Dr Klaus Schmitz and Wolf-Dieter Hoppe provide a manufacturers’ guide to predicting and preparing for the future of mobility
Just a scan of the daily news headlines reveals there is no denying that regulators the world over are focused on finding radically new approaches to transportation. But how will these changes impact traditional automotive players, and what role does today’s automotive industry have in shaping the future of mobility? To answer this question, Arthur D Little spoke to over 6,500 drivers and more than 100 players of the automotive and mobility industry around the world – from manufacturers to suppliers, mobility providers and regulators. Here’s our conclusion: The future of the automotive industry will not be driven by consumer demand alone – it will be shaped and transformed by regulation. This will impact the size and scope of the market, but unlike some predictions, will not mean the end of days for traditional manufacturers and suppliers.
Like it or not, today the automotive industry is being blamed for a plethora of environmental and infrastructure problems. Driven by an expanding middle class, urbanization and increasing traffic pollution and congestion, the effects of mass car ownership are putting pressure on the industry and the regulators who govern transportation policy. Three emerging technology and mobility trends seem to offer solutions regulators are looking for: electric powertrains can offer much cleaner and greener vehicles; car sharing can decrease the number of vehicles in use worldwide; and autonomous driving can help boost the capacity of streets in cities and on highways. But how will these new technologies transform the traditional automotive industry supply chain, and what must today’s industry players do to prepare for success?
Creating new mobility opportunities through technology drivers
As more people worldwide flock to cities, the political and technocratic regulators that lead those growing urban hubs will govern mobility and thereby exercise more influence on how consumers engage with the automotive industry. In some markets, stricter carbon reduction targets, air quality standards, and congestion concerns are already driving heavy regulation paired with policy innovation to redefine urban mobility.
As governments look to new mobility options to resolve these public policy problems, the pace and degree of change will vary widely by region and culture. First, the vast majority of voters and tax payers own cars, and value vehicle ownership as a symbol of status and freedom of movement. As such, public transportation alone is not going to resolve congestion and cut emissions. The requirement for on-demand mobility will drive flexible solutions, and we will not see the demise of the single owner vehicle anytime soon.
In addition, while electric vehicle technology is maturing, it is not without its obstacles. Limited operating range, higher total cost of ownership compared to the internal combustion engine, and insufficient charging infrastructure are all persistent issues. While we expect the electric vehicle market to grow substantially, its growth will be steady and concentrated in regions with the capital to invest in low emissions transportation.
Finally, the fact that autonomous vehicle concepts will be introduced into legacy transportation infrastructure will make their inception slow and only suitable in certain regions. Driverless taxis and cars will be operating in legacy car parks, on roads with traditional cars and pedestrians. Given the novel concept, and its early stages, we expect that by 2030 consumers will accept autonomous cars and car share schemes only as an additional mobility option, not necessarily replacing their individually owned cars.
As technology changes, the consumer will ultimately dictate how far regulators go in introducing new patterns of mobility. Looking at cities across the globe, we expect three overall scenarios to emerge for modern mobility by 2030:
Scenario 1: Disruptor regions that progressively move to incorporating autonomous vehicles into the transportation mix based on demand.
Scenario 2: Gradual adapters, or cities with major infrastructure-constraints will incrementally introduce new automotive mobility systems.
Scenario 3: Smart cities, as we are seeing pop up across Europe and South East Asia, will apply focused regulation to seamlessly integrate new automotive mobility modes into their public transportation systems. As these new systems succeed, early adopters will be prepared to rapidly grow new ways of getting around, and drive the market for new mobility options.
Preparing for new mobility trends
Driven by electric mobility, automation and car sharing, it is frequently reported that the overall size of the automotive market will significantly shrink. However, the advantages of the new mobility scenarios we outline is that each will attract customers and in turn still drive growth of the automotive market. We estimate that almost one-third of those consumers using public mobility modes such as trains and buses today would change their behavior and switch towards the above-described mobility modes – adding further capacity requirements to the system. Realistic scenarios we have calculated on real urban data and statistically relevant customer preferences suggest a total production volume worldwide of between 110 and 120 million vehicles in 2030 – which is more than many experts predict and about a 30-35 per cent increase on today’s market size. So how does the industry capture this market share in a time of major and unprecedented transformation? It must predict how today’s technology trends will enable new scenarios for transportation in the future.
How suppliers prepare for the future mobility ecosystem depends on the key vehicle technologies they provide. And the nature of the industry will shift to adapt to the new transportation norms. We expect these new demands to extend the classic view of the automotive pyramid, with new segments emerging and new roles developing. While manufacturers sit on the top of the food chain today, a new “automotive mobility provider” will emerge, a business that offers mobility services to end customers and therefore captures the customer relationship and market knowledge that comes with it.
Along all tiers of the automotive pyramid, new ecosystems for electrical and automotive modules and components are developing. Today’s supply chain will expand to include technology suppliers that offer the niche systems expertise needed for car sharing, electric powertrains, and autonomous vehicles. For manufacturers, the new mobility system requires a significant shift in product portfolios that needs to be managed. We expect vehicle segments to polarize, with demand for high end and low cost vehicles expanding while middle segments shrink drastically. Furthermore, manufacturers need to decide on their approaches and how to tackle the new evolving mobility provider segment – since due to the limited respective volume expected, exploitation of the respective profit pool will be challenging. Regional approaches to mobility models will be required. Last, the management of competences and networks, as well as integration of external sources of innovation into the own innovation system, will be key to building the right business model while keeping prudence on investments for OEMs.
Making changes along the value chain
For each key technology, a set of norm strategies applies. For instance, powertrain suppliers could look to further focus on combustion engine-based products and compensate for decreased revenue through expanding their portfolio of auxiliary products like appliances, turbos, starters. Where possible, traditional powertrain options could offer key electric modules or produce enhancements. Finally, some powertrain suppliers are positioned to leverage their expertise and competences to become providers of fully integrated drivetrain solutions.
For electrics and electronics suppliers, there is an opportunity to broaden their current portfolio of electric products and offerings towards developing next generation electric powertrain technology. Electric vehicle suppliers who build a sustainable proposition in the currently developing autonomous-technology ecosystem will be well-positioned to provide vital parts for the growing driverless car market. This can take the form of leveraging electric capabilities and hardware competence to become providers of fully integrated autonomous solutions, or potentially developing mobility interface platforms for next generation car sharing solutions.
For chassis modules, today’s largest suppliers especially are at an advantage. These suppliers can modern their businesses and prepare for the future by focusing on their technology leadership and begin to develop integrated hardware and software modules for autonomous-driving functions and e-mobility. Smaller chassis suppliers could looking to develop a niche, could consider offering integrated, multipurpose chassis and drivetrain kits for autonomous vehicles.
While interior suppliers might be less affected on volumes compared to other parts of the value chain, a key challenge is to reinforce their brand perception. They can prepare today by continuing to differentiate themselves as technology leaders with a keen understanding of what interior solutions will be best suited for new mobility customer segments. Innovative partnerships with body parts suppliers to offer interior solutions that connect to multipurpose chassis and drivetrain kits will provide a built in market as mobility systems evolve. The demands on body structures will change, so smart interiors companies are already working on new interior materials and solutions that will support driverless taxis and advanced car share schemes.
No matter where you sit along the automotive supply chain today, focusing on cost reduction, technology expertise, and strategic partnerships will serve you well as we adapt to the new mobility systems of 2030 and beyond.
Dr. Klaus Schmitz is Partner and Wolf-Dieter Hoppe, Associate Director, Arthur D Little’s Automotive Practice