The automotive industry will have to adjust very quickly to the digital age
London, September 18, 2015 – Connected mobility is becoming a central growth driver in the automotive industry. As early as next year the sales volume for the connected car segment will break through the £29 billion barrier, and will more than triple by 2021 to £89 billion. Connected-car applications will then, on average, account for 10% of all new vehicle sales in the premium segment.
Cars will be seen more as complete packages of services rather than a collection of individual parts. By 2025, annual digital sales worldwide will reach £2414 per household in the premium segment. These sales include the digital products, services and internet usage consumed on an average hour per day in a self-driving car. To exploit these market potentials car manufacturers must undergo a transformation from product-based companies to software and digital content enterprises. This represents a huge challenge and calls not only for a new understanding of the product but also new approaches to innovation, new processes and a different corporate culture. "Automotive companies will have to adjust very quickly to the digital age so that cars continue to play an important role in the digital life of consumers. Otherwise they may suffer a similar fate to the PC industry where smart services are migrating more and more to the cloud environment and applications are being used increasingly on smartphones rather than on PCs", said Alex Koster, Partner and digital expert at Strategy& and co-author of the current “Connected C@r 2015” study by Strategy&, the global strategy consulting team at PwC in cooperation with the German-based Center of Automotive Management (CAM). The study is concerned with the present and future of connected mobility in the car segment.
The enormous market potential and the numerous interfaces with mobile devices, software and internet applications are attracting digital players from outside the automotive industry such as Apple, Google and Uber. "To keep these new competitors at arm's length the German car industry will have to invest around £8 billion per year over the next few years in digitising their products and services. The unusual alliance of Audi, BMW and Daimler to acquire Nokia's digital map provider Here for £2 billion was probably just the beginning", commented Dr. Richard Viereckl, Senior Partner and automotive expert at Strategy&.
Safety applications are the main growth drivers
The lion's share of the growth potential continues to be generated by safety applications. Over the next year and across all manufacturers they will account for more than £10.97 billion and therefore 37.3% of all automotive digital sales. This proportion will rise to 40.2% by 2021, and a sales volume of almost £36.5 billion. The technological precursors to autonomous driving are already forecast to have a market volume of £6.91 billion in 2016. By 2021 this will more than quadruple to £28.98 billion. 20% of new vehicles will be fitted with this technology by 2025.
Other connected-car segments will also expand significantly in terms of sales between 2016 and 2021: entertainment will increase from £4.35 to £9.81 billion, mobility management from £3.21 to 4.1 billion, vehicle management from £2.6 to 5.19 billion and well-being from £1.42 to £5.55 billion.
German OEMs and suppliers lead the innovation rankings
German car manufacturers and suppliers are currently in a very good position on the market with enormous innovation potential. VW and Daimler lead the innovation rankings in safety-related driver assistance systems and in infotainment systems. In third place in both rankings comes Ford, and then BMW in fourth place. As far as the connected-car innovation capacity of the suppliers is concerned, Germany has two companies at the top of the international rankings with Bosch and Continental, followed by their US competitor Visteon in third place. "The German automotive industry is characterised by a high level of innovation in any international comparison and occupies excellent positions in the innovation rankings in virtually every aspect. However, the margins are coming under more and more pressure because of increasing investment in research and development, particularly in the digital sector", added Professor Stefan Bratzel from the Center of Automotive Management and co-author of the study. The industry is about to go through a period of structural change because the vehicle platforms and the mobility behavior of consumers are rapidly changing. Aggressive players such as Tesla and Uber are increasing the pressure to innovate with their far-reaching alternative concepts and new software platforms. "The future of established suppliers will be decided by whether or not they succeed in completely rethinking mobility and translating it into marketable products and services", said Alex Koster in summary.
The common tasks of IT security and data protection
Market success will be decided above all by IT risk and IT security aspects. The greater the demands in terms of autonomous driving the greater the number of IT systems involved – and therefore the risk of errors or manipulation. "Networked vehicles and the resultant new data and information streams will boost the importance of IT security and data protection enormously for the entire automotive industry. Common data protection standards must be established however. Manufacturers and the relevant associations are therefore required to agree on internationally valid concepts and principles", said Professor Stefan Bratzel.
Design of the Connected C@r study
For this study, Strategy&, the Center of Automotive Management (CAM) and PwC Autofacts analysed 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. On the basis of the resulting lists of functions, the attraction of the functions for end customers was assessed by a team of experts using the Kano model, and these findings were then used to determine the earnings potential for manufacturers.
Note: Figures were converted from Euro to Pound Sterling and rounded up on Friday 18 September, due to currency fluctuations these may not correlate to US Dollar equivalents.
Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. We are part of the PwC network of firms in 157 countries with more than 223,000 people committed to delivering quality in assurance, tax, and advisory services.
Telephone: +44 20 7393 3251