Report: The Revolution Ahead for Automakers
Deloitte spells out what carmakers must do to excel
Carmakers will have a tough time maintaining profits over the next 15 years unless they make “significant” changes in the way they sell and service cars.
So says Deloitte’s 101-page “Future of Automotive Sales and Aftersales Study.” Among the major conclusions about global trends through 2035:
- At least 80% of global growth in car sales will occur in China.
- Electrification will shrink the industry’s highly profitable service and repair business by 10%, even though global car sales will expand 50% by 2035.
- Very few players will succeed in mobility services, and only if consumers embrace the concept of car sharing.
- By 2035, almost all new cars will have some form of V2X (vehicle-to-everything) connectivity, but the levels will vary sharply, from at least 29% in Europe to at least 75% in China.
- The biggest technical hurdle for autonomous driving will be moving from Level 3 to Level 4, where human intervention in an emergency is no longer expected under most circumstances.
Deloitte notes that even small shifts in regulations can have a profound shift in these trends. That’s one big reason why specific trends will vary by market.
Consider electrification. The study predicts that electrified powertrains will propel at least four out of five new cars in China and Japan by 2035. China’s high ratio will be driven by government incentives and open-minded Chinese customers.
Japan already is the world’s strongest market for hybrid powertrains, although the proportion of plug-in hybrids remains very low. But the report says Japan also shows “exceptional focus” on becoming the global leader in fuel cell-powered vehicles and hydrogen-based mobility.
Deloitte predicts the ratio of electrified powertrains in the U.S. will reach 31%-45% in 15 years. The study says cheap gasoline and the country’s sprawling stretches of rural land will limit demand for electrification.
The ratio will be only four points higher in Europe by 2035, the report predicts. It notes that carbon dioxide emission standards are pushing carmakers to adopt electrification, but consumers still prefer piston power.
Even the most advanced new cars sold today offer only Level 2 autonomy, meaning that the vehicle can drive itself under specific situations, but the drive must be ready to take control at any moment.
Coming Level 3 systems allow drivers to take their eyes off the road, but they must remain ready to take over. At Level 4, the vehicle takes over driving responsibilities completely under many but not all conditions. Level 5 vehicles are completely automated in all conditions, so they don’t need a steering wheel or pedal controls.
Deloitte projects that two-thirds of new vehicles in China could have Level 4-5 capability by 2035. That compares with perhaps 59% in the U.S. and 43% in Europe.
But those percentages all depend upon regulations that encourage automated driving systems. Without that support, advanced robotic driving systems will reach only 10% in China, 8% in the U.S. and 5% in Europe, according to the report.
Shared mobility is largely an urban phenomenon, so its adoption will depend upon how much of a given market’s population lives in cities by 2035.
Deloitte says this trend also is taking off because of gains in the technical ability for fleets to coordinate the process of sharing vehicles. Again, China leads all other markets in ride-sharing, mainly because of a high degree of electrification, coupled with growing urbanization and government policies designed to reduce traffic congestion and improve air quality.
Demand is relatively high in the U.S. too. But growth is slower than other major markets, because of the country’s expanse and its relatively low adoption rate of electric vehicles, whose lower operating costs favor shared mobility services.
Mobility As a Service
The ultimate prize is to dominate the integration of connectivity, electrification, autonomous driving and ride/car sharing into mobility as a service.
Carmakers have the potential of generating compound annual growth of 11% in such solutions through 2035, according to the report.
China offers the greatest potential under Deloitte’s base case scenario in terms of overall revenue. But Europe could outstrip China if OEMs are able to take control of the mobility market. And the U.S., starting from a low base today, could become the world’s fastest growing market with compound annual expansion of 28%.
Deloitte says mobility-as-a-service promises “huge growth potential” in all markets. But conquering the field and emerging successfully from an early cloud of competitors will require a holistic approach that demands flawless and “profound” choices in partners, purchasing and expansion.
Where will carmakers fit into future mobility? Deloitte’s report offers four scenarios. The report warns that all four outcomes require OEMs to “transform significantly” to gain market share and defend against competitors in the mobility space.
In the best case, OEMs control and shape a broad array of user-oriented traditional and new mobility products and services. Under the worst scenario, carmakers supply vehicles to tech companies that become the dominant mobility providers. Eventually, the dealership system becomes obsolete and tech companies begin selling self-branded vehicles.
Under another scenario, OEMs successfully transition to new retail sales and repair networks, enabling them to coexist with new digital market competitors. In a fourth situation, carmakers retain their traditional dealer networks but face growing competition from online retailers, slowly losing their bargaining power over the marketplace.
To succeed, the report says, OEMs must build a better understanding of the connection between their business units and emerging global trends.
Doing so will involve risk assessments, investment reviews and a willingness to jettison current operating structures in favor of more cooperative ways of functioning. Carmakers also must fully digitize their entire value chain, develop big-data analytics, build strategic partnerships and integrate vehicle connectivity with customer engagement techniques.
On the retail end, the OEM to-do list includes simplifying current sales architectures, more fulling integrating the customer experience and tune up their fleet businesses to make them more cost-effective for customers.
It’s a tall order. But as Deloitte concludes, it’s also do-or-die time for traditional carmaking.