Mobility Trends and Their Impact on Auto Industry

Published on 07 Sep, 2018

If you are a part of the automotive industry, get ready to witness a radical change in the entire ecosystem. The industry is changing at a tremendous pace, as established companies and new disruptors make bold moves to bag a win. Aranca has chalked out a series of potential scenarios as mobility trends come into full effect, and talks about how players across the value chain should be positioned to maximize opportunities.

The diffusion of advanced technology in the mobility landscape is going to shift markets, change mobility behavior, result in the creation of new business models, and disrupt revenue pools in the industry. As the mobility of people and goods enters a new era, the way of commuting between places is expected to change fundamentally.

Shared, electric, and connected mobility are expected to shape the future of the mobility landscape. The impact of trends can be estimated from the current investments of $36.5 Bn, $8.2 Bn, and $24 Bn in ride sharing, electrification/energy storage technologies, and connected/autonomous mobility, respectively, up to the end of 2017.

Shared mobility: A declining preference for owing cars due to parking and maintenance hassles, coupled with the enhanced convenience of shared mobility, has resulted in a shift in OEM revenue pools and the introduction of new players, such as app-based mobility aggregators, in the industry. Shared mobility is expected to record an impressive CAGR of 20–35% over 2018–30, contributing around 20% to the total mobility revenue by 2030.

In 2017, China and the US were the two largest sharing mobility markets, valued at $27 Bn and $26 Bn, respectively. The two countries together accounted for nearly 80% share in the global market. In the rest of the world, key demand would be driven by Europe and emerging markets such as India and countries in Latin America. Demand in emerging markets is likely to be supported by large population clusters (comprising young individuals, well-connected to the Internet) and growing incomes.

Both new and traditional players are attempting to capitalize on opportunities in shared mobility across the globe. BMW launched ReachNow in June 2018 and Daimler acquired a start-up Flinc in September 2017 to provide shared mobility services. Sony, a non-automotive company, also entered the market by partnering with six local taxi companies in October 2017. However, cab aggregators such as Uber, Lyft, and Didi have the highest market shares. By May 2018, Uber accounted for 73% share and Lyft 27% in the ride-sharing market in the US. In 2017, Didi held 80% share in China’s ride-sharing market.

Shared mobility services are expected to reduce global new vehicle sales CAGR from 3.7% during 2010–17 to 1.9–2.4% during 2018–30. To counter the reduced demand and cater to shared platforms, OEMs can develop basic cars that can cost ~20–25% less compared to current models. For instance, OEMs could create vehicles with less engine power and simpler interiors, and save significantly on the distribution of such vehicles by directly selling to ride sharing companies. Evolution in the shared mobility landscape would also have a profound impact on fleet owners. Players need to be early adopters of technology and develop innovative solutions, for instance, app-based office bus shuttle services, to thrive in the changing landscape.

Electric mobility: Around a quarter of the world’s CO2 emissions are a result of the transportation of people and goods. Creating sustainable transportation solutions, such as competent electric vehicles (EVs), is one of the greatest challenges cities face today, but also a great opportunity.

The world's fleet of electric vehicles grew 54% y-o-y to around 3.1 Mn in 2017, with the number of electric vehicles on the road globally expected to reach 125 Mn by 2030. The share of EVs could range from 40–50% of new vehicle sales by 2050. EV adoption would be driven by improvement in EV technology and the implementation of favorable policies. Dense cities with strict emission regulations and higher consumer incentives (tax benefits, parking privileges, etc.) are expected to witness the highest adoption. By 2050, the highest demand for electric vehicles would be driven by China (25%), North America (22%), and Europe (25%).

Key OEMs such as Tesla, Chevrolet, Ford, Nissan, and Geely have already developed their EV product offerings. OEM part suppliers such as Linamar, Denso, Continental and Valeo have also started diversifying and developing electric vehicle components. Battery companies such as Panasonic have also capitalized on the trend and provide battery cells to multiple EV OEMs such as Tesla and Toyota.

The transition to EVs is a certainty as EV technology advances and governments push for stringent emission norms. This is likely to have a profound impact on current participants in the auto value chain and create opportunities for new players. OEMs need to focus on developing IC engine and EV technology at least over the next two–three decades. Traditional component manufacturers of IC engines, spark plugs, transmissions, etc., need to diversify and formalize a strategy to remain in business. Conversely, new players, such as battery manufacturers, charging infrastructure providers, etc., witness intense competition and various challenges related to developing and commercializing available technology.

Connected mobility: Connected mobility presents new opportunities to provide an enhanced, comfortable and secure driving experience. The number of cars fitted with intelligent assistance systems has drastically grown over the last five years. In 2017, 12% of cars globally were equipped with embedded connectivity solutions. These systems are expected to boost connected mobility, including connecting vehicles to other vehicles, traffic lights, and infrastructure. Connected mobility offers tremendous business potential, with approximately 500 Mn connected vehicles expected to be on the road by 2025 globally, translating into global demand of around $160 Bn.

Connected services for vehicles are likely to offer multiple benefits, such as increased efficiency, safety and comfort, and better fleet management. Advancement in connected services technology will also lead to development of autonomous driving, which is expected to have the highest impact on the mobility landscape. With the current rate of connected services and advanced driving assisted system (ADAS) development, vehicles with high-automation, level-4 designations are expected to hit the road in the next five years. However, fully autonomous driving is still over a decade away as Car2Car or Car2Infrastructure connectivity is still at a nascent stage.

Multiple companies have ventured into developing technology for connected vehicles and would eventually enter the autonomous driving domain. Technology companies such as Waymo, Nvidia, Intel, and Microsoft are focusing on developing software for connected vehicles, while conventional OEMs are either partnering with or acquiring multiple technology companies to build capability. In 2017, Daimler and Volvo partnered with Bosch and Autoliv, respectively, to develop fully autonomous driving systems. However, certain conventional OEMs such as Ford and Audi are developing autonomous driving solutions in-house.

While it remains to be seen which company will lead the development of connected vehicles and autonomous driving, a clear regulatory environment and collaborations to develop an integrated Internet of Things (IOT)-enabled infrastructure are likely to be the pre-requisites for large-scale adoption. In such a dynamic environment, automotive OEMs need to focus on forging key partnerships to gain access to technology and user base. Concurrently, traditional OEM suppliers need to diversify their product portfolio to include IOT-enabled components and technologies.

Shared, electric, and connected mobility are expected to collectively define the future of mobility. Industry trends are expected to impact players across the automotive value chain, including OEMs, component suppliers and car rental service providers. Players in the industry need to be at the forefront of this transition and proactively develop their strategies to reap benefits.