The automotive industry is getting ready for a new era in which vehicles’ connectivity will be just as important as their engines. Silicon Valley’s influence over the sector’s future continues to grow.

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The automotive industry’s business to date could be put very simply. It has been about getting people to buy as many cars as possible. But what would happen if half of today’s car owners no longer own a vehicle in 2025?

The automotive industry’s business to date could be put very simply. It has been about getting people to buy as many cars as possible. But what would happen if half of today’s car owners no longer own a vehicle in 2025?

This is how 59% of the 953 automotive executives (23% are Chairmen or CEOs) see the future, according to a recent study by the consulting firm KPMG on the future of the industry, which also included the opinion of more than 2,400 consumers around the world.

This study reaches a clear conclusion: like all businesses – from music to banking, television and hotels – the automotive industry is on the verge of total disruption. Say goodbye to combustion engines, diesel, all those ads trying to win you over by raving about speed and sport driving, and even to car ownership – considered one of the family jewels.

All these things will become much less common. They will be replaced by self-driving, hyperconnected, intelligent machines that we will rent for days, hours and minutes. We will be able to be in the car doing other things – things like using the services and digital apps that will be part of the business.

One of the most radical changes has already started with the rise of MaaS. It stands for Mobility as a Service and refers to the trend of using a car you don’t own when you need it, instead of buying a car and the fixed costs it entails regardless of how often you use it.  In a few decades, having a car in a garage may seem like an eccentricity from the past, like having a horse-drawn carriage today. This change is already underway thanks to services like Daimler’s Car2Go – now in 25 cities in eight countries. But it will one of many in the new age of the automobile industry.

Car2Go

If regularly using cars that don’t belong to you seems astonishing, what truly seems like science fiction is the idea that no one will be behind the wheel.

The arrival of self-driving cars will bring enormous changes to the industry’s business model. All the top car companies are currently testing self-driving cars, but so are two industry outsiders: Google and Tesla, the company founded in Silicon Valley by the visionary Elon Musk.

“Autonomous cars will radically change the reasons why someone buys a car,” says the KPMG report. Sport driving will no longer play a role. Instead it will be about what we can do in the car while going from one place to another. Is it comfortable? Does it have the best digital connections? Is it easy to do work?

In this new business model, data will be the driver – the new oil. Most CEOs surveyed by KPMG agree with this statement: the digital ecosystem will be the main source for revenue and not the car itself.  Just like movie theaters earning their biggest margins from popcorn and not the movies, manufacturers will have to keep a close eye on the digital services they can offer in their cars. 76% of participating executives agree that one connected vehicle generates higher revenue streams than 10 vehicles that are not connected.

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Who will win in the new world? The industrial giants or the tech giants?

The automotive industry is at a cross-roads. New competitors are emerging that are much better at managing the keys to their business – connectivity, data and digital services. Traditional manufacturers must decide if they will continue using their classic strategies or try to grow by creating ecosystems with these new companies joining their business. This juncture can also be seen from another perspective. Will the Silicon Valley companies joining the automotive industry be adversaries, or also allies?

Sam Fogleman, one of KPMG’s analysts, believes that the traditional manufacturers must choose between just building cars and becoming “a customer-centric service provider.” Each manufacturer will make the decision based on their strengths and weaknesses. Survey participants feel that BMW and Toyota are especially well prepared for the future. More modest manufacturers that will have a harder time adapting could choose to reinvent themselves and become first class technical and industrial providers for the new big players in the sector.

Francisco Roger, a KPMG Spain partner in charge of the automotive industry, notes that “manufacturing automobiles is a very complicated business”. He believes that the most likely scenario is one where traditional manufacturers remain dominant, so they will need to improve in “software, hardware, connectivity, sensors….”

“We are moving toward a scenario where sectors will converge and classic manufacturers and new companies will create mixed companies and joint ventures. A Silicon Valley company like Apple may build its own vehicle, but it will be marginal in terms of volume,” Roger maintains.

82% of the executives consulted for the study are convinced that a Silicon Valley company will launch a car in the next four years. It will be nothing more than yet another change in the industry – maybe even a minor one at that. The real revolution will be the use of cars as a means of transport that does not require our constant attention, at least not on the car itself. What companies will make the most of this new scenario?

Contact: Communications