The Global Automotive Revolution Just AheadIn previous issues, we’ve explored the technologies and demographic forces that are propelling the concept of the autonomous car toward reality.
Now, as other researchers have come forward with their own conclusions, we are able to assimilate their findings into our own well-developed vision of the future of the automobile.
The bottom line is that digital technologies won’t just enhance the automobile; they will transform the very definition of what a vehicle is and how it will operate.
A new report from McKinsey & Company, titled, “Automotive Revolution?Perspective Towards 2030,” provides an illuminating look at one scenario.1 As McKinsey points out, four disruptive technology-driven trends are converging and building upon each other. These four trends are:2
1. Diverse mobility
2. Autonomous driving
3. Electrification
4. Connectivity
Based on those four trends, McKinsey expects that the automotive industry’s revenues will be affected dramatically by 2030.
While most observers expect car manufacturers to suffer a catastrophic loss of demand in a world in which car-sharing will be common, another possibility is that industry revenues will actually increase as cars connected to the Internet add even more value to users’ lives.
By 2030, about 10 percent of cars will be shared vehicles, and even though there will be fewer privately owned cars in the developed world, business models based on car-sharing will ensure that car sales will keep growing, although at a much slower annual rate of 2 percent, compared to an average of 3.6 percent for the first half of this decade.
Those car sales will also be driven by demographic forces, notably the emergence of middle-class consumers in the developing world, especially India and China, which will fuel demand for vehicles.
But even at this slower growth rate, McKinsey estimates that automotive industry revenues could increase by as much as 30 percent, or $1.5 trillion, by the end of the next decade. That’s because new capabilities will generate new revenue streams.
In particular, revenues from “on-demand mobility services and data-driven services” will explode. The car will become a mobile entertainment platform. That will propel the revenue growth rate to 4.4 percent.
Specifically, data connectivity services?such as apps, navigation, entertainment, and software upgrades?are expected to generate $100 billion in revenues. Because shared vehicles will spend more hours on the road, they’ll need more repairs and maintenance than will cars with individual owners.
By 2030, about 10 percent of cars will be sold for shared use. According to McKinsey, that proportion is likely to increase to 33 percent by 2050. It’s already evident that younger people are increasingly less interested or able to afford their own cars; from 2000 to 2013, the percentage of licensed drivers among Americans aged 16 to 24 dropped from 76 percent to 71 percent. And the number of vehicle miles traveled by Americans aged 16 to 34 dropped by nearly one-fourth over the past decade, according to the National Household Travel Survey.
McKinsey also expects electrified vehicles to account for 10 to 50 percent of new vehicle sales by 2030. Clearly, that’s such a wide range that it is barely useful.
It seems likely that the actual penetration of electrified vehicles will end up closer to the lower end of that estimate. Huge cost reductions would need to be achieved before battery-powered cars could steal share from vehicles with gas combustion engines because gasoline prices should continue to be relatively cheap for decades as the vast reserves of shale gas are unleashed.
No matter how they’re powered, tomorrow’s cars won’t be produced by companies using today’s business models. They will either be built by tech companies like Google or Apple, or by reinvented versions of current automakers.
How can the established companies reinvent themselves? McKinsey offers four guidelines:
1. Prepare for uncertainty. This means staying on top of trends in technology and in changing customer needs.
2. Leverage partnerships. Companies will need to forge alliances beyond the automotive industry to create the tech-enabled cars of the future.
3. Adapt the organization. Automakers will either need to develop the expertise in software that they will need, or they will have to work with outsourcing providers.
4. Reshape the value proposition. To capture value, automakers will need to set themselves apart from the competition with unique services and continuous upgrades.
Whether or not companies like GM, Toyota, or even Tesla, are prepared to transform themselves to succeed in the decades ahead, the changes that are coming are inevitable. There are simply too many benefits of driverless connected cars. These include:
- Improved safety: According to the World Health Organization, more than 1.2 million people throughout the world are killed in car crashes every year. Another 50 million people are injured in accidents. The National Highway Traffic Safety Administration blames human error for at least 60 percent of traffic fatalities.
- Increased productivity: Drivers won’t need to watch the road. They will become passengers who will be able to send emails and texts as they commute.
- Enhanced quality of life: Parking lots and multistory garages in cities could be replaced by parks and other open spaces.
- Reduced traffic congestion: Cars will use sensors to maintain a safe distance from each other and optimize their speed.
Based on our analysis of this trend, we offer the following forecasts:
First, fully autonomous cars will be prowling highways by the end of the decade.
Google has announced plans to introduce its first driverless car by 2020. Japan is determined to roll out its autonomous cars before the 2020 Olympics.3 In January, President Obama’s proposed budget included a $4 billion investment to develop the technology over the next 10 years, while U.S. Transportation Secretary Anthony Foxx recently indicated that by next summer he’ll propose a set of rules for operating fully autonomous vehicles on American roads.4
Second, 25 years from now, cars will have much shorter lifecycles than they do today.
This is good news for the automotive industry. Because shared cars will rarely be idle, compared to single-owner cars that are parked for most of the day and night, they will wear out faster and need to be replaced more frequently. But even the cars owned by individuals will be replaced more rapidly than they are today. That’s because they will constantly become outdated as technologies advance relentlessly. Just as an iPhone is replaced by a newer generation that is significantly better every two years, new models of cars will offer upgraded features that the previous models can’t match.
Third, autonomous cars connected to the Internet will serve as rolling offices for professionals seeking a competitive advantage.
Instead of driving to see your accountant or optometrist, they will come to you?equipped with all of the tools that once confined them to an office building.
Fourth, the availability of shared cars will change the way people think about the purpose of an automobile.
Today, we tend to use the same car for multiple purposes: to drive to work, to go to the grocery store, to socialize with friends, and to visit clients. As McKinsey points out, when people will have access to a portfolio of cars by clicking an icon on their smartphones, they will be free to choose a different type of vehicle for every occasion: a luxury car for business, a tiny smart car for commuting, a pickup truck or minivan for shopping, an RV for travel, and a sports car for leisure.
References
1. To access the report “Automotive Revolution?Perspective Towards 2030,” visit the McKinsey & Company website at: https://www.mckinsey.de/sites/mck_files/files/automotive_revolution_perspective_towards_2030.pdf2. McKinsey & Company, January 2016, “Disruptive Trends that Will Transform the Auto Industry,” by Paul Gao, Hans-Werner Kaas, Detlev Mohr, and Dominik Wee. ⓒ 2016 McKinsey & Company. All rights reserved. http://www.mckinsey.com/industries/high-tech/our-insights/disruptive-trends-that-will-transform-the-auto-industry3. Computer Business Review, January 15, 2016, “Billion Dollar M2M Race: 5 Governments Taking Driverless Cars to the Road,” by Joao Lima. ⓒ 2016 CBR, part of Progressive Trade Media, Ltd. All rights reserved. http://www.cbronline.com/news/internet-of-things/m2m/billion-dollar-m2m-race-5-governments-taking-driverless-cars-to-the-road-47854444. News in Brief, January 15, 2016, “Obama Wants to Speed Up Self-Driving Cars, Proposes $4 Billion Plan,” by Tony Avelar. ⓒ 2016 Vendewater Media. All rights reserved. https://newsinbrief.com/tech/2016/01/15/obama-wants-to-speed-up-self-driving-cars-proposes-4-billion-plan-9505. To access the report “Automotive Revolution?Perspective Towards 2030,” visit the McKinsey & Company website at: https://www.mckinsey.de/sites/mck_files/files/automotive_revolution_perspective_towards_2030.pdf
