Racing ahead: The Connected Car 2014 study

A new era of networked mobility build around the connected car is arriving ahead of schedule.Digital technologies have turned the car into a rolling communications center that's always on.

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Racing ahead The Connected [email protected] 2014 study

Contacts

Chicago Evan Hirsh Partner +1-312-578-4725 evan.hirsh @strategyand.pwc.com Düsseldorf Dietmar Ahlemann Partner +49-211-3890-287 dietmar.ahlemann @strategyand.pwc.com

Frankfurt Richard Viereckl Senior Partner +49-211-5300-123 richard.viereckl @strategyand.pwc.com Jörg Assmann Partner +49-211-5300-195 joerg.assmann @strategyand.pwc.com

London Jens Nackmayr Partner +44-20-7393-3218 jens.nackmayr @strategyand.pwc.com Mark Couttie Principal +44-20-7393-3538 mark.couttie @strategyand.pwc.com

Paris Rich Parkin Partner +33-1-44-34-30-47 rich.parkin @strategyand.pwc.com Shanghai John Jullens Partner +86-21-2327-9800 john.jullens @strategyand.pwc.com

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About the authors

Richard Viereckl is a senior partner with Strategy& based in Frankfurt. With more than 30 years of experience consulting with leading automotive companies across the world, he specializes in the transformation of manufacturing, sales, and R&D organizations. Dietmar Ahlemann is a partner with Strategy& based in Düsseldorf. He is a member of the firm’s European IT practice and focuses on IT strategy and IT transformation in engineered products and services industries. Jörg Assmann is a partner with Strategy& based in Frankfurt. As a member of the operations team, he specializes in the automotive industry, helping companies restructure for growth through reorganization, cost reduction, and sales promotion. Stefan Bratzel is director and founder of the Center of Automotive Management (CAM). The CAM serves as a partner for car manufacturers, suppliers, and retailers concerning market research and strategic consultancy.

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The connected car arrives

A new era of networked mobility built around the connected car is arriving ahead of schedule. Digital technologies have turned today’s car into a rolling communications center that’s always on. Internal sensors keep tabs on critical engine functions, while others scan the roadway for traffic backups and safety hazards. Onboard entertainment and communications interfaces connect with the Internet via drivers’ smartphones and tablets. Autonomous driving features help with basic functions like parking, lane changing, and keeping a safe distance behind the car ahead. Seen as the stuff of science fiction not so long ago, some connected-car functions have become standard equipment on many vehicles. And they’re just early indicators of how technology will revolutionize the automobile in years to come. As we’ve noted in the past, technological advances also signal big shifts, and enormous revenue opportunities, across the automotive industry. In “Connected [email protected] 2014,” our third annual study of networked mobility trends, we found that these opportunities are growing even faster than before. Management engineers at Strategy&, PwC, and the Center of Automotive Management conducted the study, analyzing the product portfolios of the world’s leading OEMs and suppliers. The second stage of the study involved an investigation of research and development pipelines and trials to determine the current development status of connected cars. We concluded that the networked mobility market is likely to quadruple in size to more than €115 billion (US$148 billion) globally by 2020, driven not only by demand for connected-car components, but also by the rise of entirely new digital business opportunities (see Exhibit 1, next page).

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Exhibit 1 Total connected-car equipment business market potential, 2015–20
€50 B
47.34

40

35.66

30

20

13.18 12.18

10
7.49 4.93 3.01 2.13 2.12 0.02 0.06 5.22 7.13 6.67
Safety Autonomous driving Entertainment Mobility management Well-being Vehicle management Home integration

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2015
Total = €31.88 billion

2020
Total = €115.26 billion

Note: Passenger vehicles only, excluding light commercial vehicles. Source: Strategy&

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Networked mobility markets come into focus

This year’s study reveals three key trends that will shape the future of networked mobility. First, vehicle safety and autonomous driving technologies are emerging as the market segments with the greatest revenue potential. Second, automotive OEMs are creating new digital business models, but they face potential competition in this area from IT companies and other digital players from outside the industry. Third, industry executives are coming to grips with the security concerns arising from vehicle connectivity. Safety and autonomous driving Vehicle safety applications are among the most compelling aspects of digital automotive technology. New safety packages from OEMs deploy sensors that warn drivers of dangers ahead and even trigger autonomous braking and other responses to prevent accidents. Some also detect when a driver is nodding off. Other safety technologies automatically alert emergency response agencies when a car has been involved in an accident. Given the high value that consumers place on safety, it’s likely to remain the biggest market for networked mobility solutions. We expect worldwide sales of safety technologies to nearly quadruple to €47.3 billion between 2015 and 2020, with demand strongest in the United States, followed by China and Western Europe. Rapid advances in autonomous driving technology will make it the fastest-growing segment, with global sales likely to surge almost fivefoldto €35.7 billion by 2020. While fully autonomous cars are still several years away — and face significant legal hurdles — partially autonomous functions already are taking hold. For example, such technologies can take over activities like parking, navigate congested highways, and relieve drivers of the annoying brake–accelerator twostep required by stop-and-go traffic. Next-level technologies can ease highway congestion and optimize fuel consumption by regulating speeds and spacing between cars to keep traffic flowing smoothly. These features are likely to have strong appeal in markets like the
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We expect worldwide sales of safety technologies to nearly quadruple between 2015 and 2020.

U.S. and China, which have serious urban traffic congestion and extensive networks of limited-access highways. Digital business models A connected car is a font of data offering unique insights into everything from driving habits to entertainment preferences and health issues. This information has great value in a variety of business-to-consumer and business-to-business contexts. The data and associated digital technology can be used to create marketing profiles and deliver personalized advertising messages to drivers. In the business-to-business arena, insurers, fleet management companies, rental car agencies, and others will pay for data on a vehicle’s operating performance, service history, and accident record. Altogether, these digital business models are projected to generate €14 billion in revenue by 2020, up from less than €1 billion in 2015. What’s not clear is who will capture the lion’s share of these revenues — automotive OEMs, or digital players that create the devices and online services consumers prize. For OEMs, controlling data is key to securing their share of digital business opportunities. But they shouldn’t try to freeze out competition by creating proprietary onboard systems that don’t interact with external technologies. Consumers want to use their smartphones and tablets in the car, which requires open interfaces such as Bluetooth. OEMs will have to collaborate with digital players to create the seamless experiences consumers expect. This complex form of “coopetition” requires a carefully structured balancing act between OEMs and their emerging tech rivals. Security Digitally networked cars open up new avenues of cyberattack. Hackers exploiting vulnerable connection points can hijack and manipulate vehicular data streams with devastating effects. Cars themselves could become the object of attacks through smartphones and other devices connected to their open interfaces. Cybercriminals could even turn cars into mobile servers for a “bot-net” attack on multiple computer systems. Once in control of a car’s data systems, hackers could manipulate brakes, unlock doors, or surreptitiously follow the driver, to name just a few of the potentially dire consequences.
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Consumers want to use their smartphones and tablets in the car.

These perils require OEMs to make security a high priority for their connected-car R&D teams. Various solutions are available to combat the threat. Forensic analysis can pinpoint vulnerabilities and likely attack scenarios. Cross-functional R&D teams can involve IT security specialists in the product development process. Real-time monitoring of vehicle data, along with outlier analysis, can provide early warning of potential intrusions. Walling off separate data streams, such as entertainment and vehicle-specific data, can limit potential damage.

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Other findings: Growth continues across market segments
Last year’s study identified six primary market segments in networked mobility: safety, autonomous driving, entertainment, well-being, vehicle management, and mobility management. This year we add a seventh, home integration. Technology is now emerging that integrates vehicle systems with those in the home, making possible such conveniences as turning up the thermostat and turning off the burglar alarm as the car gets closer to home. Home integration is the smallest market sector, expected to reach €60 million in sales by 2020. Here’s what we expect from the other sectors not discussed above. • The popularity of entertainment systems keeps growing, with sales projected to more than double to €13.2 billion by 2020. • An aging society embraces in-car well-being technology, sending sales in this market segment up threefold to €7.1 billion by 2020. • Vehicle management system sales are likely to triple by 2020, to €6.7 billion. • Mobility management sales volumes continue to climb, with sales on track to rise 73 percent to €5.2 billion by 2020.

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Conclusion

Networked mobility, in the form of the connected car, is gaining speed and heading for important new milestones. For OEMs and other automotive industry players, the race is on for a share of this lucrative but still young market. Those who slow down may never catch up.

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