First, vehicles will run on different power sources. Electric vehicles make up an increasing proportion of new models sold, and other new technologies such as fuel cells are being developed. But for some time to come, many vehicles will continue to be powered by conventional combustion engines. Second, connected systems mean that humans play a diminishing role in actually driving cars, as autonomous vehicles navigate roads, reducing accidents and freeing up people’s time by converting them from drivers into passengers. Third, a greater focus by customers on mobility – and reduced emphasis on ownership – will change the way cars are used, especially in big cities.
These upheavals will be accompanied by broader challenges. The shift to less-complex battery power, combined with improvements in design and manufacturing, will make vehicles more robust, and many components will need to be replaced less often. The growth of battery power and digital driving systems will mean a place in the industry for both new automotive players and other companies, in particular from China and the digital world. Meanwhile, the re-emergence of protectionist trade barriers will push manufacturers increasingly to base production in the region where the cars are sold, making large-scale exports harder, including those of German premium producers.
These changes will shake up the structures and systems on which the auto industry is based. As well as their traditional suppliers, automakers will need to work with new digital firms. Operations will be simplified dramatically, as rival automakers share more components such as electric powertrains and vehicle platforms. We also expect hyper-efficient mega-factories to emerge. As a result, stable market shares and supplier relationships will be replaced by winner-takes-all markets for specialist technology products that are essential for making or using cars effectively. These shifts will mean the industry needs a workforce with different skillsets from today.
However, the industry’s primary focus should be on its customers and the products it makes for them. Here are three major trends that will dominate the products and solutions of the new era.
ONE – THE NEW CUSTOMER
Until recently, customers have mostly picked a single car to fulfill an array of requirements. (See Exhibit 1.) The choice was primarily a function of mobility needs: commuting, business trips, and family errands. But drivers of means could opt for a model that was more fun to drive and accorded them social status.
In the future, the majority of people will be “mobilists” who simply want to get from point A to B and are not emotionally involved in cars. They might want to go from a station or airport in a foreign city to a business meeting, buy furniture and ferry kids around, or take the occasional trip to the beach or mountains. Though the driver of the past might have chosen a model that can fulfill each of these needs, the car user of the future will seek the best solution for each task. Depending on the local options, that could mean a ride-hailing service, taxi, rental car, car-sharing service, public transport – or, of course, their own car.
These new patterns will create natural customers for mobility services, which are already growing fast, and could accelerate the shift away from traditional ownership. Some people will cease to own a car due to the expense, as tighter regulation increases the cost of powertrains, taxes rise for political reasons, and raw material prices go up. Others will be put off buying a car because of urbanization: Driving in cities involves extra costs such as parking and is generally no longer a pleasure; many people simply want to get around with as little hassle as possible. As populations age, a growing number of people will just need ways to stay mobile – in some cases because they can no longer drive themselves – and they will not care whether they get around by way of traditional driving. In these cases, flexible pay-per-use models will provide an alternative. We think that in Germany and the United States spending on car-based individual mobility services will double by 2040, while in China it could triple.
To cope with these new patterns of demand, brands need to become leaders in specific use cases to regain importance – automotive heritage and history no longer mean much to many people. At one extreme, vehicles used in mobility services will have a large number of different users, perhaps more than 100 per year. They will be on the road for a greater proportion of the time than current vehicles. And they will generate demand for new options, such as parking assistants and massage seats. So automakers will have to design cars with these changes in mind. Vehicles will need to be damage-resistant and low-maintenance so that they can easily be used by multiple users. This usage pattern could drive demand for frugal vehicle concepts that are suited for multiple users – a bit like the aircraft interior of a discount airline. Automakers will have to deal with the new mobility fleet operators as customers. Fleet operators will be better negotiators than individuals, and they will demand tailored products, as well as favorable conditions and pricing. They will have far greater market power than traditional, individual customers, and they will put pressure on prices and margins.
That said, traditional car ownership is not about to vanish. Many of these mobility services will run into their own problems of feasibility – and, when the services do work, they will often tempt people away from public transport rather than from car ownership. Moreover, there will remain a solid core of automobile connoisseurs, especially in the countryside but also among wealthy city dwellers. These consumers love cars and driving and will hold out against anything – from battery power to ride hailing – that diverges from the traditional experience, so long as this remains legally possible. They want speed and acceleration, the sound of a V8 engine, heightened comfort, and classic looks, and are ready to pay for it.