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Eight disruptive trends shaping the auto industry of 2030Technology-driven trends will revolutionise how industry players respond tochanging consumer behavior, develop partnerships, and drive transformationalchange. By Detlev Mohr, Dominik Wee and Timo Möller of McKinsey & CompanyDigitisation, automation, and new business models have revolutionised otherindustries. The automotive industry will be no exception. These forces aregiving rise to four disruptive technology-driven trends in the automotivesector: diverse mobility, autonomous driving, electrification, andconnectivity.Most industry players and experts agree that these four trends will reinforceone another, and that the automotive industry is ripe for disruption. Thisarticle aims to make the imminent changes more tangible – and looks at eightareas that will change dramatically until 2030.1. New business models could expand automotive revenue pools by about 30%,adding up to US$1.5trThe automotive revenue pool will significantly increase and diversify towardon-demand mobility services and data-driven services. This could create up toUS$1.5tr, or 30% more, in additional revenue potential in 2030, compared withabout US$5.2tr from traditional car sales and aftermarket products/services,up by 50% from about US$3.5tr in 2015 (Exhibit 1).Connectivity, and later autonomous technology, will increasingly allow the carto become a platform for drivers and passengers to use their time in transitto consume novel forms of media and services or dedicate the freed-up time toother personal activities. The increasing speed of innovation will requirecars to be upgradable.2. Despite a shift toward shared mobility, vehicle unit sales will continueto grow, but likely at a lower annual rate of about 2%Overall global car sales will continue to grow, but the annual growth rate isexpected to drop from the 3.6% over the last five years to around 2% by 2030.This drop will be largely driven by macroeconomic factors and the rise of newmobility services such as car sharing and e-hailing.Dense areas with a large, established vehicle base are fertile ground forthese new mobility services, and many cities and suburbs of Europe and NorthAmerica fit this profile. New mobility services may result in a decline ofprivate-vehicle sales, but this is likely to be offset by increased sales inshared vehicles that need to be replaced more often due to higher utilisationand related wear and tear.The remaining driver of growth in global car sales is the positivemacroeconomic development, including the rise of the global middle classconsumer. With established markets slowing in growth, however, growth willcontinue to rely on emerging economies, particularly China, while product-mixdifferences will explain different development of revenues.3. Consumer mobility behaviour is changing, leading to up to one in ten carssold in 2030 potentially being a shared vehicle and the subsequent rise of amarket for fit-for-purpose mobility solutionsChanging consumer preferences, tightening regulation, and technologicalbreakthroughs add up to a fundamental shift in individual mobility behaviour.Individuals increasingly use multiple modes of transportation; goods andservices are delivered to rather than fetched by consumers. As a result, thetraditional business model of car sales will be complemented by a range ofdiverse, on-demand mobility solutions, especially in dense urban environments.Consumers today use their cars as all-purpose vehicles. In the future, theymay want the flexibility to choose the best solution for a specific purpose,on demand and via their smartphones. We already see early signs that theimportance of private-car ownership is declining: in the US, for example, theshare of young people (16 to 24 years) who hold a driver’s license droppedfrom 76% in 2000 to 71% in 2013, while there has been over 30% annual growthin car-sharing members in North America and Germany over the last five years.Consumers’ new habit of using tailored solutions for each purpose will lead tonew segments of specialised vehicles designed for very specific needs. Forexample, the market for a car specifically built for e-hailing services – thatis, a car designed for high utilisation, robustness, additional mileage, andpassenger comfort – would already be millions of units today, and this is justthe beginning.Hence, up to one out of ten new cars sold in 2030 may likely be a sharedvehicle, which could reduce sales of private-use vehicles. This would meanthat more than 30% of miles driven in new cars sold could be from sharedmobility.4. City type will replace country or region as the most relevant segmentationdimension that determines mobility behaviourUnderstanding where future business opportunities lie requires a more granularview of mobility markets: by city types based primarily on their populationdensity, economic development, and prosperity. Across those segments, consumerpreferences, policy and regulation, and the availability and price of newbusiness models will strongly diverge. In megacities such as London, forexample, car ownership is already becoming a burden for many, due tocongestion fees, a lack of parking, and traffic jams. By contrast, in ruralareas private-car usage will remain the preferred means of transport.The type of city will thus become the key indicator for mobility behaviour,replacing the traditional regional perspective on the mobility market. By2030, the car market in New York is likely to have much more in common withthe market in Shanghai than with that of Kansas.5. Once technological and regulatory issues have been resolved, up to 15% ofnew cars sold in 2030 could be fully autonomousFully autonomous vehicles are unlikely to be commercially available before2020. Meanwhile, advanced driver-assistance systems (ADAS) will play a crucialrole in preparing regulators, consumers, and corporations for the medium-termreality of cars taking over control from drivers.The market introduction of ADAS has shown that the primary challenges impedingfaster market penetration are pricing, consumer understanding, andsafety/security issues. Regarding technological readiness, tech players andstart-ups will likely also play an important role in the development ofautonomous vehicles. Regulation and consumer acceptance may representadditional hurdles for autonomous vehicles. However, once these challenges areaddressed, autonomous vehicles will offer tremendous value for consumers. Aprogressive scenario would see fully autonomous cars accounting for up to 15%of passenger vehicles sold worldwide in 2030 (Exhibit 2).6. Electrified vehicles are becoming viable and competitive; however, thespeed of their adoption will vary strongly at the local levelStricter emission regulations, lower battery costs, more widely availablecharging infrastructure, and increasing consumer acceptance will create strongmomentum for electrified vehicles (hybrid, plug-in, battery electric, and fuelcell) in the coming years. The speed of adoption will be determined by theinteraction of consumer pull (partially driven by total cost of ownership) andregulatory push, which will vary strongly at the regional and local level.In 2030, the share of electrified vehicles could range from 10% to 50% of new-vehicle sales. Adoption rates will be highest in developed dense cities withstrict emission regulations and consumer incentives (tax breaks, specialparking and driving privileges, discounted electricity pricing, et cetera).Through continuous improvements in battery technology and cost, those localdifferences will become less pronounced, and electrified vehicles are expectedto gain more and more market share from conventional vehicles. With batterycosts potentially decreasing to US$150 to US$200 per kilowatt-hour over thenext decade, electrified vehicles will achieve cost competitiveness withconventional vehicles, creating the most significant catalyst for marketpenetration. At the same time, it is important to note that electrifiedvehicles include a large portion of hybrid electrics, which means that evenbeyond 2030, the internal combustion engine will remain very relevant.7. Incumbent players will be forced to compete simultaneously on multiplefronts and cooperate with competitorsWhile other industries, such as telecommunications, have already beendisrupted, the automotive industry has seen very little change andconsolidation so far. For example, only two new players have appeared on thelist of the top-15 automotive OEMs in the last 15 years, compared with ten newplayers in the handset industry.A paradigm shift to mobility as a service will inevitably force traditionalcar manufacturers to compete on multiple fronts. Mobility providers (Uber, forexample), tech giants (such as Apple, Google), and specialty OEMs (Tesla, forinstance) increase the complexity of the competitive landscape. Traditionalautomotive players will feel the squeeze, likely leading to shifting marketpositions in the evolving automotive and mobility industries, potentiallyleading to consolidation or new forms of partnerships among incumbent players.8. New market entrants are expected to target attractive segments andactivities along the value chain before potentially exploring further fieldsDiverging markets will open opportunities for new players, which willinitially focus on a few selected steps along the value chain and target onlyspecific, economically attractive market segments – and then expand fromthere. While Tesla, Google, and Apple currently generate significant interest,we believe that they represent just the tip of the iceberg. Many more newplayers are likely to enter the market.Automotive incumbents cannot predict the future of the industry withcertainty. To get ahead of the inevitable disruption, incumbent players needto implement a four-pronged strategic approach:Prepare for uncertainty: Success in 2030 will require automotive players toshift to a continuous process of anticipating new market trends, exploringalternatives and options that complement the traditional business model, andexploring new mobility business models and their economic and consumerviability.Leverage partnerships: The industry is transforming from competition amongpeers toward new competitive interactions, but also partnerships and open,scalable ecosystems.Drive transformational change: With innovation and product value increasinglydefined by software, OEMs need to align their skills and processes to addressnew challenges like software-enabled consumer value definition, cybersecurity, data privacy, and continuous product updates.Reshape the value proposition: Car manufacturers must further differentiatetheir products and services, and change their value proposition fromtraditional car sales and maintenance to integrated mobility services.Detlev Mohr is a Director McKinsey’s Stuttgart office and EMEA AutomotivePractice Leader, Dominik Wee is a Principal in McKinsey’s Munich Office andTimo Möller is a Senior Expert in McKinsey’s Cologne office.This article appeared in the Q1 2016 issue of Automotive Megatrends Magazine.Follow this link to download the full issue.

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