Automotive Ecosystem Series — Chapter 1: Digital transformation for Automobile Manufacturers

Discover which proven strategies and tactics automakers can use to embrace digital transformation and adapt to the Future Mobility

Carmakers in various shapes and sizes have been at the forefront of the industrial revolution for the past hundred years. With the recent advent of the information revolution, auto manufacturers continued to do what they are good at — building means of private transportation for everyone. But that is not enough. The change is long overdue as the general agreement is that carmakers should change to adapt to the Future Mobility and make a car more than just a mere transportation mode.

In this article series, I will focus on the path of OEM and Tier 1 companies to the digital transformation, their strategy choices and tactics and required improvements to their ecosystems. I’d like to showcase the end goal of moving with the flow of times and offering customers inter-connected smart vehicles that will change the meaning of a car.

Push to digital transformation

Over a very short period of time, we’ve witnessed the introduction and consequential proliferation of car-sharing and mobility services that create opportunities for new entrants. These services are unique and undermine the foundation of large automobile OEMs’ business models. While cars as a product continue to be a high-value investment, the car sharing experience diminishes the perceived user-value of car-ownership for generation Z. And as this group of young people becomes more and more economically active the bottom line for the car manufacturers becomes bleak.

Still, the future is bright as carmakers can do much more to cars than they currently offer. We can witness the ongoing battle in the telecommunication industry between many OEMs and large traditional providers that are failing to successfully compete with the OTT service providers as the industry has become a ‘data pipe’ for customers and businesses. To succeed telecom OEMs must transform into commodity product providers while retaining their core services. And the same goes for the automotive OEMs and Tier 1 companies.

Source: Volvo Cars Walnut Creek

Different automakers are experimenting and pursuing various strategies to become more digital and data-driven. In essence, it means that car makers start to experiment with car value-added services, such as the Volvo’s car subscription services which provided the company with a year’s worth of sales in just four months. But reasonably speaking, this effort is not sufficient enough to sustain a competitive market share for large carmakers as they are faced with a revolt of car dealers that are unable to get enough cars to sell.

Data monetization as the key to OEMs’ success

More opportunities for OEMs lay in the area of data monetization. However you put it, the car is still an integral part of the future mobility ecosystem. It may be not your own car, a shared experience, but many believe that it will become a third and key place for living, after your home and office, especially after the AD adoption. Some market players see the future in an AV as not only a self-driving vehicle but as an advanced edge point for the service deliveries: multimedia, e-commerce or telecom services to name a few. For example, entertainment services such as Netflix and YouTube or Amazon, and web conferencing services will be adopted as in-car applications.

Source: Peruzzi Toyota

A great example of such a successful interconnection of IoT and automotive carmakers in 2019 is the incorporation of Amazon Alexa, Amazon’s intelligent cloud-based voice service, into Toyota’s brand new vehicle Avalon. According to Toyota’s press release, “Once Alexa is enabled, just ask her to do things like adjusting your smart home’s temperature so it’s comfortable when you get there, add milk to your shopping list on your way to the store, or listen to your audiobook from Audible.”

AV trends and upcoming changes

Source: PWC

According to the PwC research, the cars of the future will be electrified, autonomous, shared, connected and updated every year. Various trends continue to develop and the ones that secure their place in the industry will have to adapt to the needs and wants of drivers and passengers.

An alternative approach to digital disruption is to see AVs as the data source and an IoT enabled computing units. Similar to your smartwatch and smartphone that gather data about your daily activities, with an increased level of connectivity and sensor advancements, cars will become unique data sources for their users and companies harnessing this data for commercial personalized use.

With the upcoming changes to the urban infrastructure that will support autonomous driving, getting a hold of very specific and high volume data gathered from the car and its surroundings and analyzing it will become a goldmine for the carmakers, especially with the proliferation of “zero ownership cars”.

What’s next

In the next article, I’m going to offer an in-depth look into why auto manufacturers need digital transformation. Understanding the strategic choices for OEMs and Tier 1 companies to be successful during the information and connectivity revolution is of the essence. We’ll talk about digital technology in cars and opportunities to create unique and concealed platforms, similar to what Apple did with its AppStore and devices.

Further on, we will discuss the carmakers’ features of successful transition into the digital eco-systems, tactics to succeed, key elements to succeed and much more. We will also explore strategic alliance choices, existing third-party platform solutions and potential of their implementation into the OEMs as well as analyze their pros and cons, and give you some useful insights on how to execute such strategies and be successful on this journey towards the digital era.

Finally, in the later articles, I will showcase a number of applications with real-world use-cases and demonstrate the digital transformation in the automotive industry, i.e. how OEMs can build these apps now, using existing technologies and service offerings from leading software platforms and with the help of professional service companies.

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