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Evolution of Automotive Ecosystem

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Decreasing sales, environmental regulations and increasing demand for more efficiency and new features are challenges every other manufacturer is looking to overcome. These challenges may decide the future of the automobile industry. If powerful engines, composite material, and lighter weight engineering were the trends at the start of 20th century, going forward, what may disrupt the industry is electrification, connected cars, diverse mobility and autonomous driving. These changes are not only important from the perspective of the automobile industry, but will potentially impact multiple other industries, such as insurance, high-tech, and telecommunication, connected with these solutions.

Electrification

The electric vehicle market is forecasted to grow at a CAGR of 23% through 2021, according to market research firm Technavio. There are multiple factors that may push for electrification, such as a drop in the price of battery prices (prices may fall by 70% by 2030(1)), government support in the form of tax breaks, incentives and benefits, and most importantly lower maintenance costs. What could further support this change are government initiatives to build and maintain electric charging stations in major cities as well as on connecting routes.

Connected Cars (Vehicle-to-Vehicle Communication)

Vehicle-to-vehicle communication is one of the critical new changes that may have a huge impact on passenger safety. With vehicles communicating with each other to share details such as speed, the direction of travel, and traffic conditions over a dedicated network, the speed and response period of every vehicle on the same road could be synchronized to the vehicle in front, thereby reducing the probability of a collision. According to WHO, auto accidents cost most countries almost 3%(2) of their gross domestic product (GDP). According to the U.S. Department of Transportation, deploying vehicle-to-vehicle communication can reduce 80% of the accidents that occur on roads in the U.S.

Diverse Mobility

Consumers today use their all-purpose vehicles for a wide range of tasks, but in the future, they may demand individual solutions for specific purposes, on demand, probably via their smartphones. There are already trends that point toward this change, such as a 30%(3) increase in car-sharing members in North America and Germany over the last five years. According to McKinsey, one in ten cars sold globally in 2030 will potentially be a shared vehicle, which could also mean more than 30% of miles driven in a new vehicle could be from shared mobility.

Autonomous Driving

With commuters spending an average of 42 hours every week in traffic in places like North America, there is a huge demand for autonomous driving, which could help drivers refocus and invest their time in more productive activities. The time spent in traffic increases to 104 hours per week in Los Angeles, the highest in the world, followed by Moscow where a commuter may spend 91.4 hours per week during peak time, according to the INRIX Global traffic scorecard.

The beneficiaries. 

OEMs would now be looking at plethora of information getting generated from individual equipment to not only improve the product, but also to create a new set of complementing products and services, such as networked parking service, vehicle usage monitoring and scoring (a service already available in many markets), predictive maintenance, over-the-air software updates and add-ons that could become alternate sources of recurring income for the OEMs.

Dealers may move away from sales of vehicles to a fleet management model, managing only the service part of the business, resulting in highly consolidated market players with huge fleets.

The transportation sector will be able to optimize its operational expense with autonomous driving opportunities for faster expansion and cost-cutting.

IT companies and semiconductor manufacturers may become the largest suppliers for OEMs moving forward. With digitization and the electrification of the automobile, the major components that would come into play are the electrical hardware that will run the vehicle, the semiconductors that will be the brain for operations, and the software that will drive the logic on how the vehicle will operate. Companies that are able to integrate these into a single package (auto vision, artificial intelligence, IOT, etc.) may develop more of an edge over other companies.

What is in it for others?

Nearly 1.3 million people die globally due to car accidents. In the U.S. alone, for every death, there are 100 treated in emergency rooms, with an annual cost of USD 33 billion (4) in 2012. Autonomous driving could help reduce health care costs and change the car insurance industry completely. The telecom sector would benefit from the increase in traffic on their networks because of vehicle-to-vehicle communication but may have to upgrade its infrastructure to support higher speeds and lower latency. Electric utility companies may be one of the biggest beneficiaries of electrification; according to the 2017 report by Bloomberg New Energy Finance (BNEF), electric vehicles could account for nearly 54% of new car sales by 2040, which could mean a requirement of more than 1900 TWh of electricity every day — equivalent to 8% of global electricity demand in 2015.

 

Evolution of Automotive Ecosystem

 

(1)       Electric Vehicle Outlook 2017 by Bloomberg New Energy Finance (BNEF)

(2)       http://www.who.int/mediacentre/factsheets/fs358/en/

(3)       https://www.automotiveworld.com/analysis/eight-disruptive-trends-shaping-auto-industry-2030/

(4)       CDC 2014: Motor Vehicle Crash Injuries -Costly but Preventable

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