Connected car, automotive value chain unbound

The term “connected car”* is one of the most intensely debated buzzwords these days. There is no doubt that it will shape the future of the automotive industry, but how? Are consumers going to pay for it (and what is “it” anyway)? How will it impact the underlying revenue and profit pools? In addition, what will determine who will benefit from changes in automotive profit pools? These are the questions we often hear from clients in the automotive, telecoms, technology, and insurance industries, among others, who are impacted by the connected car. We intend to address these questions in this report. We have conducted significant primary market research with 2,000 car buyers across four geographies (see text box 1) and have built a proprietary feature-level market model (see page 19) to separate fact from fiction and create a quantified understanding of value chain dynamics. There are manifold definitions that are used when referring to the connected car. In this report, we include all use cases for passenger cars that build on processed information between vehicles and their environments. These use cases can be clustered along four relevant functional groups with particular relevance to passenger cars – each with its own value proposition, set of affected players, and projected evolution: in-car content and services, vehicle relationship management (VRM), insurance, and driving assistance. In regard to a timeframe, the report focuses on the upcoming years until 2020. Therefore, it includes several significant innovations but excludes the next potential revolution, which is likely to result from a massive rollout of (semi)autonomous vehicles. As connectivity becomes an integral part of an automobile’s value, companies from industries that may have seemed unrelated to the automotive industry just a few years ago will likely become key players. As a consequence, original equipment manufacturers (OEMs) and other traditional players may see shifts to their pieces of a pie that is getting more complex but not necessarily significantly bigger. To get a comprehensive view on the impact of the connected car, we need to consider the consumer’s spend on a car in its entirety, the life cycle value. Based on a representative German D-segment vehicle, today’s car life cycle revenue can be broken down into its vehicle price (52 percent), connectivity features and services (4 percent), maintenance (6 percent), insurance (14 percent), and operations (24 percent). By 2020, we expect the connectivity-related revenues share to increase moderately to approximately 7 percent in the European premium car segment. This amounts to a global market size of EUR 170 billion to 180 billion for car connectivity in 2020. However, we believe that this growth will be compensated by a base price decline, keeping life cycle spend more or less unchanged, just as it has remained since 1980. The impact on revenue pools indirectly affected by connectivity, such as vehicle price (through market share shifts) as well as insurance and maintenance, is much more significant than the connectivity revenue pool itself. Vehicle price. On average, 20 percent of new car buyers state that they would switch to another car brand for better connectivity features. In some regions and for some segments this share is even larger, for example, up to 41 percent of drivers who spend more than 20 hours in the car per week. Hence, connectivity has the potential to shift significant market shares between OEMs. The emergence of third-party connectivity offerings such as the Open Automotive Alliance (OAA) and Apple CarPlay may level the playing field for infotainment and other software features among automotive OEMs.

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