Connected vehicle market to grow threefold to £120bn by 2022

The race is on to succeed in the connected car market, as rapid technological advances and a fast-growing market continue to trigger shake-ups in the automotive industry.

  • Automotive industry shake-up favours speed over size
  • Traditional manufacturers must increase pace of innovation or risk losing their position in connected services

As the Paris Motor Show learns that manufacturers are preparing to go head-to-head with tech companies in the race for connectivity, PwC’s strategy consulting business, Strategy&, has today [6 October 2016] released its fourth annual Connected Car 2016 study.

The report predicts that the value of the worldwide connected mobility market will increase threefold from around £40bn in 2017 to £120bn in 2022 - annual growth rate of around 25%. By 2022, two in every new three cars sold worldwide will be equipped with connected car packages, Strategy& says.

Connected mobility can be broken down into three main categories: consumer services (internet- and cloud-based digital services adding to the driving experience, such as entertainment, e-commerce and navigation-related services); connected car packages (advanced functions to improve or manage the car’s operation); and supply-side technologies (underlying systems connecting the car to the wider world).

To exploit these potentials, vehicle manufacturers (Original Equipment Manufacturers, or OEMs) will need to sell 320 million connected car packages by 2022 – a massive challenge for existing sales channels, as current data suggest that by the end of 2016 OEMs will be capable of selling just 1.4 million connected car packages a month. To reach the full value potential of the technology, they will have to increase that figure almost six fold, to 8.2 million packages a month.

OEMs, suppliers and technology companies are all jockeying for connected mobility leadership. As revenues and profits shift from hardware to software, and from products to services, industry leadership is predicted to shift to new firms, increasing the pressure on the household name conventional manufacturers to accelerate innovation. The strong volume growth in the connected mobility market will squeeze prices and margins, causing OEMs’ share in profits from the overall mobility sector to fall from 70% (in 2015) to just 50% by 2030.

Rich Parkin, UK automotive partner at Strategy& commented:

“The increase in connectivity holds real opportunity and risk. While the overall connected mobility market is growing rapidly, the mix is shifting, with a decline in the navigation and entertainment systems which have been the mainstay for OEMs, coupled with and the spread of connectivity further into the more price sensitive mass market. In the short- to medium-term, suppliers of technology and mobility and digital services are the ones set to profit most from the budding connected car market.” 

By 2022, connected vehicle penetration will have reached 2/3 of new vehicles. Safety applications will still account for the biggest share of sales, with a volume of £45bn. The sales potential from autonomous driving increases from 27% and a volume of £11bn in 2017 to 35% (£42bn) in 2022. The market volume for connected services such as entertainment or integration with other connected devices grows from £16bn in 2017 to £34bn in 2022, but decreases as a share of the overall market (from 39% in 2017 to  28% in 2022). 

There will be very limited differentiation possibilities for manufacturers in the connected services market, however, and it will be important to look for opportunities to provide the technology at a favourable cost. In 2022 connected technology will account for 14% of the purchase price of a car in the premium segment (around £5,800), whereas on an average car it will be just 7% of the purchase price (around £1,400). 

These trends are customer driven: in China, a major growth market, the report found that 85% of customers would prefer a vehicle with better-connected technology, even if the purchase price were 10% higher. Moreover, customers are prepared to spend 10 to 15% of the list price in digital services when buying a car.

Rich Parkin concluded:

“Despite major manufacturers increasing their development budgets by 8% compared to the previous year and realigning their focus, they are still often being overtaken by newcomers. To capitalise on the opportunity, traditional carmakers will need to not only take advantage of the latest technologies, but also significantly accelerate their rate of innovation. This will often mean altering their culture, management styles, approach to mergers and acquisitions, and recruitment to keep pace with the smaller and more nimble contenders.” 

Notes for editors.

1.    Strategy&’s report was compiled based on extensive market research, interviewing industry experts and engaging with manufacturers, suppliers and technology companies from across the world.