The 2020 Strategy& Digital Auto Report Series

Navigating through a post-pandemic world

Post pandemic market dynamics

The ninth annual global Digital Auto Report offers a quantitative market outlook to 2035 based on detailed survey research and interviews with a number of industry executives at OEMs and suppliers, leading academics and industry analysts. The survey has a consumer focus covering the US, EU and Asia, and the findings will be published as a series.

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Regulatory changes, changing expectations and smart mobility (volume 1)

With adjusted technology expectations and changing post-pandemic customer preferences, CASE evolves. Data shows that consumers do not expect fully automated cars before early 2030s and shared mobility growth is slowing down.
The total vehicle parc is expected to shrink in Europe while growing in the US and China by 2035, driven by regional differences in: 1) mobility demand growth; 2) customer preferences of shared mobility; and 3) vehicle disposal rate.
Due to regulatory requirements in the EU and US, basic connectivity is now incorporated in over 85% of new cars sold in these regions this year, while China is still at 44%.
In electric mobility, the EU and China are leading the transformation, with battery electric vehicles (BEVs) expected to account for 17% and 19% of new vehicle sales by 2025. The US will have a lower penetration of 5% by 2025 due to lower government support.
Shifts in individual mobility patterns require a new segmentation approach along private-versus-shared and active-versus-passive driving – each with multiple use cases at different levels of automation.
Given the increasing proliferation of use cases and business models, many players will have to reevaluate their CASE strategies with a fact-based view on available technology, value pool sizes and unit economics, as well as investment requirements and their right-to-win.

Capturing CASE value opportunities requires refocused investment strategy aligned with player’s core capabilities (volume 2)

The expected market potential of CASE use cases vary among +60 industry experts in Europe, the US and China:
- Connected: Behind first peak with most value expected in B2B applications
- Electric: While BEV use cases approaching plateau stage, fuel cell not yet at peak
- Automated: Higher value expectations in Level-4 goods transport than in private passenger transport
- Smart mobility: Micro-mobility with high value expectation – on par with ride hailing; view on air taxis not yet converging
A large number of well funded startups is trying to capture this market potential putting traditional automotive players under pressure in connected, electric and automated driving
For OEMs and suppliers, specific vehicle-centric business models are most promising despite strong competition
Looking at smart mobility, the line between traditional car sales / leasing and alternative ownership with rental / subscription / sharing / hailing / on-demand continues to blur. Cost per kilometer ranges between $0,7 (subscription) and $2 (ride hailing) vs. $0,6 (own car)
The market for alternative ownership models is expected to grow from $276bn to $1.084bn in Europe, USA and China by 2035 – led by Europe with $549bn vs. China $362bn given higher consumer prices in mobility and value captured per km in EU
The pandemic has widened the investment gap between OEMs and VCs and technology players. CASE investments of Top 10 OEMs went from 47 to 16 transactions in Q1/2 ’20 vs. previous year, while VC invest grew from 36 to 66 transactions and Top 10 Tech players remained flat

Building a software-enabled automotive company (volume 3)

Software has become the differentiating factor for modern vehicles with almost doubling development costs – growing on average from €181m to €331m per model series over the next 10 years
Autonomous driving functions will be the main cost driver with 45% of total software development cost by 2030
A growing spectrum of software components and functions prevents innovation leadership and pushes OEMs as well as suppliers to carefully select areas of own value creation
Partnerships with competitors, suppliers and technology players on an equal footing can help to master complexity, the need for talent and to reduce expenditure by 35-60% per project
Transformation of mindset from strategy to decision making is needed across the company to adapt to the new paradigm and to build successful software-enabled products