Change is coming to the automotive industry at breakneck speed with Connected, Autonomous, Shared, and Electric (C.A.S.E.) technologies. By 2030, there will be 700 million connected cars, 90 million autonomous vehicles, and 250 million electric and hybrid vehicles on the roads, and 600 million subscribers to various mobility services. The message is unmistakable: automakers will need to realign around these emerging dynamics, redesign their existing products & services, rethink their platform strategies, and, indeed, completely recreate models of value creation.
How will car manufacturers manage the cost of this transformation? How will the new value creation model impact current product development approaches? How will automakers be able to repay new investments made in C.A.S.E pillars?
Downstream Services Go Big
Already, there are signs that new revenue generating downstream models with higher operating margins will overtake their traditional upstream counterparts. I believe these downstream opportunities will be in the vicinity of nearly €2.5 trillion by 2025, spearheaded by mobility, vehicle, and driving services.
Mobility—e-hailing, ride sharing, and mobility as a service (MaaS)—is likely to account for almost €1 trillion, fuelled by the e-hailing market and companies like Uber and Lyft. Vehicle services will generate even more revenues due to surging demand for parts and service after-sales in a new C.A.S.E era. Meanwhile, driving services related to digital services such as navigation, multimedia, and features on demand should mop up about $200 billion.
On the one side, this new set of revenue streams will enable the automotive industry
to extend its value creation model beyond solely the product to cover the entire life cycle of the vehicle. That’s the good news. On the other, this value creation model will be heavily data-centric and will, therefore, require automakers to reprioritize their R&D investments. Not bad news but certainly this will bring with it its own set of challenges.
Disruptions Galore As C.A.S.E Gathers Pace
For a start there is bound to be tremendous investment pressure as automakers contemplate discarding well-established legacy chassis platforms and multi energy platform (MEPs) in favour of dedicated electric platforms.
Secondly, business models are likely to be non-traditional. New vehicle and product design, and volume analysis will mean that conventional per vehicle business paradigms will be overtaken by unconventional per mile business models.
And finally, the business models for C.A.S.E will likely be ephemeral, characterized by shorter product planning cycles and acute sourcing pressures similar to the electronic industry.
Currently, the industry is addressing these challenges in individual pockets and use cases, where relevant. But with increasing deployment of connected cars and autonomous vehicles, managing the scale of these investments, both regionally and for the various use cases, will prove challenging for automakers.
A potential way to offset these soaring costs might be to approach the development of C.A.S.E services, its associated technologies, and partnerships through a platform-based approach.
The Four Layer Platform Approach
An ideal platform based approach will have four technology layers overlaid by the various internal and external service layers developed by the industry:
· Layer 1 will be the electric platform layer. With growing pressure for electrification, automakers will look at three strategies to introduce electrification: modifying conventional platforms to incorporate electrification; developing an MEP that can accommodate hybrids, plug-in hybrids and full electrics; and creating dedicated electric platforms to support the production of pure electric vehicles (EVs).
· Layer 2 will be the electrical/ electronic (E/E) architecture layer. With increasing data throughput in vehicles, current vehicle electronic architecture is proving incapable of managing and computing massive data sets. Automakers will evaluate two approaches to modifying E/E architectures: centralizing data and decision making into domain controllers; and, centralizing data and decision-making based on vehicle zones.
· Layer 3 will be the software platform layer. To enable new connected and autonomous driving services, automotive manufacturers will need to decouple software development from individual electronic control units (ECUs) but will need to consolidate at an application level. These new software modules will follow two styles of software development: deterministic where the software will be classical machine learning based, and stochastic where the software will be based on artificial intelligence and deep learning.
· Layer 4 will be the cloud platform layer. With increasing data ingestion, computing and orchestration requirements, automotive manufacturers will look at moving from traditional on-premises server systems to a cloud strategy. This can take one of two approaches: private cloud where the automotive manufacturer owns or licences dedicated cloud services, and hybrid clouds which represent the convergence of partly private and partly public cloud services.
While there are bound to be individual preferences in terms of how to approach each layer, I believe there are likely to be two distinct ways in which the automotive industry will tackle the development of these platforms in the future.
The top down approach will be preferred by software-first companies and tech disruptors like Tesla and Waymo. And then there’s the bottom up approach that will be favored by hardware-first companies, including traditional auto manufacturers.
I think it is essential to note that while each of the approaches has their merits and challenges, navigating C.A.S.E with a platform based approach will be vital to managing scale and optimizing future business models that will revolve round smart sensorization, data management, and service value creation.
Succeeding In A C.A.S.E World
Every automaker will have their own preferences and ideals for each of the steps depending on their volumes, target use cases, preferred value creation models, and technology investment prowess. That said, I believe there are four important early steps on which every automotive manufacturer will need to focus in order to succeed in a future C.A.S.E. world.
The first step will be to identify and prioritize a roadmap for autonomous driving and connected services use cases. The second will be to transform the vehicle electronics and E/E architecture to enable complete bi-directional interoperability to enable features like over-the-top (OTA) updates. The third step will be to identify the ideal ecosystem partners that will enable the service delivery model for each use case. And, the final step will be to identify a regional and brand wide data management strategy with centralization of customer data which will be pivotal for future business models.
Every leading car manufacturer that I know is grappling with this issue of what their next generation architecture will look like, not to mention their high development costs. No wonder then that we are seeing even the fiercest of traditional rivals—like BMW and Daimler—coming together to pool brains and resources as the journey ahead will not only be expensive but also uncertain and challenging. In days to come, I am sure we will see many more such partnerships.
I am a Senior Partner in Frost & Sullivan where I head the Automotive & Transportation practice and also founder of a think tank group that works on future (Mega) trends. My team and I pioneered the “Macro to Micro” approach in analyzing Mega Trends in 2008, which has since been tried and tested with Fortune 1000 companies in developing white space opportunities. I authored “New Mega Trends,” published in 2012 with Palgrave Macmillan, which has since been sold in over 30 countries and is currently being translated into Chinese for a China market release in 2014. I consult Fortune 1000 companies (clients like P&G, Ford, Philips, BMW, Fiat group, Nissan, Toyota and UNIDO). I am an Engineer and have a MBA from Leeds University Business School, for whom I am now a member of their Advisory Board. I have also done an executive course at the Kellogg School of Management. I am a well-known thought leader and a charismatic futurist who combines engineering acumen with strong commercial experience. Follow me on Twitter: @Sarwant.