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Disruptive trends that will transform the auto industryToday’s economies are dramatically changing, triggered by development inemerging markets, the accelerated rise of new technologies, sustainabilitypolicies, and changing consumer preferences around ownership. Digitization,increasing automation, and new business models have revolutionized otherindustries, and automotive will be no exception. These forces are giving riseto four disruptive technology-driven trends in the automotive sector: diversemobility, autonomous driving, electrification, and connectivity.Most industry players and experts agree that the four trends will reinforceand accelerate one another, and that the automotive industry is ripe fordisruption. Given the widespread understanding that game-changing disruptionis already on the horizon, there is still no integrated perspective on how theindustry will look in 10 to 15 years as a result of these trends. To that end,our eight key perspectives on the “2030 automotive revolution” are aimed atproviding scenarios concerning what kind of changes are coming and how theywill affect traditional vehicle manufacturers and suppliers, potential newplayers, regulators, consumers, markets, and the automotive value chain.This study aims to make the imminent changes more tangible. The forecastsshould thus be interpreted as a projection of the most probable assumptionsacross all four trends, based on our current understanding. They are certainlynot deterministic in nature but should help industry players better preparefor the uncertainty by discussing potential future states.## 1. Driven by shared mobility, connectivity services, and feature upgrades,new business models could expand automotive revenue pools by about 30 percent,adding up to $1.5 trillion.The automotive revenue pool will significantly increase and diversify towardon-demand mobility services and data-driven services. This could create up to$1.5 trillion—or 30 percent more—in additional revenue potential in 2030,compared with about $5.2 trillion from traditional car sales and aftermarketproducts/services, up by 50 percent from about $3.5 trillion in 2015 (Exhibit1).Exhibit 1We strive to provide individuals with disabilities equal access to ourwebsite. If you would like information about this content we will be happy towork with you. Please email us at:McKinsey_Website_Accessibility@mckinsey.comConnectivity, 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, especially insoftware-based systems, will require cars to be upgradable. As shared mobilitysolutions with shorter life cycles will become more common, consumers will beconstantly aware of technological advances, which will further increase demandfor upgradability in privately used cars as well.## 2. Despite a shift toward shared mobility, vehicle unit sales willcontinue to grow, but likely at a lower rate of about 2 percent per year.Overall global car sales will continue to grow, but the annual growth rate isexpected to drop from the 3.6 percent over the last five years to around 2percent by 2030. This drop will be largely driven by macroeconomic factors andthe rise of new mobility services such as car sharing and e-hailing.A detailed analysis suggests that dense areas with a large, establishedvehicle base are fertile ground for these new mobility services, and manycities and suburbs of Europe and North America fit this profile. New mobilityservices may result in a decline of private-vehicle sales, but this decline islikely to be offset by increased sales in shared vehicles that need to bereplaced more often due to higher utilization and related wear and tear.The remaining driver of growth in global car sales is the overall positivemacroeconomic development, including the rise of the global consumer middleclass. 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 behavior is changing, leading to up to one out of tencars sold in 2030 potentially being a shared vehicle and the subsequent riseof a market for fit-for-purpose mobility solutions.Changing consumer preferences, tightening regulation, and technologicalbreakthroughs add up to a fundamental shift in individual mobility behavior.Individuals increasingly use multiple modes of transportation to completetheir journey; goods and services are delivered to rather than fetched byconsumers. As a result, the traditional business model of car sales will becomplemented by a range of diverse, on-demand mobility solutions, especiallyin dense urban environments that proactively discourage private-car use.Consumers today use their cars as all-purpose vehicles, whether they arecommuting alone to work or taking the whole family to the beach. In thefuture, they may want the flexibility to choose the best solution for aspecific purpose, on demand and via their smartphones. We already see earlysigns that the importance of private-car ownership is declining: in the UnitedStates, for example, the share of young people (16 to 24 years) who hold adriver’s license dropped from 76 percent in 2000 to 71 percent in 2013, whilethere has been over 30 percent annual growth in car-sharing members in NorthAmerica and Germany over the last five years.Consumers’ new habit of using tailored solutions for each purpose will lead tonew segments of specialized vehicles designed for very specific needs. Forexample, the market for a car specifically built for e-hailing services—thatis, a car designed for high utilization, robustness, additional mileage, andpassenger comfort—would already be millions of units today, and this is justthe beginning.As a result of this shift to diverse mobility solutions, up to one out of tennew cars sold in 2030 may likely be a shared vehicle, which could reduce salesof private-use vehicles. This would mean that more than 30 percent of milesdriven in new cars sold could be from shared mobility. On this trajectory, oneout of three new cars sold could potentially be a shared vehicle as soon as2050.## 4. City type will replace country or region as the most relevantsegmentation dimension that determines mobility behavior and, thus, the speedand scope of the automotive revolution.Understanding where future business opportunities lie requires a more granularview of mobility markets than ever before. Specifically, it is necessary tosegment these 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, traffic jams, et cetera. By contrast, inrural areas such as the state of Iowa in the United States, private-car usagewill remain the preferred means of transport by far.The type of city will thus become the key indicator for mobility behavior,replacing the traditional regional perspective on the mobility market. By2030, the car market in New York will likely have much more in common with themarket in Shanghai than with that of Kansas.## 5. Once technological and regulatory issues have been resolved, up to 15percent of new cars sold in 2030 could be fully autonomous.Fully 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 (forexample, the ability to work while commuting, or the convenience of usingsocial media or watching movies while traveling).A progressive scenario would see fully autonomous cars accounting for up to 15percent of passenger vehicles sold worldwide in 2030 (Exhibit 2).Exhibit 2We strive to provide individuals with disabilities equal access to ourwebsite. If you would like information about this content we will be happy towork with you. Please email us at:McKinsey_Website_Accessibility@mckinsey.com## 6. Electrified vehicles are becoming viable and competitive; however, thespeed of their adoption will vary strongly at the local level.Stricter emission regulations, lower battery costs, more widely availablecharging infrastructure, and increasing consumer acceptance will create newand strong momentum for penetration of electrified vehicles (hybrid, plug-in,battery electric, and fuel cell) in the coming years. The speed of adoptionwill be determined by the interaction of consumer pull (partially driven bytotal cost of ownership) and regulatory push, which will vary strongly at theregional and local level.In 2030, the share of electrified vehicles could range from 10 percent to 50percent of new-vehicle sales. Adoption rates will be highest in developeddense cities with strict emission regulations and consumer incentives (taxbreaks, special parking and driving privileges, discounted electricitypricing, et cetera). Sales penetration will be slower in small towns and ruralareas with lower levels of charging infrastructure and higher dependency ondriving range.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 $150 to $200 per kilowatt-hour over the nextdecade, 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. Within a more complex and diversified mobility-industry landscape,incumbent players will be forced to compete simultaneously on multiple frontsand cooperate with competitors.While other industries, such as telecommunications or mobile phones/handsets,have already been disrupted, the automotive industry has seen very littlechange and consolidation so far. For example, only two new players haveappeared on the list of the top-15 automotive original-equipment manufacturers(OEMs) in the last 15 years, compared with ten new players in the handsetindustry.A paradigm shift to mobility as a service, along with new entrants, willinevitably force traditional car manufacturers to compete on multiple fronts.Mobility providers (Uber, for example), tech giants (such as Apple, Google),and specialty OEMs (Tesla, for instance) increase the complexity of thecompetitive landscape. Traditional automotive players that are undercontinuous pressure to reduce costs, improve fuel efficiency, reduceemissions, and become more capital-efficient will feel the squeeze, likelyleading to shifting market positions in the evolving automotive and mobilityindustries, potentially leading to consolidation or new forms of partnershipsamong incumbent players.In another game-changing development, software competence is increasinglybecoming one of the most important differentiating factors for the industry,for various domain areas, including ADAS/active safety, connectivity, andinfotainment. Further on, as cars are increasingly integrated into theconnected world, automakers will have no choice but to participate in the newmobility ecosystems that emerge as a result of technological and consumertrends.Would you like to learn more about our Automotive & Assembly Practice?## 8. New market entrants are expected to target initially only specific,economically attractive segments and activities along the value chain beforepotentially exploring further fields.Diverging 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 from there.While Tesla, Google, and Apple currently generate significant interest, webelieve that they represent just the tip of the iceberg. Many more new playersare likely to enter the market, especially cash-rich high-tech companies andstart-ups. These new entrants from outside the industry are also wielding moreinfluence with consumers and regulators (that is, generating interest aroundnew mobility forms and lobbying for favorable regulation of new technologies).Similarly, some Chinese car manufacturers, with impressive sales growthrecently, might leverage the ongoing disruptions to play an important roleglobally.* * *Automotive incumbents cannot predict the future of the industry withcertainty. They can, however, make strategic moves now to shape the industry’sevolution. 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 complements to the traditional business model, and exploringnew mobility business models and their economic and consumer viability. Thiswill require a sophisticated degree of scenario planning and agility toidentify and scale new attractive business models.Leverage partnerships. The industry is transforming from competition amongpeers toward new competitive interactions, but also partnerships and open,scalable ecosystems. To succeed, automotive manufacturers, suppliers, andservice providers need to form alliances or participate in ecosystems—forexample, around infrastructure for autonomous and electrified vehicles.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/services and change their value proposition from traditionalcar sales and maintenance to integrated mobility services. This will put themin a stronger position to retain a share of the globally growing automotiverevenue and profit pool, including new business models such as online salesand mobility services, and cross-fertilizing the opportunities between thecore automotive-business and new mobility-business models.Download the full report on which this article is based, Automotiverevolution—perspective towards 2030: How the convergence of disruptivetechnology-driven trends could transform the auto industry (PDF–2.4MB).