by | Vivek Vaidya
Vivek Vaidya is an Associate Partner and Senior Vice President with the Frost & Sullivan Asia Pacific Intelligent Mobility Practice. Vivek Vaidya is an opinion maker, strategic thinker and compelling speaker. He has advised major automotive companies, transportation companies and governments on future scenarios and regulations, market & competitive strategies and strategic partnerships in his career spanning 20 years. He has strong personal relationships with CXO’s in the region. He is a preferred industry analyst for many business channels such as BBC, CNBC, Bloomberg, Channel NewsAsia, ET now etc. He has also spoken at various conferences across the world and quoted extensively in newspapers.
The automotive industry has flourished since Ford launched the Model T in 1908, making cars easily accessible to the masses. New models have continuously been launched and significant innovations, product upgrades, and styling changes have occurred. Car makers built up their own supplier bases, and created their own unique, vertically integrated distinct ecosystems. The industry never really faced any disruption. Today, the traditional automotive industry stands at the brink of a sweeping transformation that has not been witnessed in the last 100 years.
Although cars are among the most popular means of transportation, they pose several challenges. About 54% of the world’s population lives in cities. This concentration of people and their cars in urban areas has had unwanted consequences in the form of higher pollution, congestion and accidents. About 7 million deaths are attributed annually to poor air quality. Air pollution in cities also causes loss of productive time and contributes to spiraling healthcare costs. Simultaneously, congestion impacts the economy. It is estimated that, on average, a driver spends 50 hours annually stuck in traffic. This costs the global economy about 1% in terms of lost productivity. Compounding these problems are the unacceptable and, in most cases, avoidable 1 million fatalities caused by road accidents.
As cities continue to struggle with overburdened road networks and inadequate transportation infrastructure, the low utilization rate of cars imposes a further burden. Most cars, with the exception of taxis and shared cars, are driven only for 2.5-3 hours per day, and remain parked for the rest of the time. Again, although most cars have a seating capacity of 4-5 passengers, Frost & Sullivan research reveals that, globally, almost 60% of trips are made with the driver alone in the car.
Thus, the car industry had all the right elements in place for disruption in the near term.
Tesla, with its fresh and fearless approach to car making, has been at the vanguard of change. It conceptualized an all-electric, connected smart car that had the capability to evolve over a period of time. Even as most car makers were debating whether electric cars were feasible, Tesla, a complete industry outsider, whipped up a frenzy in the market with the launch of its all electric car. Against a backdrop where dealer discounts determined the quarterly performance of a brand, customers chose to pay and wait months for their Tesla to be delivered to their door step. They could buy the car online and receive delivery at home, without having to step outside to visit a dealership. Tesla’s car was revolutionary; it was more like a smartphone on wheels, always connected and with exotic features such as over-the-air (OTA) updates, which were completely new to the car industry. Current Tesla cars have several sensors embedded in them. On being activated by paid updates, they enhance the capabilities of the car through functions such as self-parking and fetch. An OTA update, sent in response to a potential safety hazard, results in the ground clearance increasing by a few millimeters, further highlighting the way in which Tesla has upturned the car industry. Such an occurrence in the conventional automotive industry, for instance, would have resulted in a recall. Tesla’s innovative, out-of-the-box way of doing business has certainly impacted traditional thinking among automotive players.
Tech titan Google doesn’t make cars but has created waves with its fully functional autonomous car. This concept was straight out of a science fiction movie and the world was overawed to see it leap off the screen and into a real world setting. Autonomous cars are, undoubtedly, going to cause the biggest disruption in the industry. There are several other technologies that will converge to convert autonomous cars into a reality. Autonomous vehicles will need 5G technologies in order connect to with the driving environment. They will also require a a slew of cameras, radars, and light detection and ranging (LiDARs) sensors, in addition to other types of sensors, to optimally analyze driving conditions. HD maps will be needed to precisely position the car in its surroundings. Rapid image processing technologies, machine learning and artificial intelligence for effective real-time driving decisions, and vehicle-to vehicle and vehicle-to-infrastructure communication, technologies will also be critical for the successful real world deployment of autonomous vehicles. Most of these technologies have previously been beyond the core competencies of automakers. Therefore, they are now looking to access these new technologies either by partnering or acquiring smaller companies and/or start-ups. So for the first time in a century, automotive supply chains are on the verge of being disrupted by smaller companies.
Ride hailing companies like Uber and Grab highlight another aspect of disruption and transformative thinking in the industry. Unlike Tesla and Google who have triggered technology-led disruption, Uber and Grab represent service-led innovation. The easy availability of a car on hire has eliminated the need for car users to own, maintain and park their cars, and has underlined the growing appeal of pay-per-use models in mobility. The software industry has made a similar transformation from product-based approaches—whether in terms of standard or customized product offerings—to software-as-aservice business models. Personal mobility is fast following the same path. It is speculated that when
Uber eventually goes in for its maiden IPO, despite not having any real assets like factories, its market capitalization is likely to be higher than that of established automotive companies such as Ford.
Most industry respondents have taken notice and have started redefining their technology roadmaps and business strategies. Car manufacturers like Daimler and BMW have started new companies or divisions to handle their emerging service-related businesses such as sharing, parking and charging. Companies like Audi have demonstrated roadworthy Level 3 automated cars, underlining their commitment to autonomous vehicle development. GM and Ford are leveraging their competencies in connected car infrastructure to further build products and services that enhance the driving experience. GM and Toyota have also invested in or acquired ride hailing and car sharing companies like Lyft and Grab, respectively. Industry analysts view these as key strategies by traditional automakers to learn about new business models as well as launch new products and services on these platforms.
The high octane action witnessed by the automotive industry over the past few years is likely to continue for another decade or so. We, at Frost & Sullivan, believe that this will be a defining phase in the transformation of the automotive industry. Ultimately, it will not be so much as the survival of the fittest as the survival of the most adaptable. As the automotive industry evolves, companies who can change their narrow “automotive” way of thinking and rapidly adapt to a broader “mobility” way of thinking will survive and thrive.