Digitisation, automation and new business models have revolutionised other industries. The automotive industry will be no exception. When looking at the future, the question on everyone's mind is: Can people go from point A to point B without really owning a 1,500-kilogramme lump of steel? The answer isn't a simple yes or no. But finding the answer is rooted in trends happening right now.
Deloitte University Press has envisioned four different personal mobility futures emerging from the intersection of two critical trends: vehicle control (driver vs autonomous) and vehicle ownership (private vs shared). It envisions four future states:
1. Private ownership remains the norm, with consumers opting for the particular forms of privacy, flexibility, security and convenience that come with owning vehicles.
2. With technology evolving faster than before and consumers shifting priorities to create a better world, we will see an uptick in the "collaborative consumerism" we are starting to see around us today -- peer-to-peer transport such as Uber -- which will save passengers from the hassle of navigating traffic and finding parking spaces.
3. Imagine a world with fewer accidents, fewer traffic deaths, greater energy efficiency and lower insurance premiums. This is the world of autonomous driving. The growth of the driverless revolution will be unprecedented, with an estimated annual value of around $560 billion by 2035 for the core services around self-driving vehicles. However, this assumes that most drivers still prefer owning their own vehicles while individuals seek driverless functionality for safety and other potential benefits.
4. The fourth future state anticipates a convergence of the autonomous and vehicle-sharing trends to offer a range of passenger experiences to meet varying needs at different price points.
All of these future states will co-exist; however, which state(s) will prevail depends much on the evolution of technology, government regulation and social acceptance. What is more noteworthy is that these trends will have serious implications for the automotive supply chain.
From value pyramid to hub and spoke: The existing supply chain of the automotive industry is structured as a pyramid with original equipment manufacturers (OEMs) at the apex controlling the customer relationships. Under OEMs are several tiers of suppliers, ranging from raw material and component suppliers at the base (third tier) up to system suppliers and fully integrated production partners (tiers 1 and 0.5).
The new business model is neither a chain nor a pyramid, but rather more of a hub-and-spoke arrangement. The finished vehicle remains at the centre, surrounded by indispensable and, in some cases, interconnected parts of a wheel: tier-x suppliers, OEMs, IT suppliers, online players, telecom companies and device manufacturers. If any part is removed, the wheel doesn't roll.
The player that controls the customer relationship is in the driver's seat and makes the wheel spin. For decades, OEMs held that responsibility but this might change in future, underpinning automotive industry changes from a pyramid to a wheel.
Today, the value of an average automobile is 90% hardware and 10% software. The future will look very different when hardware's share plummets to 40% and its profit pool sinks while more value will lie in the software (40%) and content (20%), including the apps that bridge and integrate the software and hardware. As a result, automotive software companies stand to gain the most. These companies could be technology firms, existing OEMs or suppliers that recognise the opportunity and capitalise on it early.
One such supply chain transformation is already under way, involving one of the top global OEM parts suppliers, Delphi Automotive. With 90 million cars produced worldwide, Delphi Automotive recognised the opportunity that today's cloud technologies presented to give drivers many exciting ways to remotely monitor and control their cars. It created Delphi Connect to do that, which can turn any car into a connected car with affordable, cloud-based telematics.
Kanishka Ghosh is a supply chain practitioner and regular contributor to The Link. The Link is coordinated by Barry Elliott and Chris Catto-Smith as an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: BJElliott@ABf1Consulting.com, cattoc@freshport.asia
