Pick a random tech company, and chances are that they have an automotive related project in their pipeline. Apple, Google, Xiaomi, or NVIDIA are all of a sudden working on their entry in the automotive industry (TechRadar, 2022) What all these projects have in common is that they bet on the opportunity of the long-term digitization of the automotive industry. Whether these new entrants will be successful is up for debate, but that way we perceive cars and transportation is undoubtedly about to change.
From my previous piece the trend of digitization in the automotive industry has become apparent. BMW has vastly digitized their vehicles, enabling software to version their value proposition post- purchase. This is not only the case for BMW though, but an industry-wide trend. In 1970 electronics were responsible for 5% of the total manufacturing cost of an average car. In 2010 this rose to 35%, with the 2030 value forecasted at 50% (Statista, n.d.). At the same time Electromotive Vehicles (EVs) have had an explosive entry into the industry, set to grow their business eightfold by 2030 to $823 billion (Akshay & Sonia, 2022). (McKinsey, n.d.)
The trend has massive implications for the automotive industry as a whole. The above two points represent the erosion of powerful impediments of entry. The learning, scale economies and supply chains of traditional car manufacturers are becoming obsolete. The core capabilities of incumbents, such as precision engineering cylinders of a combustion engine is becoming a lot less significant. Simultaneously the IoT components, connectivity and entertainment offered in a car are of rising importance, something these incumbents have no particular expertise in.
Thus, entry is easier than ever, if you have excessive experience in offering consumer tech products, that is. Tech companies are exploring how they can exploit this trend to the fullest. Self-driving vehicles are providing opportunities to exploit their analytical expertise, which essentially all big tech companies have a project on. NVIDIA in particular is developing a modular plug-and-play self-driving capability, which traditional manufacturers and entrants alike can integrate in their vehicles (NVIDIA, 2019). The increased connectivity and the screens in vehicles create a new value space in the operational systems in vehicles. Google has been the most successful in this respect so far, with EV entrant Polestar fully adopting their system in 2020 (Polestar, n.d.).
Altogether, you should keep your eyes on the automotive industry in the near future. Cars are set to fundamentally change, and possibly their manufacturers as well.
References:
June 2021, A.M. 08 (n.d.). Apple Car: everything we know so far. [online] TechRadar. Available at: https://www.techradar.com/news/apple-car.
NVIDIA. (2019). Self-Driving Cars Technology & Solutions from NVIDIA Automotive. [online] Available at: https://www.nvidia.com/en-us/self-driving-cars/.
Our partnership with Google | Polestar. (n.d.). Our partnership with Google | Polestar. [online] Available at: https://about.polestar.com/partnerships/google [Accessed 16 Oct. 2022].
Singh, A. (2022). Electric Vehicle Market. [online] Allied Market Research. Available at: https://www.alliedmarketresearch.com/electric-vehicle-market.
Statista. (n.d.). Car costs – automotive electronics costs worldwide 2030. [online] Available at: https://www.statista.com/statistics/277931/automotive-electronics-cost-as-a-share-of-total-car-cost-worldwide/.
www.mckinsey.com. (n.d.). Automotive retail digitization in 2021 and beyond | McKinsey. [online] Available at: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/digitization-in-automotive-retail-in-2021-and-beyond.
I think this article is more relevant and interesting than ever, because for – let’s say – the past decade the automotive industry has been shifting focus and big corporations have experienced a loss in market share to new companies (e.g. Tesla). It’s fascinating that they forecast 50% of production cost to come from electronics by 2030. This innovation in automotive technology – in particular self-driving functionalities – has been and will remain to be a huge disruptive force in the automotive industry. I think that in the coming decades, the automotive industry will shift to being a software industry than a manufacturing industry. Big corporations (Volkswagen, Ford, etc.), mostly established in the early 20th century, will have to change their business model from mainly producing and selling cars, to creating automotive software. I think this is a challenge that the current managers are already fighting with and furthermore, I think that some, if not many, corporations won’t be able to keep up with the race, if you know what I mean. These corporations won’t be able to alter their business and will be taken-over by digital-native software start-ups. Another option for the big corporations would be acquiring these start-ups in order to keep up. Whatever way they choose, it will require hefty investments to remain relevant in the automotive industry.