Automation to hand automotive firms $4.3 trillion revenue opportunity

02 April 2019 Consultancy.uk

The effect of automation on the automotive industry and wider society is likely to be significant. Significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels may help lead to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue opportunities arising by 2030.

With the automotive sector facing an increasingly difficult road ahead, companies in the market are increasingly hard pressed to find new ways to improve their bottom lines. In the UK in particular, the pressure is on for firms looking to find ways to improve their value creation. The UK endured a 7% fall in car sales throughout 2018, and while Brexit was predictably cited as a cause of this, the nation’s automotive sector is unlikely to have seen the worst of that particular storm yet – meaning innovation is even more essential.

Automation and AI offer vast implications for engineering, production, supply chain, customer experience, and mobility services which could well help the industry combat its flagging performance. To that end, a recent study by Capgemini found car motor vehicle manufacturers are working hard to cash in on the innovation. The share of automotive companies deploying AI at scale has grown from 7% in 2017 to 10% today, with OEMs generally making better progress than suppliers or dealers.

Global investment in future mobility

Now, new analysis from McKinsey & Company has further explored the key trends of automation and electric vehicles – which it claims could have as large an impact on mobility as the car originally had on horse-drawn transport. The full-scale development of the internal combustion engine (ICE) able to self-propel a land vehicle took almost 200 years, with the early 20th century the period of rapid development. That period saw such vehicles become accessible not merely to the gentry, but also to the masses, as increasingly sophisticated industrial processes drastically lowered production costs. 

The decades that followed saw increasingly sophisticated designs, developing into the plethora of vehicles available today for commercial and private use: from people carriers to sports cars, light commercial vehicles and trucks. Vehicles became one of the backbones of modern economies, with dependence on them driving sales.

However, while vehicle engineering and cost improved, their negative externalities became increasingly hard to ignore. Pollution in particular has created considerable harms to the environment and public health. Lead in fuel, added in 1922 to prevent knocking by a chemist who also developed CFCs, was particularly harmful. The negative impacts of diesel exhaust are also becoming increasingly understood, with one estimate placing the cost to public health in Europe at €70 billion. Road accidents kill more than 1.35 million people annually, as well as causing many debilitating injuries.

Shift of autonomous robo-taxi could be below owning a traditional driven vehicle by late 2020s

Even cities with strong public transport options can have a high proportion of their total emissions stemming from vehicles. Current efficiencies for vehicle use are also relatively low, with high congestion rates giving rise to lost GDP, up to 2-5% annually, as well as wasted time, wasted fuel, and increased business costs. Furthermore, long-commute times from congestion itself has negative impacts on human health, including lower life satisfaction and increase risk of anxiety, poor fitness, obesity, high blood pressure, and other physical maladies.

Automated automotive

Mitigating negative externalities is part of the large-scale trend set to change mobility over the coming decades. The changes are necessary to meet global agreements around climate forcing emissions as well as local targets to reduce exhaust pollution. The transformation is also likely to create more efficient, convenient and reliable forms of mobility, that could significantly reduce people’s dependence on sometimes expensive capital expenditures. This is not to say that personal vehicles will no longer be an option; however, their necessity for many commuters could become a thing of the past.

However, the transformation is likely to be as disruptive as the transition from horses to combustion-driven vehicles. The disruption is set to cut across various industries. Autonomous vehicles could see people tasked to operate vehicles out of a job. The industry that supplies and services ICE vehicles, which tend to have more moving parts requiring more maintenance than electric vehicles, would consequently endure significant impacts. 

While the technological change is projected to slash revenues currently depended upon by the automotive industry, with a potential decrease in revenues of $2.1 trillion by 2030, there is also a large potential for revenues stemming from the disruption, which could see $4.3 trillion added to the industry as a whole. Thus, while the impact on various industries could wipe out entire sub-sectors, others are likely to spring up to take their place.


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