McKinsey Dec 2016
Shared previously on LinkedIn:
“Technology-driven trends will revolutionize how industry players respond to changing consumer behavior, develop partnerships, and drive transformational change.”
You will note that some of the strategic issues raised, are similar to issues being faced by manufacturers of other complex products.The ability to recognize and effectively respond to these issues will be of increasing concern and value.
Today’s economies are dramatically changing, triggered by development in emerging markets, the accelerated rise of new technologies, sustainability policies, and changing consumer preferences around ownership. Digitization, increasing automation, and new business models have revolutionized other industries, and automotive will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity.
Most industry players and experts agree that the four trends will reinforce and accelerate one another, and that the automotive industry is ripe for disruption. Given the widespread understanding that game-changing disruption is already on the horizon, there is still no integrated perspective on how the industry will look in 10 to 15 years as a result of these trends. To that end, our eight key perspectives on the “2030 automotive revolution” are aimed at providing scenarios concerning what kind of changes are coming and how they will affect traditional vehicle manufacturers and suppliers, potential new players, regulators, consumers, markets, and the automotive value chain.
This study aims to make the imminent changes more tangible. The forecasts should thus be interpreted as a projection of the most probable assumptions across all four trends, based on our current understanding. They are certainly not deterministic in nature but should help industry players better prepare for the uncertainty by discussing potential future states.
1. Driven by shared mobility, connectivity services, and feature upgrades, new business models could expand automotive revenue pools by about 30 percent, adding up to $1.5 trillion.
The automotive revenue pool will significantly increase and diversify toward on-demand mobility services and data-driven services. This could create up to $1.5 trillion—or 30 percent more—in additional revenue potential in 2030, compared with about $5.2 trillion from traditional car sales and aftermarket products/services, up by 50 percent from about $3.5 trillion in 2015 (Exhibit 1).
Connectivity, and later autonomous technology, will increasingly allow the car to become a platform for drivers and passengers to use their time in transit to consume novel forms of media and services or dedicate the freed-up time to other personal activities. The increasing speed of innovation, especially in software-based systems, will require cars to be upgradable. As shared mobility solutions with shorter life cycles will become more common, consumers will be constantly aware of technological advances, which will further increase demand for upgradability in privately used cars as well.
2. Despite a shift toward shared mobility, vehicle unit sales will continue to grow, but likely at a lower rate of about 2 percent per year.
Overall global car sales will continue to grow, but the annual growth rate is expected to drop from the 3.6 percent over the last five years to around 2 percent by 2030. This drop will be largely driven by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing.
A detailed analysis suggests that dense areas with a large, established vehicle base are fertile ground for these new mobility services, and many cities and suburbs of Europe and North America fit this profile. New mobility services may result in a decline of private-vehicle sales, but this decline is likely to be offset by increased sales in shared vehicles that need to be replaced more often due to higher utilization and related wear and tear.
The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class. With established markets slowing in growth, however, growth will continue to rely on emerging economies, particularly China, while product-mix differences will explain different development of revenues.
3. Consumer mobility behavior is changing, leading to up to one out of ten cars sold in 2030 potentially being a shared vehicle and the subsequent rise of a market for fit-for-purpose mobility solutions.
Changing consumer preferences, tightening regulation, and technological breakthroughs add up to a fundamental shift in individual mobility behavior. Individuals increasingly use multiple modes of transportation to complete their journey; goods and services are delivered to rather than fetched by consumers. As a result, the traditional business model of car sales will be complemented by a range of diverse, on-demand mobility solutions, especially in dense urban environments that proactively discourage private-car use.
Consumers today use their cars as all-purpose vehicles, whether they are commuting alone to work or taking the whole family to the beach. In the future, they may want the flexibility to choose the best solution for a specific purpose, on demand and via their smartphones. We already see early signs that the importance of private-car ownership is declining: in the United States, for example, the share of young people (16 to 24 years) who hold a driver’s license dropped from 76 percent in 2000 to 71 percent in 2013, while there has been over 30 percent annual growth in car-sharing members in North America and Germany over the last five years.
Consumers’ new habit of using tailored solutions for each purpose will lead to new segments of specialized vehicles designed for very specific needs. For example, the market for a car specifically built for e-hailing services—that is, a car designed for high utilization, robustness, additional mileage, and passenger comfort—would already be millions of units today, and this is just the beginning.
As a result of this shift to diverse mobility solutions, up to one out of ten new cars sold in 2030 may likely be a shared vehicle, which could reduce sales of private-use vehicles. This would mean that more than 30 percent of miles driven in new cars sold could be from shared mobility. On this trajectory, one out of three new cars sold could potentially be a shared vehicle as soon as 2050.
4. City type will replace country or region as the most relevant segmentation dimension that determines mobility behavior and, thus, the speed and scope of the automotive revolution.
Understanding where future business opportunities lie requires a more granular view of mobility markets than ever before. Specifically, it is necessary to segment these markets by city types based primarily on their population density, economic development, and prosperity. Across those segments, consumer preferences, policy and regulation, and the availability and price of new business models will strongly diverge. In megacities such as London, for example, car ownership is already becoming a burden for many, due to congestion fees, a lack of parking, traffic jams, et cetera. By contrast, in rural areas such as the state of Iowa in the United States, private-car usage will remain the preferred means of transport by far.
The type of city will thus become the key indicator for mobility behavior, replacing the traditional regional perspective on the mobility market. By 2030, the car market in New York will likely have much more in common with the market in Shanghai than with that of Kansas.
5. Once technological and regulatory issues have been resolved, up to 15 percent of new cars sold in 2030 could be fully autonomous.
Fully autonomous vehicles are unlikely to be commercially available before 2020. Meanwhile, advanced driver-assistance systems (ADAS) will play a crucial role in preparing regulators, consumers, and corporations for the medium-term reality of cars taking over control from drivers.
The market introduction of ADAS has shown that the primary challenges impeding faster market penetration are pricing, consumer understanding, and safety/security issues. Regarding technological readiness, tech players and start-ups will likely also play an important role in the development of autonomous vehicles. Regulation and consumer acceptance may represent additional hurdles for autonomous vehicles. However, once these challenges are addressed, autonomous vehicles will offer tremendous value for consumers (for example, the ability to work while commuting, or the convenience of using social media or watching movies while traveling).
A progressive scenario would see fully autonomous cars accounting for up to 15 percent of passenger vehicles sold worldwide in 2030 (Exhibit 2).
6. Electrified vehicles are becoming viable and competitive; however, the speed of their adoption will vary strongly at the local level.
Stricter emission regulations, lower battery costs, more widely available charging infrastructure, and increasing consumer acceptance will create new and strong momentum for penetration of electrified vehicles (hybrid, plug-in, battery electric, and fuel cell) in the coming years. The speed of adoption will be determined by the interaction of consumer pull (partially driven by total cost of ownership) and regulatory push, which will vary strongly at the regional and local level.
In 2030, the share of electrified vehicles could range from 10 percent to 50 percent of new-vehicle sales. Adoption rates will be highest in developed dense cities with strict emission regulations and consumer incentives (tax breaks, special parking and driving privileges, discounted electricity pricing, et cetera). Sales penetration will be slower in small towns and rural areas with lower levels of charging infrastructure and higher dependency on driving range.
Through continuous improvements in battery technology and cost, those local differences will become less pronounced, and electrified vehicles are expected to gain more and more market share from conventional vehicles. With battery costs potentially decreasing to $150 to $200 per kilowatt-hour over the next decade, electrified vehicles will achieve cost competitiveness with conventional vehicles, creating the most significant catalyst for market penetration. At the same time, it is important to note that electrified vehicles include a large portion of hybrid electrics, which means that even beyond 2030, the internal-combustion engine will remain very relevant.
7. Within a more complex and diversified mobility-industry landscape, incumbent players will be forced to compete simultaneously on multiple fronts and cooperate with competitors.
While other industries, such as telecommunications or mobile phones/handsets, have already been disrupted, the automotive industry has seen very little change and consolidation so far. For example, only two new players have appeared on the list of the top-15 automotive original-equipment manufacturers (OEMs) in the last 15 years, compared with ten new players in the handset industry.
A paradigm shift to mobility as a service, along with new entrants, will inevitably force traditional car manufacturers to compete on multiple fronts. Mobility providers (Uber, for example), tech giants (such as Apple, Google), and specialty OEMs (Tesla, for instance) increase the complexity of the competitive landscape. Traditional automotive players that are under continuous pressure to reduce costs, improve fuel efficiency, reduce emissions, and become more capital-efficient will feel the squeeze, likely leading to shifting market positions in the evolving automotive and mobility industries, potentially leading to consolidation or new forms of partnerships among incumbent players.
In another game-changing development, software competence is increasingly becoming one of the most important differentiating factors for the industry, for various domain areas, including ADAS/active safety, connectivity, and infotainment. Further on, as cars are increasingly integrated into the connected world, automakers will have no choice but to participate in the new mobility ecosystems that emerge as a result of technological and consumer trends.
Automotive & Assembly