In, 2013, McKinsey & Co. published a predictive report, “The Road to 2020 and Beyond: What’s Driving the Automotive Industry?” Given that we’re about halfway to 2020, I thought it would be a good time to check-in and see how things are progressing.
Some key takeaways from the report:
- Connectivity becomes more important
- OEMs need to differentiate in areas that enhance the customer experience and build loyalty
- Rising complexity results in more variations of car models
Just as phones got smart, so will cars. They won’t quite think, but they will respond and remind. Cars on the road are being equipped with danger-warning applications, traffic information services, and a host of infotainment features and increasingly active safety features as well. The number of networked cars will rise 30 percent a year for the next several years; by 2020, one in five cars will be connected to the Internet. Delivering services through the car – Internet radio, smartphone capabilities, information/entertainment services, driver-assistance apps, tourism information, and the like – is a promising area … as is the creation of new technical features for safe, comfortable, and eventually, autonomous driving. To deliver on this, OEMs will have to manage shorter product and service development cycles, such as software and other technology updates.
What I think:
We are a lot closer now to autonomous than we were in 2013! I had my first experience riding in a Tesla Model S, where I got to see just how close it comes to autonomy (side note: Ludicrous Mode is much more exciting to me than the autonomous driving). The Model S was able to drive around curves, change lanes, and even slow and stop while following another car. It parallel-parked for me and even parked without me in the car, which was simply awesome. Some parts of the ride still required manual intervention, such as stopping at a stop sign or driving on a newly painted road. But it’s sure fun. Daniel Sparks recently wrote about his experience in driving 61 miles using Tesla’s autopilot feature, and after this experience says he’s “convinced autonomous production cars may come sooner than we think.”
We still aren’t there quite yet. The consensus was that fully autonomous cars would come through incremental innovation (Ariel Schwartz, writing in Fast Company, calls this “stepping stones”). Until recently, this was true. We’ll definitely continue to see updates being made to the tried-and-trusted cars of the past, but we’re also starting to see huge leaps in innovation from companies including Google (and not so secretly, Apple). This has pushed traditional OEMs to evaluate how they approach new technology. Alex Davies, in Wired, looked at Ford’s approach, which feasibly includes full autonomy within five years. GM has been very active in acquisitions and partnerships in order to keep up with the speed of the market – they acquired the self-driving startup Cruise Automation for $1B and invested $500M in Lyft to help shape the future of mobility.
As software invades every industry including automotive, and consumer demand for safety and infotainment features increases, OEM auto manufacturers are facing increased competition from players from industries better suited to meet this demand.
Jaguar Land Rover picked Jama’s hometown of Portland, Oregon, to launch its incubator program specifically to encourage, promote and support new software-based automotive technologies that are being developed by U.S. technology start-ups. Urban.Systems is focused on the future of connected infrastructure, Babybit will keep you connected to your baby from anywhere and ParkIt seeks to solve the pain associated with finding parking.
OEMs will have to manage rising production volumes – up to 70 percent in Asia by 2020. Electronics and software will play a dominant role in vehicle innovation. Approximately 90 percent of automotive innovations in 2012 featured electronics and software, especially in active safety and infotainment options. OEMs need to cut R&D costs while also developing and implementing new features faster.
Inside the car, premium OEMs could differentiate themselves with the help of design elements, new features in infotainment, and innovations directed at safety and comfort. Among the possibilities for differentiation, intuitive feature design and usage holds significant value potential but is currently one of the least tapped innovation areas. Beyond the tangible elements of products and features, these OEMs should provide offerings that enhance the customer experience and build loyalty through, for example, brand experience centers and superior interactions with the customer across all major touch points along the decision making and experience journey.
What I think:
The business models of the automotive industry will increasingly try to differentiate on the customer experience. In developed countries, we continue to see a downward trend in car ownership. Options such as Uber, Lyft, Car2Go and Zipcar give consumers more choice outside of the standard ownership model. OEMs such as Faraday Future are exploring unique ownership models, potentially allowing people to select the style of car based on the needs of the day. If you’re going camping, you’ll want an SUV, while a convertible is better suited for a day trip to the beach.
Automakers and suppliers spend about $18 billion on R&D in the United States, and much of it is spent developing in-vehicle electronics. According to PWC, “Compared with conventional cars, semiconductor content per vehicle is 1.5 to 3 times higher in electric cars and hybrids.” This increases complexity all the way through from manufacturing components to working with suppliers. To manage complexity, we will see more desire for improvements in functional safety, change management and ecosystem alignment across ecosystem.
In their 2015 Auto Industry Trends, PWC notes the cost of electronics and software content in autos make up 25 – 35 percent of the total cost of production and contributes about 90 percent in innovation. As auto manufacturers recognize the need for innovative electronic features to compete effectively in the changing landscape of automotive, players engaged in the manufacturing of safety systems, ADAs and infotainment will see increased demand. For example, semiconductor manufacturers serving the automotive industry is projected to grow at 8.2 CAGR vs. 5.2 for total semiconductor industry from 2014-19, according to PWC.
Well into the 1990s, major brands would build four or five different models off a single platform. But car buyers worldwide continue to be more and more demanding, seeking region-specific features, performance, and styling as well as an element of uniqueness even in mass market products as a way of differentiating and emphasizing individual taste and status. Most automakers respond to this demand with an increasing number of derivatives subject to markups compared with standard models. It is not uncommon to have 20 or even more such “derivatives,” as companies seek to profit from different market niches. In effect, derivatives share common non-consumer-facing product elements (e.g., common chassis underpinning, body structures, core components) in order to make differentiation of consumer-facing features profitable.
What I think:
Variants, or “derivatives,” as McKinsey calls them, have positives and negatives. True, they allow automakers to meet customer demands by getting “new” models out faster. But from a regulatory perspective, variant management can complicate the audit process. As each change gets introduced, it threatens to impact (already-approved) development in another variation. Sophisticated traceability, not just across requirements in tests in one model, but across every model in the portfolio, will be critical. Impact Analysis can help OEMs Move faster without sacrificing quality automatically highlighting not only what is impacted, but also whom.
We’re a little less than halfway between 2013 and 2020, and we’re already seen a huge shift in how cars are created and sold. Autonomous driving is no longer science fiction – it’s already here. All indicators are pointing to fully autonomous cars being on the road by 2020. Developed economies continue to see a push toward alternative mobility, including ride-sharing and on-demand ownership, while emerging markets are continuing trends of more car ownership.
Auto manufacturers and suppliers are moving at breakneck speeds in a heavily complex environment. We’ve seen record numbers of embarrassing and costly recalls in the past few years. As we move to a more autonomous world, cars will need to be able to reason and learn, just like a human (scary, huh?). For these improvements in mobility to really reach critical mass, we’re all going to need to feel safe in a world where control is being taken away. This is going to require a higher level of functional safety and compliance diligence than we’ve ever seen in the past.