Auto makers at the crossroads
Auto makers have been plunged into a period of rapid technological change and major business model disruption. They therefore need to break into new areas that will enable them to reclaim their leadership, lest they become the losers of the new mobility ecosystem.
While it is admittedly too early to say who the winners and losers in the mobility field will be, it is already beyond doubt that players will be competing in the area of data management.
Manufacturers and equipment suppliers are now focusing all their efforts on data collection and attempting to retain ownership of automobile data.
To be able to provide mobility solutions, players must move into various new areas of expertise spanning connected, driverless, shared and electric vehicles.
Manufacturers are initially focused on equipping connected vehicles with sensors, with an average budget of €500-€1,000 per unit; however, one of the trickiest points will be completely re-engineering vehicles’ electrical architecture and operating systems. And this is an area in which technology players appear to have no difficulty being more competitive than auto makers.
The result of these far-reaching structural supply-side changes is that vehicle fleets in service account for a growing proportion of the market, and subscribers’ experience is gradually becoming the critical success factor in the mobility industry, along with large-scale data collection and network connection.
At the same time, the sector’s transformation is also being driven by marketing, prompting auto makers to rebrand as mobility players and step up their efforts to upgrade the user experience, with many of their former partners having become their competitors. Rental companies, leasing companies and suppliers of “cars as a service” are all now operating in the same market with sharing, leasing and financing products.
The key drivers of the automotive sector are no longer simply sales volumes (i.e. new registrations) and a multiplier that takes into account the average purchase price, but rather an addressable market of millions of kilometres, with the multiplier becoming the delivery cost per kilometre.
The positive point is that this focus on mobility considerably changes the market size and outlook.
Shifting to a service subscription model also means scaling up: while 95 million light vehicles are sold worldwide every year at an average unit price of €14,000, giving a total of €1,333 billion, the size of the global personal transport services market is a multiple of the number of kilometres travelled – around 22,000 billion a year – giving a market value of roughly €5,200 billion, i.e. four times bigger!
Furthermore, growth rates are also higher when vehicles are operated on car-sharing platforms, since mobility services tend to encourage usage.
We think pursuing vertical integration towards a “Mobility as a Service” (MaaS) model will enable auto makers to charge for additional services.
In our opinion, however, future mobility revenue will probably come less from transport itself (which will probably continue to operate at low margins, or even at cost for most operators) than from monetising the data collected, which is likely to be of interest to many other sectors.
As such, it would appear that auto makers are not necessarily best placed to develop data monetisation models. Indeed, deriving value from adjacent services is more the domain of online platforms and mobile internet players.
While tech companies like Amazon and Google have yet to build their own vehicle networks, they are already planning to dominate applications, operating systems and driverless vehicle technology, and are entering into strategic partnerships at the same time as attracting and retaining the most talented people.
Beyond the opportunities offered by this transition, auto makers are faced with increasing risks linked to their after-sales service, dealer networks, assets, and the residual value of their vehicles and, in particular, securitised portfolios.
Digitisation technology, Big Data, the Internet of Things and the advent of connected vehicles all improve the user experience. Meanwhile, the use of electric power simplifies maintenance and minimises the associated costs; even now, vehicles no longer require the same level of maintenance they used to.
Eventually, if the number of shared vehicles increases, it will logically no longer be necessary to produce as many vehicles; and, by becoming a critical component of every vehicle, electronics, and technology more generally, will marginalise equipment, with manufacturers becoming primarily hardware assemblers.
At the same time, manufacturers are having to step up their research and development efforts as well as facing a steep rise in manufacturing costs; with consumers either unwilling or unable to pay for these extra costs, profitability will be eroded.
Overall, manufacturers’ B2C (business-to-consumer) models will shift towards a B2B (business-to-business) model with the emergence of huge fleets of vehicles; the key customers will be major shared mobility networks, weakening manufacturers’ commercial position. There is nothing to say that mobility players will not be able, thanks to economies of scale, to recover most of the margin generated by the mobility value chain…
Véronique Vigner, Group Economic Research