Autonomous vehicle suppliers face competition and consumer sentiment

21 March 2017 Consultancy.uk

Fully autonomous vehicles offer a host of benefits, from improved safety to lower fuel and insurance costs. While the mass rollout of the technology remains a future possibility, a range of more compact and context specific autonomous technologies are being embedded into vehicles. Suppliers of the technologies that underpin autonomous vehicles can expect the market to reach $26 billion by 2025. Uncertainties remain however, with consumers unwilling to pay a high premium, while multiple new entrants are set to spark a complex playing field.

Fully automated and fully electric vehicle transport systems could drastically reduce accidents, lower congestion, transform the built environment away from car parking, as well as improve overall transport net efficiency – where public transport options are impractical.

In a new report from Bain & Company, titled ‘An Autonomous Car Roadmap for Suppliers’, the consultancy firm explores the current state of autonomous vehicle technology, consumer interest in the technology as well as some key uncertainties facing supplier companies developing technologies for the market.

Assistive and autonomous driving features

Fully functioning cross context and environment independent autonomous vehicles remain some distance away – aside from the technology being expensive, and experimental, regulatory factors will limit on the road commercial rollout for the time being. Consumers do however, have access to a range of intermediary technologies, many of which are termed advanced driver assistance systems (ADAS).

These technologies allow for cars to assist their drivers in a range of contexts, from emergency breaking and adaptive cruise control, to lane detection and traffic jam assistance. While the technologies implicated in a number of these features are not without expense, the authors argue that the economies of scale will mean that on average consumers will be able to afford them without considerable additional expense.

Global market for autonomous driving and assistive safety and comfort features

As the technology matures, and OEMs and other parties continue to roll out propositions to consumers, the B2B market is projected to see considerable growth in the coming decade. The technology that underpins ASAD, including software, hardware and services sold by suppliers to automakers, is set to hit $26 billion by 2025 by achieving a CAGR of between 12% and 14% from today’s market of $8 billion.

The largest part of the market is predicted to result from ADAS development and sales, representing around 90% of the total market.

Buyers are very interested in new auto technologies

Key ADAS features

While technology innovations in the coming decades are likely to be focused on ADAS technologies, rather than full automation, the technology will need to be of interest to consumers for them to pay a premium for it in vehicles. To better understand consumer sentiment, Bain & Company surveyed 4,200 consumers in eight main automotive markets about the ADAS features they want most.

The research notes that the majority of consumers surveyed are likely, today, to use an existing ADAS feature. One area in which consumers are more concerned than in general about ADAS features is fully autonomous parking, although they say that in 10 years they will be keener than they are today. In terms of going fully autonomous in specific situations, around 50% of consumers would consider doing so today.

The top benefits, according to the consumers surveyed, are ‘safer driving’ as cited by around 70% of respondents saying it is at least a moderate benefit, followed by ‘saving fuel’ cited also by around 70% of respondents. Lower insurance premiums and more comfortable driving followed, which was noted by consumers in the upper sixty percent range as at least a moderate benefit.

The top concerns of consumers are the high price of the technology, cited as a strong concern by around 50% of respondents, followed by failing technology, at around 45% of consumers with strong concerns. Other areas of concern are ‘systems not working in every situation’, ‘vehicle can be hacked’ and ‘unclear liability situation’.

Buyers are not willing to pay much more for advanced features

Change coming to supplier market

The consulting firm found that there are two major uncertainties shaping the market for suppliers: the speed of adoption of the technology and the entry of new players into the market. The former of the two uncertainties reflects a difficulty faced by companies, as consumers want the technology but few are willing to pay a high price for it. Adaptive cruise control for instance, is seen as standard, while for fully autonomous driving in specific situations consumers are only keen to pay 2% more. The only area in which consumers are keen to spend more is for fully autonomous parking, at around 116% of the vanilla price.

The second area of concern is new entrants from cross border entities, such as technology players Apple, Google, Tesla and Uber, and computer hardware players, Intel and Nvidia. Another area of concern is from government funded projects, with funding from, for instance the Chinese government, able to accelerate innovation in the domain.

“The autonomous driving market will be slow in developing, but that doesn’t mean the auto industry should take its foot off the gas,” says Hans Joachim Heider, Bain partner and co-author of the study. “We anticipate continued strong interest in autonomous driving among consumers around the world, particularly as the cost and complexity of driver assistance technologies decrease.”

According to a recent analysis by The Boston Consulting Group, the size of the autonomous car market will hit $42 billion by 2025.

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”