The continued advance of digital technology has seen the automobile grow as a product from simply being a machine intended to move people from place to place, into a networked vehicle for services associated with mobility. Where the “car”, as a product, used to be the determining factor in value creation, it is now not enough on its own to ensure optimized value creation. The term “connected car” is now a synonym for modern automotive mobility, implying communication between the conveyance and its environment, as well as from vehicle to vehicle. As a result, there are now interfaces with related services such as billing, optimization or linked mobility options. Ongoing competition between providers as automated driving approaches, means there is ever greater relevance for comprehensive vehicle networking because greater availability of data has the potential to have a positive effect on functionality and rule compliance of automated systems. Several providers have announced autonomous passenger and goods vehicles for as early as 2019/2020, proving the forward-looking motto “data is the fuel of the future” realistic. It is now a widely held view in market research that premium manufacturers will no longer be able to get away with bringing a car to market that doesn’t have self-driving functions within the next two or three years.
Figure 1: Distribution of innovative products and services within the automotive sector according to regions and countries
This blog post discusses this topic, starting with the recently published database of innovative players and solutions in the automotive sector. This database was produced based on comprehensive research and has seen several cycles for further development. The database, built up by CORE, does not lay claim to be a fully comprehensive record of all innovative automotive products worldwide, but it does contain all those that can be seen on the net when a targeted search is carried out in Europe. It remains possible that some regions or countries may have received insufficient weighting. Nonetheless, a snapshot has been taken of innovative players and solutions in the automotive sector which may well look different in six months’ time, and that is why it’s being kept up to date.
This concludes a four-part series on the digitization of the automotive sector. The first blog post (19.07.2016) made an initial comparison between the finance sector and the automotive industry, drawing the conclusion that the platform in question has become much more important for the automotive sector. The second blog post (12.08.2016) derived recommendations for action in the automotive industry from developments taking place in the banking sector, as well as measures which could make for steeper
learning curves and learning the lessons of earlier mistakes without the need to repeat them. The third blog post (09.09.2016) presented the recently published database on innovative services in the automotive sector and outlined initial trends in the market.
The present investigation will focus initially on a quantitative comparison between countries in order to allow statements to be made on the strengths, weaknesses and potential of the individual national markets in what is a very new field – digital mobility. More far-reaching analysis and a specific consideration of very recent trends will allow conclusions to be drawn about future trends in this market.
2. Country Analysis
- In terms of numbers, providers from the USA dominate this emerging global market with around 60% of identified products and services.
- One trend for traditional car manufacturers to watch is that over half (55%) of products and services from the USA come from California, home to the biggest internet and tech companies. The culture of Silicon Valley’s well-known internet firms, their approach and innovative drive, are the model for trends in the automotive sector.
- 31 of the database entries are in Germany, or just under 11%, falling short of Germany’s position as a technology leader and innovation center in the automotive industry.
- With 68 mentions, Europe as a whole represents under a quarter (24%) of the products and services identified, which is 30% below the contribution of Californian firms. Alongside Germany, the United Kingdom (15 entries) and France (7 firms) are also identified as competition-intensive European markets.
- The poor performance in terms of numbers of established car manufacturing countries such as Japan (5) and South Korea (3) is striking, along with China, still rising fast even though it is already the biggest (7) and the IT workbench of India (12). It may be that there is a blind spot for this region inherent in the approach taken – for instance, it could be that products only available in the local languages of these countries are being missed.
3. Change in the mix of market players
- Recognizable trend: large technology companies with no car manufacturing background are adding automotive products to their portfolio (Apple, Google, Alibaba).
- Companies that formerly focused on software are experimenting sporadically with hardware products, if only on a cooperative basis (Uber).
- It is clear that the highly competitive and saturated automotive sector is giving rise to new car manufacturers – 7 independent launches were identified.
- It is also clear that these new entrants are focusing on electric engines. This represents a threat to Germany’s dominant car industry because its focus on skills in engine and gearbox construction will become much less important in the future in comparison with electrical technology (batteries, engines and steering) and software engineering. Furthermore, it can be regarded as an established fact that the barriers to market entry for the electric car concept are lower than those for vehicles, this is based on the internal combustion engine because established sales structures can be bypassed. Profit optimization and stable value creation in the long term are being displaced by add-on services and the extensive network integration of product elements.
- One striking example was that only 4 market players could be found in the security segment. The overarching network integration of the car means there is a special need for security services, because from an IT point of view it was an autonomous system until just a few years ago, but the increase in network integration is opening up potential vulnerabilities to cybercrime. This area thus offers plenty of scope for car-focused products and services, i.e. for specialized companies. If the credit industry’s experience of digitization is transferred to the automotive market, the security segment can be expected to see significant growth.
Digitization will cause disruptive changes to the traditional automotive industry in a similar way to those that occurred in the music industry at the end of the 90s (with its focus on the sale of physical recordings) or those in the finance industry from 2010 onwards. The increasing pace of technological change in areas such as software engineering, networks, sensors or processors means that the car industry is being restructured in a kind of technological tsunami, and the previous waves of digitization that flowed over the markets mentioned above were mere emissaries of far more disruptive market changes to come.
This is no longer a dystopian future scenario for the sector – it is happening now. Alibaba is going to equip a car with an open source operating system and thus incorporate cars within Alibaba’s internet of things. Tesla envisages a car that hires itself out will be on the market in 2020.
An overview of the market shows that competition is growing more intense within the automotive sector which is characterized by the appearance of new players as well as an increased focus on digital products and services.
If established car manufacturers do not wish to miss the boat, they need to stop holding on to traditional skills and strategies and reach out towards a new vision of themselves as transport and service providers, rather than just car manufacturers.
The key to success here is to introduce a platform-based approach. Joint projects being undertaken by the German car industry such as ‘Here’ have great prospects for success. This is only possible if innovative potential and standardization are brought together in the German and European automotive industry in the short term, rather than competing against one another, which has long been the case in the German finance industry. It would be more forward-looking to take action against European and global players rather than holding on to local optimization that seems unlikely to be able to sustain a stable place in the market over the long term.
As a result of the economic importance of the automotive sector in Germany, the implementation of these projects by local manufacturers is not only in their own interests but will benefit Europe as a whole.
Previous Posts of the Series