Creating value through the digital transformation of the automotive industry

October 5, 2017

One of the biggest potential impacts of digitalization lies in the tremendous societal benefits that can be enabled through a technological revolution in automotive mobility. For many, access to affordable transportation is the most important factor in lifting themselves out of poverty. However, a driver in Moscow, Istanbul, Mexico City and Rio de Janeiro wastes more than 100 hours a year in congested traffic. Each year road accidents cost $518 billion and are responsible for 1.25 million deaths around the world. Globally, air pollution from transportation causes more than 200,000 premature deaths a year and approximately 30% of the carbon dioxide (CO2) emissions contributing to climate change. Digitization of transportation has the potential to reduce many of these costs.

Creating value from digitalization

The pace and scale of technological innovation today presents a huge opportunity. Cisco estimates that the Internet of Things alone could bring benefits worth ~$19 trillion. But how can society and the automotive industry tap into this immense opportunity?

Three areas are expected to drive the digital industrial revolution: the Connected Traveler, Automated Driving, and Digitizing the Enterprise and Ecosystem.

  • Connected traveler

The vehicle has evolved into a sophisticated computer-driven machine and is now becoming a digital hub for real-time two-way wireless data transfer. The human and the vehicle are moving toward total connectivity among devices, databases and objects: between vehicles, traffic and municipal services through sensor-embedded roads and infrastructure; and between entertainment and navigation services connected with any of the myriad of mobile devices embedded in the vehicle or in the hands of the traveler. By 2020, more than 90% of cars sold will be connected. Yet wireless communication, data analytics and cloud computing are relatively new technology areas for automotive players. This places them at a significant disadvantage compared to technology-centric companies such as Google and Apple, which have deep expertise, capabilities and even ownership in these technologies. These non-automotive players have also developed durable consumer relationships, especially with the important younger demographic. Further compounding this gap, historically, OEMs are unused to owning the customer relationship (including vast amounts of customer data), as this was traditionally done by independent third parties – the dealers.

  • Autonomous driving

The driverless car or autonomous vehicle (AV) is operated by millimeter-wave radars, cameras, ultrasonic sensors, lidar scanners, GPS technology, vehicle-to-vehicle and vehicle-to-infrastructure connectivity, and proprietary algorithms working seamlessly together to perform the entire dynamic driving task in all situations and conditions throughout an entire journey. The potential impact? Nothing short of revolutionary. Wide-scale adoption will lead to unprecedented economic, social and environmental change. For the public, the independence and freedom of personal travel will be available to almost everyone – youth, seniors and the physically, mentally and visually impaired. The expected reduction of road congestion would bring wide-ranging work and personal benefits. The gains from a drop in vehicle accidents and deaths are obvious. In the near term, the arrival of the AV pits the traditional evolutionary growth model of the legacy manufacturers against the riskier direct approach of nontraditional technology players. The widespread commercial realization of AVs in the immediate future is hindered by technical constraints, legislative wariness, infrastructure barriers, unpredictable consumer acceptance and cost of development. Consequently, the production of AVs will require a full transformation of the automotive operation and its support ecosystem. The route to critical mass adoption of AVs isn’t clear. Acceptance may occur after years of incremental introductions of discrete autonomous functions, or more quickly, through the direct development of the radical new technology of autonomous driving. The major players in the market are pursuing one or both of these approaches. Technology giant Google has jumped right into producing a completely autonomous vehicle with no steering wheel. Hands-free autonomous cars are now being tested on public roads in Europe, Japan and the United States. Many OEMs are investing in both improving assisted driving capabilities and simultaneously exploring fully self-driving technologies.

Digitizing the enterprise and ecosystem

Digitization will likely drive substantial improvements to the value chain through enhanced efficiencies, reduced costs, greater collaboration and more innovation.  The increasingly connected vehicle will alter business strategies from selling a product to providing a customer experience-centric value proposition. Connected supply chain The primary benefit from interconnecting the supply chain is cost reduction through a better managed end-to-end process. Historically, the automotive industry has maintained national and regional manufacturing and supplier relationships. The supply chain has been characterized by long lead times in a complex structure, aimed at getting the right parts into the right factories at the right time.  A decentralized and connected supply chain can reduce costs from regulations that include import duties and protectionist laws. Suppliers and assembly plants might be located in large markets such as China. OEMs are also able to make locally relevant vehicles (e.g., China’s unique demand for long-wheelbase limousines) and to serve local market brand development (“Made for you and made in your country”). Social media monitoring across the supply chain can more quickly identify component quality breakdowns where a supplier rather than the vehicle manufacturer would have to redesign, rebuild and resupply a part. The exploding growth of data from the connected Internet of Things throughout the supply chain will demand new skills for workers and managers.

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