Digitization in the automotive industry – The entry of Big Tech

16

October

2022

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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.

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Digitization in the automotive industry – A textbook example of versioning 

26

September

2022

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The story that sparked my interest in the automotive industry is the ridiculous example of BMWs heated seats subscription. The concept is very simple. You purchase your brand-new BMW, fully equipped with the standard hardware for high-end vehicles: Safety cameras, in-car entertainment and seat heating. The catch is that you cannot use these features, unless you subscribe to them in the brand-new BMW digital store. With one simple microtransaction you can unlock the luxury features of your car, which in practice is software unblocking the already existing hardware features. (Vincent, 2022)  

This is a textbook example of versioning of course. First, BMW has designed a highly versionable product. A high-end vehicle is sold to consumer. It includes all the necessary hardware to deliver a luxury experience. However, to actually use these features, users have to subscribe to them on the digital store, which in essence allows for a highly customizable experience for different consumers using the same car. As such, they self-select themselves into the exact level of luxury based on their separate willingness to pay.  

So, what makes this example so ridiculous? It certainly feels like a waste to have expensive hardware installed into a vehicle, for it potentially always to be blocked by a line of code a software engineer wrote. It is easier to see the ‘waste’ of this price discrimination with tangible goods as a car, but important to remember is that information firms have been applying this strategy for decades. Software packages have been slowed down, lowered in resolution and made less user friendly on purpose, just so that consumers would be tempted to purchase the premium versions. This example in essence thus shows that automobiles are starting to look more and more like information goods (McKinsey, 2021). 

But why are we seeing this in the automotive industry – a seemingly mature industry, dominated by powerful incumbents due to its high barriers of entry? The one sentence answer to this is that the increased digitization by recent entrants has shifted these industry dynamics (FutureBridge, 2020). 

In my next post I will explore these industry dynamics, introduce the concept of high-end disruption, and delve into the future implications of this.  

Reference list:

FutureBridge. (2020). Digitalization in Automotive Industry. [online] Available at: https://www.futurebridge.com/industry/perspectives-mobility/digitalization-in-automotive-industry/. 

Vincent, J. (2022). BMW starts selling heated seat subscriptions for $18 a month. [online] The Verge. Available at: https://www.theverge.com/2022/7/12/23204950/bmw-subscriptions-microtransactions-heated-seats-feature. 

‌ www.mckinsey.com. (2021). Mastering automotive software | McKinsey. [online] Available at: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/when-code-is-king-mastering-automotive-software-excellence. 

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