Digital trends in the automotive industry
A series of global trends are combining to herald an era of unprecedented innovation in the automotive industry.
The automobile – the preeminent consumer product of the industrial revolution – is facing what may be its greatest moment of consumer change. This change is part of a digitally enabled convergence of accelerating technological, social and industry forces that is about to trigger an explosion of innovation in global transportation.
Global trends that are reshaping the automotive industry
This ecosystem has been put into a constant state of flux by three global macro trends that are disrupting the traditional market and competitive boundaries:
Urbanization. City populations are booming. For the first time in history, more than half the world’s population live in urban areas. Currently standing at 3.7 billion, this number is predicted to swell to 66% by 2050¹ – with 90% of urban growth set to take place in the developing world². Urban consumers put a far greater premium on mobility. A recent study found that 64% of all travel made is within urban environments and that the total amount of urban kilometers traveled is expected to triple by 2050 (see Figure 1)³.
Many municipalities around the world are increasingly regulating how their citizens move through the dense urban landscapes via congestion pricing and access restrictions. This rise in municipal regulation and the focus on congestion management has significant implications for the automotive industry as a whole, and for consumers who move through these environments on a regular basis.
Shifting global population dynamics. The global population is growing, ageing and evolving. From 7 billion today, the number of people on the planet is set to hit 11 billion by 2100⁴. Between 2000 and 2050, the proportion of the world’s population over 60 years old will double from about 11% to 22%⁵. Roughly 2 billion of the world’s young people are digital natives⁶, and by 2030, an estimated 3 billion people are expected to enter the middle class, mostly in emerging markets⁷.
The demographic and geographic source of profits in the automotive industry has followed many of these trends. In 2013, people aged 55 to 64 became the age group most likely to buy a new car⁸. Brazil, Russia, India and China, which accounted for 11% of global sales in 2002, jumped to approximately 35% in 2012⁹. The traditional markets of North America, Europe and Japan will remain important, but understanding and capturing the value of emerging markets will be a prime differentiator.
Rapid expansion in global connectivity. Most dramatically, the world economy is transforming into a digital economy with a proliferation of cloud computing, big data and analytics, mobility and broadband connectivity, e-commerce, social media and the use of smart sensors and the Internet of Things. With 7.2 billion gadgets and more mobile phones than people¹⁰, the world has never been this connected. By 2020, there will be more than 28.1 billion connected devices¹¹.
The challenge for the automotive industry will be to adapt, thrive and stay relevant in this environment of flux. For example, how do you design a car so that its longer lifespan can accommodate the short life cycle of the digital technologies within it, such as field-programmable gate arrays (FPGAs) and radio frequency identification (RFID)?
Digital transformation context
When automotive was the new cutting-edge industry of the day, it too brought disruptive innovations to market such as mass production and the assembly line. While there have been huge developments in safety, build and performance in the past 100 years, there haven’t been the astonishing products or breakthroughs to match those in the technology sector.
The digital transformation of the automotive industry is, in effect, the innovative reassembly of customer and company resources, and of products and services, to grow value, revenue and efficiency via digital technologies. The speed of this transformation is governed by the advances in connectivity technology, changes in consumer behavior, the emergence of new business models, and environmental trends and regulatory practices. The impact has been seen mostly in the aftersales stage of the value chain.
However, digital is also having a significant transformational impact on R&D, procurement, assembly, marketing, parts and services. In the parts segment, 10 to 15% of all global revenue will be generated online by 2025, and for parts and service retailing, China will be the most attractive market for revenue growth in digitization¹².
This digital transformation of the automotive ecosystem has also allowed a number of nontraditional, technology-based companies to enter at various points along the automotive value chain. This presents a growing challenge to the business models of original equipment manufacturers (OEMs) and all entities along the traditional value chain.
Driving this change is the rise of digitally enabled and empowered consumers who increasingly demand that their vehicles provide the same level of digital utility and capability they have grown accustomed to in their electronic devices.
Today’s consumers expect products and services when and where they want them, 24/7. To them, transportation is not only a means to get somewhere but also an experience augmented by a boundless array of social media and entertainment services.
Meeting these demands is a particular challenge for an industry that throughout its existence has been focused on creating hardware products rather than delivering software solutions. Many travelers have experienced the frustration of looking up a destination on their mobile device – quickly and easily – only to have to do so again through an in-vehicle navigation system, in a much slower and more painful process.
Players in the industry must also respond to fundamental consumer expectations around security and data privacy. In comparison to other industries, the stakes are raised for automotive companies. Not only do they need to secure the customer’s data, but also the vehicle, while providing a safe transport experience. Moving from selling a vehicle to providing individualized smart mobility services is forcing the industry to work well outside its comfort area, and the business models and routes to market success remain contested and unclear. This is underscored by the headlined triumphs of ‘friendly’ hackers. Fiat Chrysler, for example, had to recall about 1.4 million cars and trucks in the United States after two hackers were able to take control of a Jeep via its UConnect entertainment system. Specifically, they were able to change the vehicle’s speed and control the brakes, radio, windshield wipers, transmission and other features. Likewise, General Motors (GM), had to fix a software vulnerability in its OnStar RemoteLink iOS app after a hacker built a device to allow an outsider to take over several vehicle functions¹³.
Drawing on the ecosystem and technology trends outlined in this article, we have identified three digital themes – the connected traveler, autonomous vehicles and digitizing the enterprise/ecosystem – that will underpin the digitization of the automotive industry over the next decade.
1. United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision, Highlights (ST/ESA/SER.A/352).
2. Urban Development | World Bank Institute (WBI). 2015. Urban Development | World Bank Institute (WBI). [ONLINE] Available at: https://wbi.worldbank.org/wbi/about/topics/urban. [Accessed July 3, 2015].
3. Arthur D. Little and UITP, 2014. The Future of Urban Mobility 2.0. [Online]. Available at: http://www.uitp.org/sites/default/files/members/140124%20Arthur%20D.%20Little%20%26%20UITP_
Future%20of%20Urban%20Mobility%202%200_Full%20study.pdf. [Accessed July 3, 2015].
10. http://www.independent.co.uk/life-style/gadgets-and-tech/news/there-are-officially-more-mobile-devices-than-people-in-the-world-9780518.html11. http://www.idc.com/downloads/idc_market_in_a_minute_iot_infographic.pdf
The automotive industry is one of six sectors (along with consumer, electricity, healthcare, logistics and media) that have been the focus of the World Economic Forum’s Digital Transformation of Industries (DTI) 2016 project. An overview of the DTI program can be found here.
Our in-depth findings about the digital transformation of the automotive industry are available in a white paper, which can be downloaded here.
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