What should be occupying the minds of many heads of OEMs and Tier 1 companies who are not planning to retire any time soon is the impact of what is known as Industry 4.0. “Bad strategy rather than tactics, such as misjudged new models, will kill several major automotive companies.
They face a perfect storm of peak car, totally new technology, totally new markets and recession,” says Dr Peter Harrop, Chairman of IDTechEx. There is support for his warning in a McKinsey report titled “Mobility’s Great Inflection Point,” which likens the digitization of everything to the way the world worked was changed by the Model T.
“Electric and autonomous vehicles, more interconnected and intelligent road networks, new customer interfaces and services, and a dramatically different competitive landscape in which tech giants, start-ups and OEMs mix and mingle are just a few of the shifts in store,” says Asutosh Padhi, senior partner and global coleader of McKinsey's Advanced Industries practice. He is backed by the Capgemini Research Institute, which found that automotive companies are “struggling” to innovate their business models.
Capgemini found that just 28% of automotive companies have launched a new business based on digital technologies. Only 19% believe their digital platforms allow them to reach customers who would not be reached through traditional approaches. Here they may well be heading down Harrop’s slippery slope to foreclosure. As Tom Arnold, Client Director (Automotive) of Acxiom, says “the industry is all about infrequent, high-value, high-consideration purchases. Brands know it’s not just about engaging with customers once every few years, but across the growing number of connections brands and drivers have spanning the entire buying and ownership journey. Being able to use data ethically to understand and engage customers is a key battleground for all car companies”. OEMs need their own intelligence in order to make sense of the conflicting messages.
In contrast to the accepted wisdom that people don’t want to drive, Deloitte’s 2019 Global Automotive Consumer Study found that consumer trust in autonomous vehicles (AVs) appears to be stalling. The study, which surveyed over 25,000 consumers across 20 countries, found that consumers’ appetite for self-driving vehicles was lagging behind the industry’s pace of investment in advanced vehicle technology. It also found that people are getting back into their cars. In 2018 only 12% of U.S. consumers used ride-hailing at least once a week, while those who use it “occasionally” reached 46%.
This is compared to 23% who used it at least once a week in 2017 and 22% who used it occasionally. The increase in “occasional” use supports pwc, which is predicting that more than one in three kilometers driven by 2030 could involve sharing concepts. At the same time the share of autonomous driving in overall traffic may reach as much as 40%. Europe and the US are expected to develop in parallel. China, it could happen much faster, making it the leader in the transformation of the automotive industry. Harrop is urging industry leaders to literally think out of the box. Citing the example of Rolls Royce, which as far back as 1915 started manufacturing aero engines. “No emerging EV sectors are big enough to replace the huge car market. Automakers have to select and win at several taken from, for instance, electric aircraft, buses and trucks, energy independent boats, solar agribots, e-bikes, unmanned mining, or mobility for the disabled including exoskeletons. Another example is electrified construction vehicles”. In short, what we do know is, as Yogi Berra said, “the future ain’t what it used to be”.
To survive manufacturers will need to get really close to their customers, and to be much more flexible in terms of what they make and the markets they serve – which is what “Industry 4.0”is supposed to be all about.