Car manufacturers — From assemblers to service providers?
We wake up and take a look at the smartphone. A total of 214 times a day we reach for it. It’s now also integrated into many modern cars. Connected car services are already used by 13% of consumers.
Digitalization is becoming increasingly important in the automotive industry. Smartphone connectivity, smart home integration and Vehicle-to-Vehicle communication are important aspects for customer satisfaction. In addition to these the focus is increasingly shifting towards new products and services. Four major trends can be observed here: Autonomous driving, shared mobility, connectivity and electrification. They all require a certain range of software in and around the vehicle.
Four out of five people are willing to pay for these services, especially for services related to safety, navigation and maintenance. The most likely payment is a one-off payment directly when buying a car. To Germans these services are worth €400 for the first three years of use.
Autonomy — a great driving force
With new developments and the trend towards autonomous driving, information and entertainment offerings in the car are playing an increasingly important role in the driving experience, because the driver is no longer a driver, but merely a traveller who can arrange his time in the car as he likes and no longer has to deal with the driving task. The Driving Experience becomes a User Experience and consequently offers completely new technological interaction and entertainment possibilities. By 2020 this branch of the connected car market will represent more than ten percent of the market volume.
In addition, assistance systems, which are based on sensors, camera and radar systems as well as software, form the basis for autonomous vehicles and are therefore increasingly being used in the industry. An optimal software infrastructure is also indispensable for Vehicle-to-Vehicle and Vehicle-to-X communication.
There is great interest in automated means of transport in society
And there is also the willingness to pay for piloted driving: 81% would also put more on the table for a self-propelled vehicle. The potential of the autonomy industry is estimated at up to $2.2 trillion by 2030, equivalent to current global E-Commerce sales.
Mobility as a Service instead of owning a car
The use of autonomous vehicles would also drive the Mobility as a Service sector forward. In particular the younger generation has an untapped sales potential. The importance of owning a car is already declining among younger city dwellers: only 36% regard it as important compared to more than 70% for Germany as a whole. The forecast is that when self-propelled taxis are introduced, almost half of the urban population under the age of 25 would forego a private car. These sharing and on-demand services naturally require the corresponding backend, which must be maintained. The new, seamless mobility solutions will be the main drivers of sales and profits in 2035, putting classic car sales in the shade.
Data as a winning opportunity
Connected car services and telematics systems collect a great deal of data about users and cars, most of which are completely worthless for travelers, but even more valuable for companies.
OEMs have the opportunity to use the gained data to establish a better customer relationship and to enable personalized services such as individualized entertainment offers or predictive maintenance. Although Germans are generally reluctant to let personal data be collected by manufacturers, customers change their opinion, if services or benefits are offered in return. Nevertheless, data security and transparency are an important aspect, which must be considered in the sense of the customers.
Experts assume that the sale of software as additional equipment will become the most important revenue driver in the connectivity area and data sales will also become a central aspect in revenue generation.
What exactly do the customers want?
Services in connection with security are particularly in demand, the automatic emergency call with localization after an accident is regarded as indispensable by around 40%. 45% of customers want to be able to buy additional in-car apps and services online. Services that can be ordered on-demand for a certain period of time are desired by 19%. In emerging markets, the values here are basically even higher.
Another aspect that is particularly important to consumers is cyber security, which would influence the purchasing decision of the majority. It therefore represents a basic service for the OEMs, which must be guaranteed.
Change is already here
The manufacturers are all gradually building connected car platforms such as Mercedes me or Audi Connect. Cloud platforms are helpful for connected services and fundamental for the V2X communication that will be required in the future. Car manufacturers are entering into partnerships with IT companies such as BMW with IBM or VW and Renault with Microsoft. The new sub-brand Lynk & Co of the Chinese Volvo sister Geely embodies the perfect connectivity with their new cars, which are fully networked with the cloud via their own SIM card. Everything is to be managed by an app and the data usage costs are to be directly included in the purchase price, so that there will be no further expenses for the customer.
The other manufacturers are also adapting to changes in mobility behaviour and expanding their product range. Sharing services, taxi brokerage, parking reservation and charging station brokerage are now part of the company’s portfolio through DriveNow, ParkNow and ChargeNow at BMW or Car2Go and myTaxi at Daimler. VW also wants to enter the sharing market with We from 2019. In the area of self-propelled means of transport, things are also progressing more and more. Most OEMs already have assistance systems that meet autonomy level 2. Tesla meets level 2 at an even higher standard and is therefore capable of independently performing steering and braking tasks at the same time in multiple conditions. In addition, there are several prototypes which already comply with level 5, such as SEDRIC from VW, i.e. completely without a driver.
Traditional manufacturers and IT companies face direct competition
As vehicles become more and more digitally networked, new competitors are entering the OEM market. Google, Apple, Baidu, and other IT and software companies are mixing up the industry. Google and Apple have already developed Android Auto and Apple CarPlay, which connect smartphone apps such as the Spotify music platform to the car’s infotainment system. Specialized assistance system companies, such as Mobileye, are also present. The IT competitors have a lead over the manufacturers due to their knowledge advantage and already renowned platforms and services. Since customers would like to have their personal smartphone apps integrated into their cars and do not want to take advantage of new services, carmakers can save themselves the development effort of this type of entertainment app.
As a result, open systems are likely to perform best. The automotive brands are already cooperating with the technology companies to cope with the market change. Oliver Wyman predicts that much of the new revenue will be lost, among others, to Google, Uber and Baidu by 2035, if vehicle manufacturers hesitate and do not move quickly to digital and intermodal mobility concepts. According to Capgemini, more than half of customers would buy a car from a technology company and even switch from their current brand if they had the opportunity. The supremacy of the car companies is thus threatened if they do not act fast enough.
Connectivity is now an expected feature, if it is not met there is a risk that customers will turn to other brands
The number of consumers, who would switch brands for better connected services doubled to 37% last year. Because with the classic quality criteria, such as engine and processing materials, it is becoming increasingly difficult to gain a clear competitive advantage. Marcel Springer, automotive expert at Oliver Wyman, says: “Often the vehicle will no longer be the focus of the business model, but merely seen as a means to an end. In the long run, the focus will be on covering the entire volume of E-Commerce and M-Commerce business during the car journey.” Expenses on software solutions will rise to 82 billion US dollars by 2020 and 80% of the top ten automakers want to make fully autonomous technologies possible by 2025. Experts agree: the core task will no longer be the hardware of the cars, but the software-related functions.
Sources: Deloitte, mm customer strategy, Berylls Strategy Advisors, strategy&, PwC, Center of Automotive Management (CAM), Capgemini, McKinsey & Company, Deutsche Bank Research, Kienbaum, Aral AG, Frost & Sullivan
