Fast and Furious

Fast and Furious: Why making money in the roboconomy is getting harder

OEMs, suppliers, and dealers will see their share of industry profits cut to just half, from a current 85% share, by 2030 as the digital auto revolution creates intense competition and squeezes margins. Chief executives will have to make tough choices between becoming “thin specialists” or going broad in the mobility market.

The 2017 Strategy& Digital Auto Report: Insights for an industry in turmoil

2017 has confirmed that technology drives a sustained shift in automotive: autonomous/electric/connected and mobility services as #1 priority

Yes, mobility is a $2.2 trillion opportunity, but it will halve today’s players’ share of profits

  • Yes, the future of mobility is a US$2.2 trillion opportunity — but ...
  • The digital auto revolution toward a shared/autonomous scenario is sparking intense competition, a margin squeeze, and high capital expenditure
  • Competition, technology, and scale will drive down the average cost-per-kilometer for using shared transport to <50% of today’s levels
  • That will reduce by 10% the amount that consumers spend on mobility by 2030
  • In the growing shared/autonomous/fleet-based segment of the market, OEMs, suppliers, and dealers in the U.S. and E.U. will see their share of industry profits cut in half from 85% in today’s owner/driver/retail model
  • Automotive markets in the U.S. and E.U. will contract as a result, forcing consolidation of OEMs and suppliers
  • All this will be propelled by unstoppable trends
  • By 2030, up to 37% of kilometers traveled will be done by shared and autonomous (and sometimes pooled) vehicles
  • Households buying premium vehicles in mature transport markets will spend ~$3,800 per annum on shared mobility
  • The full shared mobility market — shared fleets, vehicle pooling — will be worth about the same as today’s global e-commerce market
  • In 2030, shared mobility will be hypercompetitive and regional/local, involving OEMs, digital tech firms, city councils, utilities, transport authorities, logistics, and e-commerce fleets

Playing in this space requires a reconfiguration of OEMs’ strategies

  • OEMs need to fix their strategies and align with shareholders
  • Shared mobility is barely profitable today, and full autonomy will come by 2027 at the earliest
  • Large amounts of high-risk capital are required to fund growth of autonomous fleets and customer acquisition
  • OEM boards need to choose between:
  • (1) leaving the field to emerging “carriers” — fleet operators, mobility platform players — and becoming “thin specialists/design shops” and
  • (2) making a big commitment to penetrating the mobility market, finding new investors, and running a new diversification strategy
  • Whichever is chosen, OEMs will face a talent squeeze as software and Internet firms expand research and development by 15% year-on-year

01 Autonomous & electric & connected: By when?

Electric to grow strongly beginning in 2025, autonomous level 4/5 to become mainstream after 2028, niches such as robotaxis to proliferate sooner

We forecast a population of ~470 million connected cars in the U.S., the E.U., and China by 2025, and ~80 million level 4/5 autonomous cars by 2030

Deep-dive autonomous driving: Mainstream ramp-up of level 5 autonomous driving is expected no earlier than 2027–28

L5 autonomous driving will be difficult to achieve with current tech, confirming need for infrastructure and significant tech innovation

Deep-dive electrification: Between 2025 and 2030, the cost of battery electric vehicles will fall below the cost of combustion engines

02 Scale and impact of mobility … and growth of the roboconomy

Mobility choices for consumers continue to expand and multiply fast

In the future, key areas of mobility services (fleet, operations, regulation, infrastructure) will be local; global plays are unlikely to remain

Consequently, we expect a complex local competitive setup in each city, eventually converging in the autonomous future and driving down margins

Shared autonomous will account for 25–37% of total person km driven in 2030; personally owned autonomous highest in Europe

Hence, the vehicle base may decline by 25% in the E.U./U.S. and flatten out in China until 2030; new car sales will accelerate to create robotaxi fleets

The value of shared mobility (“MaaS”) will reach ~US$1,500 billion in the U.S./E.U./China in 2030, growing at combined 24% p.a. from 2017 to 2030

Some OEMs may choose a broad diversification into mobility, while others may choose to refocus toward “thin specialist/design shop”

Key question: Should OEMs go asset heavy or asset light in mobility?

03 Industry profits reshaped by the roboconomy

The roboconomy creates opportunity on three levels to earn money for OEMs by addressing major categories of typical household spend

Cross-modal mobility services/MaaS represents the single biggest opportunity for auto OEMs — both top and bottom lines

The resulting digital mobility services sector is a $2.2 trillion industry in 2030 — dwarfing today’s smartphone market, matching e-commerce market

In a pure shared autonomous mobility scenario, households spend 20% less on mobility and profits shift drastically toward front-end and fleet players

The long-term control point in digital services will be AI-powered hubs connecting customers with personalized services

04 Imperatives for the OEM — organizing for success in services

OEMs need to provide tightly coupled hardware and services to fulfill customer expectations and play successfully in the roboconomy

Digital services will involve the buildup of hundreds and thousands of partners globally, including physical journeys and money flows

Therefore, digital services are a radical departure from designing and selling cars — leading to tensions in OEMs planning to do both

The implied change for OEMs requires (1) a different way of doing R&D, (2) the buildup of a services business, (3) external innovation, and (4) talent

Example R&D: Continue to outspend most other industries globally

This model is challenged: There will be a run on critical skills as software and Internet industries heavily increase R&D investments

Digital companies organize R&D quite differently — faster, cheaper

Rather than doing only R&D, scaling up new businesses becomes key

05 Outlook: Flying cars and tunnels on the horizon

The future may yet be very different as mobility takes new forms