Five Automotive Predictions for the New Decade

Today, technology disruption of the automotive industry is no longer a theory, but a reality. As new companies break into the market and make an impact in the automotive landscape, existing organizations are being forced to make dramatic “big bets” on a highly uncertain future. Here are a few key predictions that organizations should consider. 

There are three distinct emerging automaker models.

Electric, autonomous, and connected vehicles with ride-sharing capabilities have the potential to change the driving environment by decreasing private vehicle ownership in metropolitan centers. The extent to which these “robo-taxis” could impact the industry is exactly why organizations like Waymo and Uber are engaged. This will drive OEMs to decide how they see their organizations participating in this industry revolution.  Expect to see the following three business models evolve:

• Vehicle and Fleet Operator: OEMs will generate revenue by making, owning, and operating vehicle fleets.  This is a scalable version of classic car-sharing which generates frequent customer interaction and therefore valuable data insights.  Tesla is moving toward this model with the announced Tesla Network.
• The “Boeing” Model: Building, selling, and servicing a new generation of vehicles and delivering to fleet providers the same way Boeing supplies passenger planes for airlines.  
• Premium Car Builder: Catering to the suburban market of customers who still want to own a car.  This pure-play model will likely require the capability to establish a premium or luxury brand, and to manufacture, market, and sell cars of the highest quality.

The ripple effect of OEM restructuring will affect the workforce.

In 2019 automotive OEMs announced more than 65,000 layoffs, citing not only a vehicle sales slowdown in Europe, but also the growing popularity of vehicle electrification.  OEMs have stopped the development of traditional internal combustion engines, and electric vehicles have fewer moving parts and are less complex to design and manufacture.

Despite the simplification of manufacturing, electrification requires a shift in engineers’ skill sets. As the technology evolves, chemical, electrical, and software engineering for batteries, propulsion, and other electronic systems are increasingly needed. Companies such as GM, Daimler, Audi, and Ford have started to address this dramatic shift, resulting in layoffs and a dramatic shift in organizational priorities.

Private equity firms will increasingly dominate automotive mid-market merger and acquisition activity.

As technological advancement creates new products and business model opportunities for larger suppliers, mid-size and smaller suppliers will be continually disadvantaged. These companies lack the resources required to make the necessary strategic shifts to remain competitive. 

Many suppliers faced with this reality will opt to exit the industry instead of taking on the risk. In this environment, the investors who’ll take on these challenges won’t be strategic investors, but financial investors like private equity firms.  

Suppliers should plan on “mild” disruptions.

Electrified, autonomous robo-taxis will not dominate the market by the end of the decade; globally, most vehicles sold will still be private vehicles, despite the fact that we do forecast 1 out of 4 vehicles sold globally by the end of the decade to be fully electric.

This is why suppliers should plan for mild disruption over the course of the decade.  Most consumers’ first electrified vehicle will be a mild hybrid.  This segment is forecasted to grow globally to represent 30 to 35% of all vehicle sales. Suppliers must acknowledge that these mild segments will pay the bills for the next decade.

Automotive surveillance data will become incredibly valuable.

With the evolution of autonomous and connected systems, we also have the addition of in-cabin monitoring to improve safety.  Today, a camera is critical to ensuring safety with autonomous systems like GM’s Super Cruise.   

These monitoring systems also provide valuable, salable data to third parties.  This will not be limited to driver data, but includes the 6+ camera systems on the outside of the vehicle, which can be used to identify parking violations, speeding, and other traffic violations. 

Data has the potential to be the most disruptive addition to the industry as companies are flooded with information driven by the proliferation of smart, connected autos: a connected, autonomous vehicle could soon generate 25 GB of data each hour.  Car manufacturers will soon own a wealth of data from millions of vehicles, and it won’t be long until they begin selling it to increase profit margins.

The fact that technology is rapidly disrupting the automotive industry is a foregone conclusion. What is critical at this point, at the beginning of a new decade, is that OEMs recognize the biggest trends and make plans to capitalize on them. Regardless of organizational size or market share, there are ways for OEMs to appropriately respond to the incoming changes—but only if they act strategically and quickly.