How fast can the automotive industry scale ?
The automotive sector is on the verge of changes as new regulations, technologies, and consumer preferences transform its products and business models. Traditional OEMs and emerging start-ups are spending more to address these trends: since 2010, intrigued investors have pumped $280 billion into innovative automotive hardware and software solutions. Almost half of this investment, about $115 billion to $120 billion, has gone to electric vehicles (EVs).
These promising projections for EVs come with some big challenges, however. While consumer demand appears prominent, the automotive ecosystem must quickly and carefully address three major constraints before EV production and sales can gain momentum:
- Difficulties in procuring raw materials, including lithium, nickel, and cobalt, used in batteries
- An insufficient number of giga-factories that produce batteries, as well as low productivity within existing facilities.
- Urge to build a public charging infrastructure that must be built up to keep pace with the number of EVs on the road.
Although some large companies may attempt to increase their access to raw materials , most OEM’s still face challenge. What the industry can tackle, however, are issues related to giga-factories and the charging infrastructure. Taking promt action will be key to enabling the momentum in EVs and may even help to accelerate adoption of autonomous vehicles (AVs), through which OEMs will find even more opportunities in services and life cycle revenues from such things as over-the-air (OTA) software updates, mapping services, and in-vehicle entertainment.
Over the next decade, the automotive industry will experience vast changes that has not been seen in over a century. The paradigm shift, from ICE technology to electrification, will encourage the development of battery-powered vehicles that contain leading-edge software, connectivity, and systems, including infotainment, high-performing computers, advanced driver-assistance systems features, and electric powertrains and drivelines. Eventually, OEMs may create fully autonomous vehicles capable of the most sophisticated driving experience, including, for example, commuting from the owner’s home to work, with the driver using this time to do things such as check emails or watch a movie.
With these emerging trends, and vehicles becoming increasingly sophisticated, a single company may find it difficult to take end-to-end responsibility for production. Thus more specialized companies will likely enter the automotive sector and play a larger role in specifying and integrating the components and technologies that they produce.
With such changes, the future ecosystem may bear a greater resemblance to today’s high-tech sector, with companies becoming technology leaders in different specialties and sometimes setting the industry standards. As one example, commercial customers, including fleets, operators of pooled shuttle services could also become more exacting, much like technology buyers accustomed to setting their own specifications. Since these customers place bulk vehicle orders to satisfy their demand, OEMs would have to be responsive to fulfill their wants.
Beyond vehicle sales, greater vehicle connectivity will further increase the industry’s focus on service and life cycle revenues. Typical aftermarket services, which now primarily involve selling spare parts, will likely expand towards direct, digital interactions with customers to provide services including updates to connected vehicles. New vehicles could also present novel revenue opportunities throughout the life cycle, including those related to charging, mobility as a service, and other data monetization opportunities, such as selling anonymized vehicle data to specialized marketplaces.
The industry ecosystem will continue to evolve even after electrification and autonomous driving become mainstream. OEMs may eventually attempt to insource newer technologies to capture additional value, likely focusing on areas where they can develop unique offerings. Meanwhile, the number of specialist companies could drop as leaders emerge and the industry consolidates. The timeline for these shifts is uncertain, especially given external events such as the semiconductor shortage and raw-materials constraints, and the industry structure could be very dynamic over the coming years. The only certainty is that OEMs and other automotive stakeholders must be prepared to support and encourage a host of transitions in the years and decades ahead.