From fossil energy to electricity; from ownership-based model to a shared-economy driven model; from a licensed-driver-only model to driverless vehicles. Changes are happening to the vehicle itself and to the way we use them.
Vehicle ownership trends
There are a number of trends currently impacting players in the automotive industry. From a car ownership model to an ownership-sharing or even a pure usage-based model, cost is an important factor in how this shift will eventually play out. But market innovation and disrupters from outside the industry are also playing their part in offering attractive mobility solutions as we move to a sharing economy. The signs are it is not a question of if this will happen, but when. Remaining agile to opportunities and adapting business models to take advantage of the new mobility landscape will be increasingly important.
Vehicles on request
The way vehicles are used is changing as innovative solutions for urban mobility become more and more commonplace – ride-hailing services, car-sharing, free-floating – which offer instant and on-request use of the vehicle. These new ways to use cars would not exist without vehicles adapted to modern habits of users; fortunately the car of the future will be connected.
The innovative solutions allow consumers to access to the vehicle whenever they want. Fuel cost, insurance, maintenance and parking all mean that owning a car are costly. To reduce these expenses, consumers are abandoning the traditional vehicle-ownership model and finding solutions adapted their needs. These can be more convenient than public transportation. Access to a vehicle with all costs related to its normal use are included into the service offer – purchase, registration and maintenance; insurance; fuel. It's simpler than ever and ecologically responsible; car-use is cut and the car driven usually serves to replace old vehicles.
The vehicle-on-demand model is driven by technological advance, making it simple to use and ecological; it is connected with its users and environment. The connected vehicle has an on-board computer linked to internet and offers similar services as those of smartphones or tablets. These features allow informing the driver about the traffic, location of the vehicle, places that are nearby, the location of places available and if needed, the location of electric vehicle charging station. This new type of vehicle also offers, beyond comfort, more security and predictability on the road. The driver is alerted in case of danger – obstacle detection; crossing white lines; automatic braking, GPS navigation; parking assistance; autopilot in traffic jams. With all these options currently available, constructors are working on fully autonomous vehicles able to sense the environment and drive without any human input.
Car of the future will be more ecological. To protect the environment and fight against greenhouse effect, car makers are abandoning purely fossil-fuelled cars. Hybrid vehicles, with additional electric motor whose energy is drawn from braking; electric cars which do not consume a drop of fuel, reloading themselves directly from the electricity grid. If for the moment their range is still limited, the future of this technology promises further technological advances. And there is the hydrogen vehicle – an electric car that uses hydrogen to produce motive power. All those new ways of use and the adapt the vehicle to the environment have an impact on sales and investments in the sector.
Impact on vehicle sales and investment plans
While we are seeing contradictory trends emerging such as strong global vehicle sales forecasts up until 2030, a decrease in overall car sales is expected as the vehicle share and usage-based market grows. The emergence of new opportunities, particularly in the aftermarket sector, could increase to help counteract the drop in sales. At the same time, the higher importance being placed on technological development is set to increase R&D investment budgets. The lack of reliable key performance indicators as we step into new mobility territory could hinder the investment decision process and make it increasingly difficult to strategise.
Decrease of sales? The aftermarket sector as opportunity
If the risk of decreased new car sales exists, the aftermarket will remain a significant source of profit. The digitisation and technological progress in the sector offers a wide range of opportunities. Connectivity is the vector to retain customers, who faced with increasingly sophisticated vehicles will have no choice but to come back to their constructor-distributors in case of needs. New digital maintenance tools and aftermarket services, enhancements and upgrades occur simultaneously to connected vehicles; for that reason the aftermarket will supports customers’ adhesion to the brand, offering in the same time positive sales perspectives.
The race for innovation: the growth of investment in R&D
New challenges for automotive industry are focused around research of ecological and technological solutions, protecting the environment, improving comfort and security on the road. This depends on research and innovation work, which requires investments and patents. For that reason, car makers focus their investments on R&D. Technological innovation – connectivity, driving assistance, performance, new materials – is a competitive criterion, affecting consumers' choices.
Even so, this challenge requires cooperation between sectors, not only between automotive constructors. For that reason, we recently see an alliance between largest car makers and global centres for tech and innovation, such as these from Silicon Valley. For instance the partnerships between Ford and Google or General Motors and Lyft.
Some countries have taken a more liberal position than others regulating the sharing economy, particularly in the deployment of self-drive solutions. From a regulatory point of view, there’s a balance to strike in terms of encouraging sustainable and sharing economy solutions and regulating safe use. While the automotive sector is already used to being heavily regulated, how countries deal with new mobility challenges is likely to change the regulatory environment which in turns is likely to shape now business models evolve.
Bridging the skills gap
IT and software skills are vital to mobility services, demand for such skills will increase as the market evolves. How quickly and efficiently the automotive sector can incorporate the required IT skills into a predominantly engineering- and production-led sector will be decisive. As well as demand and supply, investment in education, the ability to transfer existing skills, and recruitment from non-automotive sectors – will these all be enough to ensure that the industry meets the sheer numbers and level of skills required? However, pressure on employment costs and the push for further collaboration and partnerships to up-skill the existing and new workforce will prove challenging.
If for the moment the UK automotive industry is facing doubts related to Brexit – with households limiting big expenses such as buying new vehicles, and car makers strongly reduce their investments – the consumers’ appetite for environmentally friendly cars is growing. The main barrier here remains the lack of charging stations for electric vehicles.
In Poland, the automotive market is marked by the important presence of firms in the Tier 1 and Tier 2 supply chain, as well as several R&D centres. Foreign investors are still attracted by the Polish market despite the ecological challenges. This context is favourable for the development of new investment opportunities in sustainable mobility solutions.
In each country the expansion of sustainable mobility models in the automotive sector relies on the relation that public policy, centres of R&D and qualified workforce will maintain. The collaboration is the basis for growth of sustainable mobility.
The car industry has to deal with four main challenges: the autonomous car; the connected car; the electric car; and car-sharing.
How these will evolve in future depends on from new consumer trends and sales and investments forecasts; others factors are the influence of public authorities and the convergence between car-makers and IT firms. To meet them, the automotive industry is undergoing a real transformation, for the convenience of drivers and the greater good of the planet.
This article is based on the Mazars Global Automotive Study 2018. For the full report, please click here.