services instead of buying their own cars. According to Accenture, revenues from manufacturing and selling vehicles are projected to rise only slightly by 2030, as compared to mobility services which are expected to rise more significantly. The report also points towards a decrease in profits from car sales (car sales profit = €126 billion) and an increase in profits for shared mobility (€220 billion profits with €1.2 trillion revenues) by 2030.

Given the exponential growth of ride sharing companies such as Uber and Lyft, auto companies are facing a big shift in the fundamental pillars that once defined their  industry. Market shares of traditional players is bound to go down drastically if they don’t innovate their business models to cater to these changing consumer needs. In order to effectively compete with these incumbent players in shared mobility, automakers will have to strategically partner with startups and digital service providers that could help catapult them further.

Trend 4: Software makers will take the lead

With the advancement of digital technologies, automakers are transforming into software driven businesses. Soon software will be the main differentiating factor between different vehicle models. Consumers are increasingly expecting quality in vehicle services such as infotainment, that could provide them a premium experience and better connectivity – this in turn provides manufacturers with an abundance of data that could be monetized and used to improve services.

Therefore, companies with superior software expertise will definitely lead the way and capture a considerable share of the future mobility market. In order to survive in a rapidly changing market, incumbent auto players will have to step up their software production capabilities. As of now,  only 30% of software is developed by auto manufacturers. Since companies like Tesla and Google are aggressively seeking to capture the auto market of the future, and have the capacity to produce 100% of the software themselves, the road ahead for traditional auto manufacturing companies seems rough.

Summary: What to do!

Given their capacity to produce at scale, huge customer following coupled with brand recognition, as well as their massive distribution networks, established players have an edge over new entrants in the industry. If they act fast in adopting these new technologies and innovative business models, they can defend their dominant positions and capture the value created by new innovative trends. That will require increasing their technological capacities and agility to adopt innovative business models that not only cater to changing consumer needs empowered by digital technologies, but also set the tone for future developments in the industry. The key lessons for the incumbent auto players are to invest in increasing their technological capabilities, and explore innovative models even if it means veering far from their traditional business models. To do so, they will have to act now!

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