By 2035, new mobility technology will drive 40% of automotive industry profits, as the convergence of three trends – vehicle electrification, autonomous driving and shared mobility – ‘profoundly’ changes the sources of industry profitability.
That’s according to new research by the Boston Consulting Group (BCG) – The Great Mobility Tech Race: Winning the battle for future profits – which forecasts that emerging profit pools will go from representing just 1% of industry profits in 2017 to 17% in 2025 and 40% in 2035. Such profit pools include components for autonomous and battery-powered electric vehicles (BEVs), BEV sales, data and connectivity services, and on-demand mobility offerings.
In contrast, traditional industry profit pools, including traditional components, gas-powered and hybrid-electric vehicle sales, financing and aftermarket business, will fall from a 99% share last year to represent just 60% of profits by 2035, predicts BCG.
“Incumbent automotive OEMs and suppliers need to lay the groundwork today in order for their companies to thrive in a market that will undergo fundamental changes over the next 15 years,” said Thomas Dauner, global leader of BCG’s automotive practice and a coauthor of the study.
“OEMs will find their competitive positions under attack by newly empowered market players, including suppliers, on-demand platforms, and tech giants, as well as cities that play an increasingly active role in mobility.”
As profit pools shift, the industry will also see growth in new car sales slowing, found the research. While volume growth in China and other developing markets will help new car sales volume to grow substantially through to 2025, this growth will stall thereafter as the adoption of shared autonomous electric vehicles accelerates.
However, the mobility industry will continue to see profitable growth, according to BCG. Global industry revenues will continue to rise, reaching $5.8 trillion in 2035, with profits increasing to $380 billion.
“The issue facing incumbents is whether they can leverage their current competitive advantages to capture the lion’s share of these profits as new mobility technology increasingly dominates the market,” said Dauner.
BCG predicts that the industry will need to invest more than $900 billion in new growth areas by 2030 and more than $2.4 trillion by 2035, if it is to unlock the promised value of mobility technology. Key investment areas include autonomous vehicle technology, battery production facilities, charging infrastructure for electric vehicles, and self-driving taxi fleets.
“OEMs face a double-whammy challenge of needing to make investments in these growth areas at the same time that their margins in their core business are declining,” said Michelle Andersen, a BCG partner and coauthor of the study.
The report also forecasts that around half of new cars sold will be electric-powered (including hybrids) by 2030, while one in ten will be self-driving. BCG believes that up to 10% of passenger miles will be driven in shared, on-demand vehicles – primarily autonomous, electric cars.
As demand increases for such vehicles, notes the study, one challenge for OEMs is likely to be the growing volume of vehicles sold to large-fleet customers that demand more competitive prices than typical consumers, contributing to a likely drop in OEMs’ return on sales.
Winners and losers
Over the next 15 years, BCG foresees major shifts in the structure of the automotive market, with electronics and software suppliers becoming stronger and playing a crucial role in developing new mobility technologies.
At the same time, OEMs will face greater competition from both suppliers and technology companies as they battle to communicate with customers and capture their data, while cities will emerge as significant new market players, as they work to shape the future mobility agenda in urban environments.
BCG predicts that the likely market winners will include autonomous vehicle technology providers, battery cell makers and on-demand platform providers and operators. Potential losers include incumbent OEMs that do not have a strong position in BEV and autonomous vehicle technology, and dealerships and service stations unable to expand their service offerings.