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Fast and furious: Why making money in the “roboconomy” is getting harder
The 2017 Strategy& Digital Auto Report
September 2017
www.strategyand.pwc.com
The 2017 PwC’s Strategy& Digital Auto Report
Key facts and main contents
The 2017 Strategy& Digital Auto Report: Insights for an industry in turmoil
2
Key facts
• Sixth annual Digital Auto Report, developed by Strategy&
• Global study, with a focus on the U.S., the E.U., China
• Quantitative market forecasts based on detailed research
• Interviews with key industry executives at OEMs and suppliers, leading academics, and industry analysts
Main contents
Digitization of the car: When can we expect the true ramp-up of connected, autonomous, and electric vehicles? What does it mean for the business?
Industry profit shifts: A perspective on the large-scale changes impacting the industry participants, including OEMs, suppliers, new alliances, new players
OEM success factors: What does it take to reshape the business to weather the upcoming changes? Who will be successful?
Impact from mobility: What are the latest dynamics in the fast-growing new mobility market? What is the market potential? Who will win or make money?
The 2017 PwC’s Strategy& Digital Auto Report
• Cars becoming autonomous, electric, and connected
• Large-scale emergence of mobility and digital services
• Omnichannel, digital commerce, and personalization• Customer insight/data analytics, predictive services• Marketplaces• Always-on service relationship
• IT transformation• ID, cybersecurity, payments• Industry 4.0 — horizontal and vertical integration
between suppliers and partners
Revolutionary phase:Disruptive change
Digital enterprise
Digital customer
experience
Digital products
and services
Primaryfocus of thisreport
2017 has confirmed that technology drives a sustained shift in automotive: autonomous/electric/connected and mobility services as #1 priority
3
Revolution of the automotive industry
The 2017 PwC’s Strategy& Digital Auto Report
Yes, mobility is a $2.2 trillion opportunity, but it will halve today’s players’ share of profits
4
• Yes, the future of mobility is a US$2.2 trillion opportunity — but ...– The digital auto revolution toward a shared/autonomous scenario is sparking intense competition, a margin squeeze, and high
capital expenditure– Competition, technology, and scale will drive down the average cost-per-kilometer for using shared transport to <50% of
today’s levels– That will reduce by 10% the amount that consumers spend on mobility by 2030– In the growing shared/autonomous/fleet-based segment of the market, OEMs, suppliers, and dealers in the U.S. and E.U. will
see their share of industry profits cut in half from 85% in today’s owner/driver/retail model– Automotive markets in the U.S. and E.U. will contract as a result, forcing consolidation of OEMs and suppliers
• All this will be propelled by unstoppable trends– By 2030, up to 37% of kilometers traveled will be done by shared and autonomous (and sometimes pooled) vehicles– Households buying premium vehicles in mature transport markets will spend ~$3,800 per annum on shared mobility– The full shared mobility market — shared fleets, vehicle pooling — will be worth about the same as today’s global e-commerce
market– In 2030, shared mobility will be hypercompetitive and regional/local, involving OEMs, digital tech firms, city councils, utilities,
transport authorities, logistics, and e-commerce fleets
The 2017 PwC’s Strategy& Digital Auto Report
Playing in this space requires a reconfiguration of OEMs’ strategies
5
• OEMs need to fix their strategies and align with shareholders– Shared mobility is barely profitable today, and full autonomy will come by 2027 at the earliest– Large amounts of high-risk capital are required to fund growth of autonomous fleets and customer acquisition– OEM boards need to choose between:
• (1) leaving the field to emerging “carriers” — fleet operators, mobility platform players — and becoming “thin specialists/design shops” and
• (2) making a big commitment to penetrating the mobility market, finding new investors, and running a new diversification strategy
– Whichever is chosen, OEMs will face a talent squeeze as software and Internet firms expand research and development by 15% year-on-year
The 2017 PwC's Strategy& Digital Auto Report 6
Agenda01 Autonomous & electric & connected: By when?02 Scale and impact of mobility … and growth of the roboconomy03 Industry profits reshaped by the roboconomy04 Imperatives for the OEM — organizing for success in services05 Outlook: Flying cars and tunnels on the horizon
The 2017 PwC's Strategy& Digital Auto Report
Autonomous & electric & connected: By when?
7
01
The 2017 PwC’s Strategy& Digital Auto Report
Electric to grow strongly beginning in 2025, autonomous level 4/5 to become mainstream after 2028, niches such as robotaxis to proliferate sooner
8
New car sales — global forecast
• Tech will allow level 4/5 adoption from 2028 on• Pull from launch of robotaxi models from 2025 on
100
80
60
40
20
0
33
63 68
23
45
52
7
20202017
49
14
~0
2025
0513
82
30
75
2030
12
28
11
1
• Strong legislative push from 2020 on• Price tipping point and sufficient charging
infrastructure ~2025• Potential prohibitions for combustion engines
from 2030 on
New car sales: Autonomous(U.S./E.U./China; in millions)
• Legal and customer pull for connected cars means 100% of new cars in U.S./E.U./China will be “connected” beginning ~2022
New car sales: Connected(U.S./E.U./China; in millions)
New car sales: Electric(U.S./E.U./China; in millions)
100
40
80
0
60
2065
8275
8275
56
2020 2025 20302017
63 68
Not connectedConnected
100
80
60
0
40
20
2
2025
29
47568
2017 2020
44
34
8
59
1 2
2030
31
61
14
82
63
HybridCombustion Electric
Note: Totals may not equal sums shown due to rounding. Source: PwC Autofacts; Strategy& analysis
Level 5 Level 1Level 3Level 4 Level 0Level 2
The 2017 PwC’s Strategy& Digital Auto Report
We forecast a population of ~470 million connected cars in the U.S., the E.U., and China by 2025, and ~80 million level 4/5 autonomous cars by 2030
9
Installed vehicle base and key assumptions(in millions; autonomous = levels 4 and 5)
Move to shared/autonomous after policy and technology breakthroughs
Growth of overall distance driven and relative share of vehicle-based mobility (China in particular)
Increased vehicle utilization and turnover due to sharing/pooling
Declining vehicle base due to sharing/pooling
Temporarily increasing overall new car sales
Note: Totals may not equal sums shown due to rounding. Source: PwC Autofacts; Strategy& analysis
2017 2020 2025 2030Autonomous Electric Connected Autonomous Electric Connected Autonomous Electric Connected Autonomous Electric Connected
U.S. - 0.5 31.3 - 2.2 67.3 2.1 11.3 116.3 20.8 45.0 146.0
E.U. - 0.8 32.6 - 1.5 71.3 2.7 9.5 123.5 27.1 45.4 147.7
China - 1.2 27.8 - 4.0 99.2 2.4 20.5 230.9 33.1 73.7 299.0
Total - 2.5 91.7 - 7.6 237.7 7.3 41.2 470.7 81.0 164.0 592.7
The 2017 PwC’s Strategy& Digital Auto Report
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
– 5G technology
Autonomous driving
• Infrastructure technology
• Vehicle technology
– Level 5 infrastructure technology
– Level 5 technology
– Operating models
– E-mobility
– E-hailing/car sharing– Robotaxis
– Laws and regulations• Legal (laws and regulations)
• Mobility services
Deep-dive autonomous driving: Mainstream ramp-up of level 5 autonomous driving is expected no earlier than 2027–28
10
Forecast time line for level 5 autonomous driving based on main elements
Battery electric vehicle price tipping point
Source: Strategy& analysis
Pilot projects L5
Pilot applications/exceptions Ramp-up/adaptation to national laws Series application/laws and regulations mandatory
The 2017 PwC’s Strategy& Digital Auto Report
L5 autonomous driving will be difficult to achieve with current tech, confirming need for infrastructure and significant tech innovation
11
Key algorithmic means to achieve L5 autonomous driving
Convolutionalneural
networks
• Convolutional neural networks (CNN)• Long short-term memory neural networks (LSTM)• Reinforcement learning• Pooling of results of mapping and neural network training• Societal acceptance of technology risks/opportunities
Driv
ing
mod
es
All other(e.g., country roads, natural disasters/very low visibility)
Inner-city driving
Predetermined city routes
Predetermined closed campus or suburban
Traffic jam
Infrastructure availability
Visible, consistent road infrastructure
Central traffic informationHigh-resolution maps
V2X (DSRC, 5G) communications with sufficient participants
None of the preceding
Rules engineHighway cruising
Predetermined highway routes
• Next-generation AI algorithms — general purpose intelligence/increased context awareness
• In-car AI training
and/or
• Sufficient tolerance level for accident frequency
• Driving limitations outside designated areas (effectively L4)
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Mobility costs for reference vehicles
Deep-dive electrification: Between 2025 and 2030, the cost of battery electric vehicles will fall below the cost of combustion engines
12.
*ZEZ: zero-emission zone**Largely depending on charging power
ContentFull reload
2017 Range (km) Refuel time (min) Access to ZEZ*2030
TCO/mobility cost in €/100km Usability
Zero local emission and low noise
Assuming full tank
✘
o
✔
✔
o
ICE/MHEV
PHEV
BEV
FCEV
ICE/MHEV
Diesel/ gasoline
Electrical energy
Synfuel
Hydrogen
DepreciationFuel cost Other (tax, maintenance, insurance, and bonus)
55.5
23.8 33.4
9.0
12.1 69.3
41.2 5.3
49.96.8
52.29.0
39.5
35.4 7.9
3.5
55.933.4 12.110.4
7.2
8.9 50.7
8.7 10.7
6.5
11.9
36.9
35.4
54.835.8
54.534.8 12.17.7
64.417.5 34.8 12.1
56.2 600
700
700
400
700
5
5
5
5
30–360**
ICE = Internal combustion engineMHEV = Mild hybrid electric vehiclePHEV = Plug-in hybrid electric vehicleBEV = Battery electric vehicleFCEV = Fuel cell electric vehicle
Note: Totals may not equal sums shown due to rounding. Bonus of €5,000 (BEV/FCEV) and €3,000 (PHEV) included for 2017 Source: Strategy& analysis
Good performance Medium performance Weak performance
The 2017 PwC's Strategy& Digital Auto Report
Scale and impact of mobility … and growth of the roboconomy
13
02
The 2017 PwC’s Strategy& Digital Auto Report
Mobility choices for consumers continue to expand and multiply fast
14
Overview of mobility landscapeActive mobility Passive mobility
Non-motorized Personal car Rental
Car sharing Ride hailing Ridesharing
Public trans-portationStation-based Free-floating Corporate P2P Taxi Private hire P2P
Description Using own muscular strength to move
Possession and usage of car
Renting a car for a day or longer; picked up and returned at fixed stations
Short-term ride;vehicles picked up and returned to specified parking spots
One-way rides; vehicles picked up and parked in area of operations
Company carpoolsaccessible to employees of one or more companies
Sharing of personal cars with others
Official taxi brokered tocustomer
Licensed limousines orvans
Offering rides according to customer demand
Person offering seats in his car to others on a personal trip
Local network of buses, rail, etc.
Driver n/a Vehicle possessor
Renting or authorized person
Registered customers
Registered customers
Employees of companies
Peers (private persons)
Licensed taxi driver
Licensed driver Usually self-employed unlicensed drivers
Private person Professionalemployees
Owner Private person Private person or company
Rental company Car-sharing company
Car-sharing company
Car-sharing company
Private person Taxi company Private hirecompany
Private persons(usually driver)
Private person Cities, municipalities
Customer interface
n/a n/a Website/app or rental stations
Website/app car-sharing company
Website/app car-sharing company
Administrator Website/app service provider
Website/app service provider
Website/app private hirecompany
Website/app service provider
Website/app service provider
Shops, website, apps, ticket machines
Examples Walking or bicycling
Private car orcompany car
Hertz, Sixt Flinkster, TeilAuto DriveNow, Car2go
AlphaCity Croove Mytaxi Blacklane, myDriver
Uber, Lyft, Ola BlaBlaCar, MiFaZ MVG, BVG, Metro
On-demand pooling(multiple persons per ride)UberPool BlaBlaCar Hailed shared
taxi or call-a-bus services
Supporting servicesIntegrated mobility Parking E-mobility
Examples FromAtoB, Mobility Map, Moovel, Citymapper ParkNow, Parkmobile, EasyPark, PayByPhone Chargepartner, ChargeNow, PlugSurfing
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
In the future, key areas of mobility services (fleet, operations, regulation, infrastructure) will be local; global plays are unlikely to remain
15
Mobility services will be mostly regional/localElement Max. scale/level Example
Customer interface
• Website• App
Global Apps from Car2go, DriveNow, Lyft, Uber
Regulation• Legal standards• Safety standards• Competition laws
National P2P ride-hailing restrictions in Germany
Fleet operations
• Vehicle cleaning/maintenance
• Drivers
Local Acquisition/hiring of drivers
Fleet ownership
• Cars• Vans
Super-regional
Large fleet ownerssuch as rentals, OEMs, captives
Mobility infrastructure
• Parking• Charging
Local Parking allowance for car sharing
Infrastructure• Municipalities• Administrations
Local Streets, smart infrastructure
1. Strong regulatory moves on national and/or city level
2. Various regulatory restrictions (e.g., for ride hailing)
3. Continued innovation of mobility services from multiple players (e.g., car sharing, ride sharing)
4. Strong competition among regional players for expansion to get customer access and gain market share
5. Multiple types of players: public transportation, utilities, logistics, municipalities, OEMs, digital tech players, etc.
6. Traffic reduction initiatives in cities and municipalities
7. Development of on-demand public transport services
8. Development of new mobility modes such as high-speed tunnels or “air solutions”
9. Convergence of mobility services due to spreading of autonomous driving
10. Battle of industries for the downstream value-add
Attempts at global plays will face challenges
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Consequently, we expect a complex local competitive setup in each city, eventually converging in the autonomous future and driving down margins
16
Long-term development of mobility services
Rentals(e.g., car-sharing fleets)
Short to medium term FuturePersonal car(self-driven)
Personal car(autonomous)
Cities(e.g., on-demand public transport)
Car sharing• Station-based• Free-floating• Corporate• Peer-2-peer Shared autonomous
1. Individual2. Pooled
OEMs(e.g., mobility services)Utilities(e.g., own EV fleets)Tech players(e.g., forcing autonomous driving)Captives(e.g., corporate car sharing)
Ride hailing• Taxi• Private hire vehicles• Peer-2-peerRide sharingPublic transportation Public transportation
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
49%
26%
100%
40%
20%
80%
0%
60%
50%
30%
10%
90%
70%
2019182017 3029
15%
10%
27 282625232221 24
44%
37%
27
9%
2923 28212017 262524222018 19
10%
30
Shared autonomous will account for 25–37% of total person km driven in 2030; personally owned autonomous highest in Europe
17
Distribution of mobility types(in % of total person km ”road” driven)
Personally owned autonomous Shared autonomousPersonally owned driver-driven Shared driver-driven
55%
25%
2825
11%
9%
2620 3029272423222119182017
Main driver: urban pooled/shared level 4
or 5 robotaxis
Source: PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Hence, the vehicle base may decline by 25% in the E.U./U.S. and flatten out in China until 2030; new car sales will accelerate to create robotaxi fleets
18
Global mobility development Vehicle-based passenger travel
(in km trillions)New car registrations
(in millions)Vehicle base (in millions)
10
8
12
2
6
4
02025
11.7
9.5
6.1
2017
1.1
2020
3.0
1.6
2030
10.29.7
Shared autonomousPersonally owned driver-driven Personally owned autonomousShared driver-driven
400
0
200
600
300
500
100
19
2030
41629
556
11
560
356
20252017
531
2020
50
40
30
20
0
10
20302017
39.0
2020
36.6 10.6
45.9
2025
11.4
36.0
2.9
20.9
+
8
4
10
6
2
0
3.2
20252017
3.8
0.93.1 0.7
2020
3.95.5
8.6
2030
250
350
50
150
300
200
0
100
8
20302025
16
235
23127617
20202017
306
185
40
30
20
0
10
2030
2.6
2020
31.6
2017
35.7
15.3
11.1
6.8
35.6
2025
27.5
Note: Totals may not equal sums shown due to rounding. Source: PwC Autofacts; Strategy& analysis
Comments• Increase in distance driven due to rising
population and growth of shared mobility services
• Decline of vehicle population due to higher utilization of shared and autonomous vehicles
• Car ownership is still important, so personally owned autonomous vehicles represent a large proportion
• Driven distances in China will pass indivi-dual levels of E.U. and U.S. around 2025
• Decline of vehicle population will happen later, as distance driven and motorization rate increase strongly
• Due to strong increase in shared mobility, vehicle sales may drop during the transformation, before higher turnover rates push sales
The 2017 PwC’s Strategy& Digital Auto Report
The value of shared mobility (“MaaS”) will reach ~US$1,500 billion in the U.S./E.U./China in 2030, growing at combined 24% p.a. from 2017 to 2030
19
Estimated MaaS market size development, U.S.(in US$ billions)
Estimated MaaS market size development, E.U.(in US$ billions)
Estimated MaaS market size development, China (in US$ billions)
47
2025
292
20302017
458
467
20302025
214
2017
25
2025
97
2030
564
2017
15
CAGR 2017–30
+19%
+25%
+32%
Source: Expert interviews; PwC Autofacts; Strategy& analysis
• Global vehicle-based passenger travel as key underlying driver
• Total (shared/traditional) price per distance traveled derivation based on historical household spending
• Price for shared mobility significantly decreasing due to – reduced vehicle-related costs
(efficiency, maintenance)– autonomous driving– intensification of sharing/pooling
Comments
The 2017 PwC’s Strategy& Digital Auto Report
Some OEMs may choose a broad diversification into mobility, while others may choose to refocus toward “thin specialist/design shop”
20
Potential value chain integration playsBuild and run infrastructure (e.g., charge, park, V2X)
Build cars Design cars Retail cars (where B2C still relevant)
Finance cars Operate local/ regional fleets
Create and operate digital services
Retail mobility and digital car services
Partial-own value chain Full-own value chain
PotentialOEM
ways to play
Whatother
players may do
Today’s OEMs
Fully integrated OEM + mobility provider (comparable to “aircraft + national airlines/carriers + operations”)
Specialist (“ARM of cars”)
OEM + wholesale operations (comparable to “aircraft OEM + fleet operations”)
Mobility service provider
Utilities/energy companies
Ride-hailing firmsRide hailing
Retail/logistics/transport
Local startups
Specialist or general-purpose marketplaces
Cities Cities
Specialized lease/finance companies
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Key question: Should OEMs go asset heavy or asset light in mobility?
21
Value chain depths — asset heavy vs. asset light
Asset heavy Asset light
Car2go, DriveNow, ChargeNow, Tesla, Hertz, Amazon, DB
Mytaxi, ParkNow, Uber, Alibaba, Airbnb, Facebook
Offering scope
End-to-end delivery of owned product/service
Brokering of on-demand service/user-generated content
USP Availability, consistency, trust Choice, simplicity, price
Controlpoints Product; service delivery Customer insights and access;
supplier selectionDisruptionrisk
Loss of customer access to OTT providers
Direct buyer–supplier interaction; special interest portals
Business model Service fees, product sales Commission-based brokering (OTT),
marketplaces
Investment approach
Invest in R&D/asset buildup, optimize working capital à EBIT margins 5–15%
Invest in network/inventory growth, optimize user acquisition cost à EBIT margins 15–30%
• Two types of mobility business models: broker (asset light) vs. infrastructureprovider (asset heavy), each with potential competitive advantages (network synergies vs. entry barriers)
• Shareholders will demand a clear investment story that benchmarksagainst digital best practices
• Key question: Fleet financing — own exposure vs. partners vs. P2P?
Source: Expert interviews; PwC Autofacts; Strategy& analysis
Comments
The 2017 PwC's Strategy& Digital Auto Report
Industry profits reshaped by the roboconomy
22
03
The 2017 PwC’s Strategy& Digital Auto Report
The roboconomy creates opportunity on three levels to earn money for OEMs by addressing major categories of typical household spend
23
Vehicle lease, finance, insurance, maintenance
$3,963
$1,532
$5,245
$5,211
$2,996$6,830
Vehicle purchase, new
$2,832
$3,618
Entertainment (excl. restaurants, hotels)
$14,391
Public and other transportation
Others
Healthcare
Food, apparel
$30,424
Housing, personal insurance, pensions
Gas
Furnishing and housekeeping supplies
$3,603
Vehicle purchase, used
2017 average Western “premium” household annual expenditures:
US$80,644
Fifth-screen ecosystem
services
Cross-modal
mobility services
Augmenting the car through services
• Add digital services directly associated with use of the car, incl. functionality as a service to increase loyalty, sell more cars, achieve higher customer lifetime value
• Comparables: Connected TV/fridge, smartphone• Becoming mainstream, quickly commoditizing • Often substituting legacy value pools
• Provide mobility (e.g., hailing, sharing, parking)• Comparables: Digital category services — Netflix
(entertain), Amazon (shop), WhatsApp (message)• New type of business, displacing or rebundling legacy
mobility spend• Accessible to new entrants and OEMs
• Move beyond individual categories and become a hub for services and commerce (fifth screen)
• Comparables: Amazon, Apple, Facebook• New digitally enabled entertainment/commerce/comfort• Puts new categories in reach of new entrants
2017 Western premium household expenditures (in US$)
Digital services opportunity categories(Gross addressable expenditure per household in US$)
Roboconomy digital services opportunities
Note: Totals may not equal sums shown due to rounding. Source: Destatis; DIW; Eurostat; Trading Economics; U.S. Bureau of Labor Statistics; Strategy& analysis
ca.$6,600
ca.$14,900
ca.$23,300
2017
ca.$5,400
ca.$13,400
ca.$29,700
2030
The 2017 PwC’s Strategy& Digital Auto Report
Cross-modal mobility services/MaaS represents the single biggest opportunity for auto OEMs — both top and bottom lines
24
OEM digital service opportunity, 2030 Western premium household; in US$
2030 addressable household spend (gross)
Relevant household spend (gross)
Value retained by OEMs (gross margin)
5–8% of new car valuein digital services
~ 30% of spend shifted to sharedmobility
~10% of spend occurring during mobility through digital
channel
$5,400
$29,700$13,400
$3,800 $3,000$300
$30–6010-20%
$30–901-3%
$110–1903-5%
Fifth-screen ecosystem services
Cross-modalmobility services
Augmenting the car through services
Source: AAA; eMarketer; expert interviews; Euromonitor; PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
The resulting digital mobility services sector is a $2.2 trillion industry in 2030 — dwarfing today’s smartphone market, matching e-commerce market
25
Digital mobility services industry
437
291465
~2,300
Today’s e-commerce
market
Today’s smartphone
market
Today’s Apple App Store GMV
Today’s Spotify, Netflix,
Apple Music
2030 roboconomy
~2,200
Today’s roboconomy
Scale comparison — digital economy vs. roboconomy (in US$ billions)
158x 77x 5x 1x
Source: Bloomberg; company publications; eMarketer; IDC; Strategy& analysis
• The 2030 roboconomy is projected to be close to the size of today’s e-commerce market
• Roboconomy outgrows today’s smartphone market by a factor of 5, app store/on-demand media revenues by a factor of 75+
• Participants (including OEMs) need to create a new digital services business, which is in total 5x larger than current smartphone market
Comments
The 2017 PwC’s Strategy& Digital Auto Report
In a pure shared autonomous mobility scenario, households spend 20% less on mobility and profits shift drastically toward front-end and fleet players
26
270 13,410
1,0002,360
3,860
14,920
1,1102,490
3,960
2,830
4,260 1,470
1,790
2,93011,520
3,670
1,420
770
3,560
2,100
Distribution of Western premium household spend, 2030 (in US$)
Industry value added
Profit
1,000
100170
70340
260
1,085
170 180170
310220
90
5
140
520
1,090
80
290608301073
570
Today 2030 scenario Pure-play shared scenario
Industry distribution of household mobility spend in shared autonomous scenario
• In pure-play shared autonomous scenario, significant price decline overcompensates growth in household person-km
• In pure-play shared autonomous scenario, profit share of traditional manufacturing/retail of cars declines from 85% to <50%
• 2030 scenario assumes ~35% of total person km conducted in shared mobility
• Realized total profits are assumed to remain stable as a result of downward pressure from decreasing revenue, set off by new value from service value-add and reduced costs of development/production
Comments
Gas
Suppliers
MaaS OEM
Other (used vehicles, public transport) Lease, finance, insurance, maintenanceSource: Euromonitor; Eurostat; Frost & Sullivan; Gartner; HBR; HIS; National Automobile Dealers Association; NHTSA; OEM reports; Oxford Economics; PwC Autofacts; Technavio; Thomson Reuters; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
The long-term control point in digital services will be AI-powered hubs connecting customers with personalized services
27
Strategic control nodes in the roboconomy?
Source: Strategy& analysis
• Likely future control point for the roboconomy: “Artificial intelligence brain” steering personalized and predictive use of digital services across multiple domains (e.g., mobility, home, health), supported by data insight
• Multiple global contenders to occupy control point — can OEMs play here?
Comments
The 2017 PwC's Strategy& Digital Auto Report
Imperatives for the OEM — organizing for success in services
28
04
The 2017 PwC’s Strategy& Digital Auto Report
OEMs need to provide tightly coupled hardware and services to fulfill customer expectations and play successfully in the roboconomy
29
Customer perspective on mobility and services
Source: Strategy& analysis
• Mobility experience = hardware + software + services in a seamless, integrated, intuitive environment
• Monetization primarily through integrated experience value (not through individual services)
• Requires symbiosis between device (car) and services
Comments
The 2017 PwC’s Strategy& Digital Auto Report
Digital services will involve the buildup of hundreds and thousands of partners globally, including physical journeys and money flows
30
Ecosystem environment in the digital services cloud
Thousands of services in each market
Dozens of monetization business models
Hundreds of types of physical touch points
Tens of thousands of partners
Source: Strategy& analysis
Outlook• Exponential complexity for
OEMs• Today no OEM ready for
future opportunities at scale
The 2017 PwC’s Strategy& Digital Auto Report
Therefore, digital services are a radical departure from designing and selling cars — leading to tensions in OEMs planning to do both
31
Characteristics of traditional vs. digital services businessVehicle
businessDigital services
business
Portfolio Single category, 10 to 20 variants, numerous options
Many categories, need to be simple
Portfolio changes Low frequency (2 or 3 per year)Long lead times (3 to 5 years)
High frequency (<monthly)Short lead times (months)
Customers Dealers/workshops, few end customers in B2B End customers (direct interaction)
Frequency of interaction with customers
Monthly to yearly (sales, service, maintenance, accident)
Real time to weekly (sales, activation, usage, billing, etc.)
Channel mix Dominant: dealer/service partner Dominant: digital
Direct from end customer, instant reaction and modificationCustomer feedback Only via dealers, modification with
new release/face-lift
Frequent; bugs in services, access, etc.; solved in customer operations centerCustomer problems Infrequent; defects in product; solved
at the dealer
Source: Strategy& analysis
Outlook• Digital services business is
fundamentally different from vehicle business
• Need for a dedicated end-to-end operating model
The 2017 PwC’s Strategy& Digital Auto Report
The implied change for OEMs requires (1) a different way of doing R&D, (2) the buildup of a services business, (3) external innovation, and (4) talent
32
Capability implications for OEMs
Incubate new mobility business(es)
Create digital services innovation/ delivery/scale-up capability
Significantly expand strategic partnerships
Build direct-to-consumer relationship
Rearchitect internal innovation/R&D
Accelerate external innovation
Build ability to run end-to-end services
business
Access relevant talent
Key requirements to support aspirations Capability implications
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Top 20 global R&D spenders2016 rank 2015 rank Company Geography Industry R&D spend (in US$ billion)
1 1 Volkswagen Germany Automotive 13.22 2 Samsung South Korea Computing and electronics 12.73 7 Amazon U.S. Software and Internet 12.54 6 Alphabet U.S. Software and Internet 12.35 3 Intel U.S. Computing and electronics 12.16 4 Microsoft U.S. Software and Internet 127 5 Roche Switzerland Healthcare 108 9 Novartis Switzerland Healthcare 9.59 10 Johnson & Johnson U.S. Healthcare 910 8 Toyota Japan Automotive 8.811 18 Apple U.S. Computing and electronics 8.112 11 Pfizer U.S. Healthcare 7.713 13 General Motors U.S. Automotive 7.514 14 Merck U.S. Healthcare 6.715 15 Ford U.S. Automotive 6.716 12 Daimler Germany Automotive 6.617 17 Cisco U.S. Computing and electronics 6.218 20 AstraZeneca Britain Healthcare 619 32 Bristol-Myers Squibb U.S. Healthcare 5.920 22 Oracle U.S. Software and Internet 5.8
Example R&D: Continue to outspend most other industries globally
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OEMs’ R&D spending
OEM
• Increasing importance of innovative technologies drives increasing R&D spending
• Top OEMs have been among largest R&D spenders consistently for many years
Source: Bloomberg data; Capital IQ data; Strategy& 2016 Global Innovation 1000 study
Remarks
The 2017 PwC’s Strategy& Digital Auto Report
15%
0%
-10%
20%
10%
-15%
-5%
5%
Chemicals and energy
Aerospace and
defense
-12.2
Auto
-3.3
Telecom
-11.5
-4.0
Industrials
-2.8-1.8
OtherCon-sumer
0.7
-2.0
Computing and
electronics
15.4
Healthcare
3.6
Software and
Internet
This model is challenged: There will be a run on critical skills as software and Internet industries heavily increase R&D investments
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War for talent — strong R&D among tech firmsChange in R&D spending by industry2015–2016
Source: Strategy& 2016 Global Innovation 1000 study
• Significant increase in R&D spend in software and Internet businesses —many of them cited among most innovative companies and active in automotive
• As a result, large share of young R&D talent joining new tech firms
• Auto companies reducing R&D spend
Remarks
The 2017 PwC’s Strategy& Digital Auto Report
... and creation of agile organizational structuresBusiness model focus on digital principles ...
Digital companies organize R&D quite differently — faster, cheaper
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“Scale-up by design” by digital players
Note: TL = tribe leader, PO = product owner; guild works across tribesSource: Strategy& analysis
Small and autonomous teams with startup spirit/atmosphere
Interdisciplinary teams with clear product instead of functional focus
Fast go-live with minimum viable products —“Think it, build it, ship it, tweak it”
End-to-end responsibility of teams — from planning to development to operations
Extreme customer focus, internal as well as external
Deliberate, fast decision making — different for reversible and irreversible decisions
Amazon
Uber
Lyft
Didi
Apple
Ola
PO PO PO PO
Squad Squad Squad Squad
Chapter
Chapter
TL
Tribe
Spotify model
Principles• Split of applications in
microservices which leverage standardized platforms
• Systematic use of a cloud architecture to ensure scalability by design
• Strong in-house capabilities (product owner, technical owner) and small, agile, and integrated teams with clear responsibility for their own releases
Tribe (e.g., back-end infrastructure)
Squad (e.g., radio experience)
Chapter (e.g., developers)
Guild (e.g., testing)
The 2017 PwC’s Strategy& Digital Auto Report
• Aligned incentive structure for founder/team and corporate
• Willingness for high payout• Balance independence and synergy
potential for parent company• No restriction of the startup even in
case of cannibalization• Minimization of consolidation
requirements• Deliberate choice of exit strategy
and time
• Focused working environment, no distraction by corporates
• Linking of founders with internal organization
• Right level of supervision —investor, not corporate, mind-set
• No overfunding in early phases —“$50,000 instead of $2 million”
• Support for follow-up funding —also externally, particularly round A
Rather than doing only R&D, scaling up new businesses becomes key
36
Lessons learned from scaling of innovations
Ideation and sourcing
• Best startups = “no lemons” • Internal ideas “with real potential”• Selection criteria — “no CEO pet
projects”• Talent “innovator employer brand”• Team commitment — “no return
ticket”
Acceleration Scale up
Typical “stall”
Source: Strategy& analysis
The 2017 PwC's Strategy& Digital Auto Report
Outlook: Flying cars and tunnels on the horizon
37
05
The 2017 PwC’s Strategy& Digital Auto Report
The future may yet be very different as mobility takes new forms
38
Potential alternative future mobility options
Source: Strategy& analysis
Tunnels/tubesThe Boring Company
• Vision to shift traffic underground either by moving vehicles as fast as 200km/h on electric slides or by supporting Hyperloop (pneumatic high-speed tube) development
• Founded in 2016 by Elon Musk
• Objective to improve tunnel boring technology to increase speed of tunneling and reduce cost by >10 times
• Boring machine, tunnel, and car elevator tested at SpaceX headquarters in Hawthorne, California
• Interest from multiple cities in U.S. announced (e.g., Los Angeles, Chicago)
DronesVolocopter
• Want to provide all people with the opportunity to fly and improve urban mobility
• Founded in Germany in 2010, and prototyped VC1 as global first manned flight with an electric helicopter in October 2011
• Objective to develop an electric, five-seat flying taxi
• Funding partners include Daimler or Federal Ministry of Economics
• Test flight of first autonomous flying taxi in Dubai in 2017
Flying carsPAL-V
• Drive to offer people the most flexible form of mobility and the highest sense of freedom imaginable
• Strive to offer the best of both worlds — “fly-driving”
• Started in 2001, with the first flight of the proof-of-concept prototype in 2012
• Delivery of PAL-V Liberty as the first serial production flying car starting end of 2018
• Requires driver and pilot licenses
The 2017 PwC’s Strategy& Digital Auto Report
Get in touch!
39
Core team: 2017 Digital Car Report
Alex KosterPartner, PwC Strategy& Switzerland, Lead AuthorLead EMEA Digital Automotive
Felix KuhnertPartner, PwC GermanyGlobal Auto Consulting Industry Lead
Dietmar AhlemannPartner, PwC GermanyMobility and Digital Operating Model
Richard VierecklSenior Partner, PwC Strategy& GermanyLead EMEA Auto Consulting Industry
Jonas SeyfferthPrincipal, PwC Strategy& GermanyMobility and New Business Models
Marcus GlogerPartner, PwC Strategy& GermanyAutonomous Driving
Hartmut GüthnerPrincipal, PwC Strategy& GermanyAutonomous Driving
Steffen HoppePrincipal, PwC Strategy& GermanyMobility and Industry Trends
Thilo BühnenSenior Associate, PwC Strategy& SwitzerlandMobility and Industry Trends
Anne PohlmannManager, PwC Strategy& SwitzerlandMobility and Industry Trends
Christoph StürmerGlobal Lead Analyst, PwC GermanyAutofactsIndustry Insights and Trends
Dr. Jörn NeuhausenPrincipal, PwC Strategy& GermanyE-mobility
Michael KoflerConsultant, PwC GermanyAutofactsIndustry Insights and Trends
Further contributors
The 2017 PwC’s Strategy& Digital Auto Report
The 2017 PwC’s Strategy& Digital Auto Report
PwC’s Strategy& provides wide services — from strategy consulting, Experience Centers, analytics, and security to deep functional competence
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PwC Strategy& digital automotive capabilities
Strategy consulting
“Classic” strategy consulting
Growth strategies, sales concepts, pricing, product road maps,
efficiency programs
Deep operational consulting automotive
Product costs, factory optimization, supply chain, etc.
Digital strategy Business models Connected Car,
ecosystem, data strategy, governance, transformation
PwC Experience Centers Functional implementation Analytics and cybersecurity
Strategic partner networks
Management consultingProcess development, organization, change
Technology consultingIT transformation, new
technologies
Tax, legal, compliance, audit
Analytics, artificial intelligence, machine
learning
Cybersecurity
The 2017 PwC’s Strategy& Digital Auto Report
The 2017 PwC's Strategy& Digital Auto Report 41
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