Automotive
Overview
One Minute Read
The automotive industry is in the odd position of being both in a decline for the first time in years, and yet poised on the brink of potentially extremely profitable change. The combination of environmental regulation and digital transformation will affect every part of the automotive value chain over the next ten years with a revolution into Autonomous, Connected, Electric and Shared (ACES or CASE) vehicles. In parallel consumer behaviour is fast evolving to drive digital sales in contrast to the traditional physical dealership. The industry will experience a decade of transformation that will create a mobility ecosystem.
Industry Description
Automotive is a significant global industry with turnover exceeding 7% of EU GDP, 3-3.5% of the US GDP and 10% in China. The global market is worth about $4 trillion, with $3 trillion coming from sales and $1 trillion from aftersales.
The automotive industry comprises a wide range of organizations involved in the design, development, manufacturing, marketing, selling and aftersales servicing of motor vehicles.
The industry is highly consolidated with 13 companies (known as automakers or OEMs) controlling 62 brands.
A dealership is a business that sells new or used vehicles at the retail level. The dealership can be owned by the automaker, a franchise of an automaker, or independent.
With a vehicle containing up to 30,000 part the supply chain is critical with the global automotive supplier market worth $1.7 trillion. Tier 1 suppliers are companies that supply parts or systems directly to OEMs. Increasingly they supply a complete system for the OEM reducing the complexity of the final assembly. Tier 2 suppliers are often experts in their specific domain. Tier 3 refers to the suppliers of raw materials like metals and plastic.
The automotive industry employs around 59 million workers worldwide, with only approximately 25 % of those people working directly for automakers.
Drivers
Shaped by the global megatrends and now the pandemic, the industry is being shaped by five major drivers:
Demand - Sales have been declining since 2017, and have been hit by the pandemic supply chain shock. How people buy is also changing with a shift to online and an expectation of a seamless aftersales experience.
Sustainability - Accelerated electrification will be required to meet emission reductions driven by climate change targets. Internal combustion engine sales are being banned in some countries from 2030.
Resilience - Just-in-Time production, global networks and lean inventory make the supply chain vulnerable to disruption, such as the COVID-19 pandemic. Electric vehicles will also alter the supply chain.
Innovation - The industry is shifting to connected, autonomous, shared and electric (CASE) vehicles. The investment is huge ($500 billion+) and the skills requirements are radically different (software, batteries).
Profitability - Automakers are balancing "keeping the lights on" with prioritizing growth investments. The pandemic makes it worse. Regulatory demands, and changing customer needs also increase costs.
Transformation
The industry will experience a decade of transformation that will create a mobility ecosystem.
Transformation will require a shift to the design & development of:
Autonomous, Connected & Electric vehicles,
Industry 4.0 driven flexible manufacturing,
New digital and omnichannel dealerships,
Invisible after-sale service that is frictionless and convenient,
and ultimately shifting business models to participate in Mobility as a Service offerings.
These changes will impact into the wider transportation, smart cities, energy grid, financial services and raw material ecosystems.
Digital Technology
Digital transformation will drive needs for Business Applications to help transform Core IT, evolve the digital Customer Experience, create Mobility Services & Connected Car services and develop the Software-Defined Vehicle, Data Management to enable the explosion of data from the autonomous connected electric (ACE) vehicle.
Artificial intelligence will be used to create autonomous cars, improve manufacturing productivity and improve design, Cloud computing to support innovation, flexibility and customer experience, a Digital Workplace to enable an agile workforce, and Networking & Communications to deliver a consistent and reliable experience for the connected vehicle.
Security, Compliance & Data Privacy is also critical to secure the growth of ACE vehicles, the adoption of Industry 4.0, and the advent of digital-first dealership and shared mobility services. Remote working, cloud and APIs all open up new attack surfaces and potential for security breaches. Finally, IT Governance & Management will be essential to manage the change and ensure value for money.