10/05/16
Connected mobility sales will grow to US$156 billion by 2022, with shake-ups in the auto industry favoring fast movers over major players

Mobility and technology service providers and suppliers are significantly expanding their share while OEMs and suppliers lack the necessary agility to keep up / Connected services will become standard but at the expense of falling margins

Innovation in the networking and digitization of the car is triggering shake-ups in the automotive industry and reveals rapidly-growing market potential, according to the 2016 Global Connected Car Study from Strategy&, PwC’s strategy consulting business.

  • The sales volume in connected mobility is set to increase worldwide from $ 52.5bn in 2017 to $ 155.9bn in 2022 (24.3% AGR), almost a threefold increase within five years.
  • However, up to 80% of these revenues relate to maintaining the basic purchase price of the vehicle.
  • To exploit this potential, OEMs will need to sell 320 million connected car packages by 2022 – a massive challenge in existing sales channels.
  • Auto manufacturer (OEM) share in industry profits will drop from 70% to 50% by 2030 as more value will be captured by new entrants, technology providers and digital platforms.

“Connected mobility is becoming more available, more flexible and cheaper thanks to new offerings, like autonomously-driving robo-taxis,” explains Dr. Richard Viereckl, Senior Vice President at Strategy& and co-author of the study.

In addition to the price pressure this generates, OEMs must shoulder increasing development and production costs for the high-tech cars of the future, particularly in areas like connectivity, automation, electrification and mobility. At the same time, potential revenues are shifting to new mobility and technology service providers and suppliers.

“Manufacturers’ profit margins will shrink from the changes that connected mobility presents,” says Dr. Viereckl. “In the short- and medium-term, technology suppliers are set to profit most from the fast-growing volume figures for connected cars.”

While connected mobility still plays out largely in the premium auto segment, over the next five years it is set to experience seismic growth in the mass market. Key growth data shows:

  • The global share in connected services sales for the mass market is set to grow from 35.4% ($ 18.7bn) in 2017 to 50.1% ($ 78.1bn) in 2022, putting it on an equal footing with the premium segment.
  • By 2022 two in every three cars world-wide will be equipped with connected car packages.
  • In 2022 connected technology will account for 14% of the purchase price of a car in the premium segment (around $ 7,500), whereas on an average car it will be just 7% of the purchase price, only around $ 1,800.

The study indicates this strong volume growth will go hand-in-hand with an intensive drop in prices and margins and present OEMs and suppliers with major challenges at a strategic level. Manufacturers will only be able to differentiate themselves to a very limited extent via connected services.

Alex Koster, Vice President, co-author and auto-digital expert at Strategy& says, “Major manufacturers have already bumped up their development budgets by 8% as compared to the previous year, and in some cases have realigned the focus. In spite of this, they are being overtaken by newcomers. Manufacturers will need to succeed in marketing connectivity features and packages at a high price via simple pricing, before these come to be expected by the customer as standard equipment or be cheap to obtain in the aftermarket as a plug & play solution.”

There is definite interest from end-customers:

  • In China, a major growth market, 85% of customers would prefer a vehicle with better-connected technology, even if the purchase price were 10% higher. Moreover, customers are prepared to invest 10 to 15% of the list price in digital services when buying a car.
  • By 2022, connected vehicles will have penetrated the market extensively. Safety applications will still account for the biggest share in sales even in 2022, with a volume of $ 58.2bn (37%; 2017 = € 17.6bn, 33%).
  • The sales potential from autonomous driving increases from 27% and a volume of $ 14.3bn in 2017 to 35% ($ 54.9bn) in 2022.
  • The market volume for connected services such as entertainment or integration with other connected end-devices grows from $ 20.7bn in 2017 to $ 42.8bn in 2022, but in terms of overall share its importance decreases (39% in 2017 vs. 27% in 2022). Forty percent of the market volume will be installed as basic equipment in new cars, but the bigger share will continue to be sold even in 2022 as expensive and high-margin optional extras.

The report also looks at the impact of the radical shift from product and hardware- to software and service-oriented business models on OEMs and traditional suppliers. It discusses how the availability of precise data about driving behaviour presents market participants with unimagined opportunities for offering optional services and customized mobility services.

“Particularly for traditional manufacturers, it is vital to understand that connected mobility is not a pure product, but a technology eco-system which fundamentally changes their business model,” says Alex Koster. “OEMs need to reflect urgently on whether they are aiming to be competitive with their own solutions, or whether to rely on platform-based solutions with third-party providers.”

To learn more about the 2016 Global Connected Car Study, visit www.strategyand.pwc.com/reports/connected-car-2016-study.


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