A few weeks ago, I participated in a private survey on the next major automotive trends to look out for, organized by a key player of this value chain. Although I do participate quite often in such surveys for various markets, they are usually kept under strict confidentiality rules. This time though, I was allowed to share my answers granted that (a) I didn’t disclose the identity of the group, and (b) I didn’t get in the questions directly related to their activity. It’s a first and very cool from them to allow this 👍
Why do I share this anyway? In this kind of exercise, the questions are often as interesting as the answers. They reveal the known unknowns and unknown unknowns of these companies and should push you to question your market in the same way. How open minded are you about your uncertainties and the risks you are facing ahead? Are you prepared to see completely different markets entering a collision course with your own?
Here are the key points:
In your opinion, what are the trends that will most impact the automotive sector in the coming years?
Undoubtedly three major trends are:
- China transitioning to more and more “green” energy leading to the explosion of cost efficient electric vehicle platforms (the so-called “skateboards”), impacting both European and American incumbent automakers.
- With the abundance of low-cost hardware platforms and the push of the GAFAMs, the explosive digitization of the “car” as a software and data platform.
- The growing lack of consumers appetite for personal cars, which is demonstrably not just a “generational” issue but cross-demographics, compounded by the lack of appetite for car-sharing solutions (as demonstrated by the troves of startups that failed to deliver on this model).
What transformations do you foresee for the configuration of the automotive value chain?
- The internal challenge of reinvesting in hardware manufacturing for EVs, while also investing in the car as a software platform, in a depressed market.
- The equally problematic customer-facing challenge of addressing new needs that invalidate the post-World War II sales model (show-rooms vs. direct-to-market, buying or leasing vs. mobility as a service, etc).
What changes in user behavior trends seem to you to be the most significant?
Certainly customers across many countries and pretty much across all generations are disputing the utility of cars (Is a “car” really the optimal mobility solution for me to commute or do grocery shopping?), compounded by a growing sense of rationality about their total cost of ownership (How much is it reasonable to pay each month to ensure my mobility?).
It’s fair to expect these trends to be fueled (pun not intended) furthermore in a post-Covid society opening a long term global depression.
What disruptions do you see?
The lock-in of the “tech companies” around the car, both in China and in the US is well advanced. If we step back from just “the car” all the surrounding software bricks have been secured by industries that are not incumbent automakers (not even automakers per se). From paying systems, to mapping and geo tracking, detection and security systems, connected roadside assistance, energy… etc, very few automakers have yet up-to-date skills, IPs and know-how’s.
What are the main challenges for historical players in the sector?
I would frame it with a simple challenge: turning around 80% of their culture of operational excellence from engineering thermic motors to delivery connected mobility within a few years.
What are the main unknowns for the coming years?
Maybe counter-intuitively to what I said up to now, the main unknown is certainly how fast Chinese EV automakers will address their mainland market before deciding if they have to export. Unlike Japan in the 70s, Chinese industries have little track records or know-how’s at addressing foreign markets. For now.
Have you noticed any significant trends in other sectors that you find inspiring or to monitor for the automotive sector?
- Even if it’s now a commonplace insight, I’d say that parts of the telco mobile industry can still be inspiring on how to retool and sustain a global value chain cross-markets.
- The evolution and the competing logics and cultures, of Amazon and Alibaba are even more interesting. Notably, the way they internalize the supply-chain side at an aggressive pace, while maintaining extremely regional touchpoints and offers on the customer side.
What types of new players could integrate/ gain greater space in the automotive value chain in the future, in your opinion?
No doubt for me on Amazon, with the double focus they have on reinventing their supply chain and investing in fleet of delivery vehicles (with extremely liquid financial availability and no fear of shedding past sunk cost) and the underlying powerhouse that is Amazon Web Services for data, AI and any form of software based capabilities.
To be clear, I don’t believe that they will want want or try to replace automakers or compete directly with them. But the choices and the investments they are making around vehicles at scale are setting up standards and redefining the way the industry will operate.
Tesla, is still in my opinion extremely underestimated as a small challenger with expensive cars (which they are), while they should be read as one of the most important energy company in the mobility market (which they are too, right after China).
Could platforms take up a bigger role in the automotive sector?
Yes, definitively as aggregators. But not as passive aggregators as it’s maybe thought. Their business is to have direct control (and revenues) from the underlying bricks that operate every market (again: payment, social, ads, geolocation, data, decision-making with AI, insurance, credit rating, etc). The car is just an externality of the mobility market, which they control from most of its sides.
The fight is not on the car, it’s on everything else that surrounds the car.
What do you think of new business models in the automotive sector (MaaS)?
I have been extensively working on this market during the summer for both public institutions in Europe and industrials in the IT sector. It’s… complicated.
If I try to sum up the key ideas: MaaS is an idea not a reality as we speak. The incentive of building an integrated MaaS platform are actually very few, unless you are a GAFAM that already provides most of the bricks.
On the customers side MaaS embodiment is essentially e-ticketing for public transports (which is still depressingly quite difficult for most cities outside of Asia) and ride-hailing. Their is not much proof of more needs or fancier solutions for now.
Thinking in term of new options when you order your vehicles, seems nowadays more of rationalizing what automakers would like to do as an upsale. I don’t see a lot of proof that customers are really driven by this or by personalization for instance. The car is demonstrably less and less of a status symbol, quite often now a negative one in some markets. There could be an interesting discussion on this, on the software side and embarked apps that are for now by all accounts very clumsy.
But yes, the logic of on-the-fly / over-the-air OS upgrades seems to be more and more expected by consumers used to have their mobile, their TV or washing machine upgraded every few months. Whether with new functionalities, or more energy-efficient options.
Do you know of another business model that could impact the mobility and automotive sectors?
Beside everything that was already listed, I would find interesting to focus more and more on how customers finance their mobility (with a car). If MaaS is still a stretch, bundling services would be interesting to explore (no one is yet bundling energy very much, even Tesla is somehow backtracking).
The way credit scoring is done to accept a personal loan or a leasing, if we stay with old-school models, is also under a lot of innovation pressure as we speak.
Do you foresee a global, highly specialized production value chain or smaller production sites that will meet local demand and will have to be highly flexible? In which parts of the world?
Both, again the Amazon / Alibaba models (they are very different) are key to explore in my opinion as glocal (global / local) hyper-industries. Their shared logic is (A) a central operation platform that create hyper-scalable internal resources, technologies and processes, that are (B) deployed with hyper-flexibility at a regional (sometimes even local) scale.
Is there another trend/topic we should explore?
The retail luxury industry has faced many turbulences and changes these last 10 years and the way they adapted to different sales channels and increasing regionalization could be extremely interesting to explore today for an automaker.