Connected car market to grow to 122 billion by 2021

15 October 2015

The connected car market is expected to grow 204% from 2016’s €40.3 billion to €122.6 billion in 2021, research by Strategy& shows. The biggest growth is expected to come from safety features, such as the EU mandated eCall technology as well as collision control functions. Consumers remain tight fisted about their investment in connected technology according to the report, while OEMs are investing the heaviest in safety technologies.

Every year Strategy& releases an analysis of connectivity trends in the automotive industry. This years’ study, titled ‘Racing ahead with autonomous cars and digital innovation’, explores the connectivity market in terms of the implementation within cars as well as the introduction of more autonomous driving options. The connected car is an automobile designed with direct access to the Internet, enabling automated links to all other connected objects, including smartphones, tracking devices, traffic lights, other motor vehicles and even home appliances.

According to the study, the connected car market will continue to grow at pace, up 10% annually until 2021. As it stands, safety devices are projected to be the largest segment of the €40.3 billion market in 2016, with a market potential of €15.5 billion, followed by autonomous driving features at €9.5 billion. Entertainment options come in third at €6 billion while vehicle management has a potential of around €3.6 billion.

Estimated market for connected car technologies, 2016–21

The consulting firm foresees the total market to grow 204% in the interim to 2021, when the market is projected to be worth €122.6 billion. The largest segment in 2021 will be safety features, at €49.3 billion, followed by autonomous driving – whose total share increases more than 10%. Entertainments total share drops slightly, and accounts for €13.4 billion of the total market in 2021.

Catalysts for growth, according to the research, stem from the EU’s requirement that new vehicles have emergency calling technology (eCall) installed – automatically connecting vehicles to emergency services on the detection collisions. The demand side of the equation will see consumers seeking other digital driving features and entertainment options, such as internet connectivity and advanced traffic information. This, in turn, will encourage investment in connected car services, and give rise to aftermarket demand for connectivity equipment from owners of cars manufactured without digital features.

Demand for connected-car services among volume car customers

Pricing demand
Although OEMs need to invest in the R&D mainly to stay competitive within their industries, the report finds that the large expectation shift towards connectivity in cars is not transformed into consumers willing to pay more for these cars. They will often turn to third party options to provide the feature – forcing OEMs to provide features at below cost. According to the survey, vehicle information and internet show the biggest disparity, while mobility information has the most consumers willing to pay for it.

As a result of this, the luxury car segment has not changed greatly in price from the development of digital features, sticking to the €60,000 to €70,000 range – a 4% increase, despite all the investments in digital features that auto makers have made. A similar story follows for the mid-market, where prices remain relatively fixed, even while digital features which in 2015 cost 0.5% of the total car cost, rise to 2.6% by 2021.

Cumulative connected car innovation activity by automakers 2009-2015

Innovation drives
The study also considers in how far different OEM manufactures invest in the development of digital technologies, which are divided into two categories: safety-related driver assistance technology and infotainment innovation. The largest investor in infotainment between 2009 and 2012 was BMW, followed by Daimler and VW. Since then BMW has curtailed its investment in the segment, while VW and Daimler have continued to invest relatively heavily in the technology over recent years.

The largest investments have been in safety related connected technologies, with VW by far out ahead across all years, followed by Daimler. BMW invested heavily between 2009 and 2013 before slowing its investments, while Ford started to invest more heavily in the technology in 2014 and continues to do so this year. In the safety segment, Mazda is the lowest scoring manufacturer.


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Four ways digitalisation is transforming car brands and dealers

16 April 2019

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.”