Changing market dynamics and the role of digital platforms

Mobility never stands still. The human urge to get from one place to another is constant. We’re a species that itches to be elsewhere doing business, being social, seeing new places and things. In just two generations – either side of the turn of the Twentieth Century, the automobile emerged from noisy workshops in Europe and the United States to usher in the era of the internal combustion engine (after early experiments with electric cars that, quite literally, didn’t go anywhere). By mid-century, the humorous poet Ogden Nash could quip, “Everything in life is somewhere else, you get there in a car.”

Shifting the Powertrain to Digital

Cars have always been more about lifestyle, personal identity, and status than just getting from A to B. But, amongst Millennials – so the research seems to suggest – those things can be found elsewhere. Owning a car isn’t de rigueur anymore and soon driving won’t be either.

Disrupters like Tesla have shaken up thinking about how digital can be integrated into the vehicle experience and framework so the car can connect to every other aspect of a passenger’s existence, keeping the digital flow of their lives seamless and uninterrupted as they travel. In fact, the vehicle may well become the device itself.

Automotive manufacturers are having to fundamentally think differently about their vehicles and how they fit into these broader societal changes. They’re connecting cars, capturing data and using it to get closer to customers and provide a range of services to enhance the in-car experience and complement their lifestyles to give them exactly what they want. They’re thinking about the sharing economy and looking at turning not just each vehicle into a digital platform, but their entire businesses, from the production line to enabling streaming services which generate revenues mile by mile, kilometer by kilometer.

From mass transit to personalized mobility, from owning to sharing to hybrids of the two, everything is up for grabs. Making the most of this digital evolution and offsetting falling sales through building stronger direct-to-customer relationships will require automotive manufactures to forge and manage relationships with a myriad of new technology partners and suppliers. They will need this new way of doing business to support the range of new services customers will demand and to craft new innovative solutions. Balancing all these elements as well as deciding on the services to focus on demands a new business model. This insight guide looks at how to bring together all these elements to create a digital ecosystem that delivers the future, not just technologically, but profitably too.

“The car’s already becoming an extension of our mobile phones, but the future could spell connectivity that ensures there will be no interruption to our digital lives while in transit – in fact the vehicle may well become the device itself.”

A sector in flux

Just as technology is revolutionizing every aspect of our daily lives, the automotive industry is experiencing giant leaps in innovation which are set to change the way vehicles are designed, produced, driven and developed.

Although the global automotive industry continues to perform well (driven by emerging markets and a revived Russia) and sales are predicted to rise (3.6% from 3.3% in 20171), investment in the development of electrification and autonomous cars is pushing up manufacturing costs by as much as 20%.

The structure of the manufacturing process is also changing, along with the skill sets required. The increasing use of electronics and software mean manufacturers are having to bring in new technology and tap into expertise more suited to Silicon Valley than the traditional automotive industry. Whether a traditional supplier or a new player, those with the necessary knowledge and experience will thrive. Indeed, many major manufacturers have already launched merger and acquisition strategies with start-ups to strengthen their IT and connectivity divisions to ensure future sustainability.

Those manufacturers that embrace change in the right way will benefit, as innovation in the sector is predicted to boost global profits by almost 50% by 20202. This involves exploiting the major trends of electrification, the connected car, software-over-the-air and new models of ownership and mobility to drive sales and revenue, as well as build closer relationships with customers through the development of digital enablement and services. Indeed, as a whole, the industry is gravitating toward the consumer. The best automotive organizations are really putting the end customer at the heart of their thinking in ways they haven’t really ever done before. Furthermore, some manufacturers are also working to build and maintain direct customer relationships; changing the way dealership networks work and their role in the value chain.

“Manufacturers are having to bring in new technology and tap into expertise more suited to Silicon Valley than the traditional automotive industry.”


In essence what we’re seeing is a fundamental technological shift in the powertrain right across the automotive sector. Electric vehicles are on the rise, driven by regulators seeking to reduce pollution and improve the environment.

The powertrain transformation will happen, but not overnight. Hybrid vehicles have been around for 20 years and an increasing number of purely electric cars are now entering the market, but whilst customers’ preference towards the traditional combustion engine is on the decline, the reality is that the charging infrastructure required to support this electric powertrain is not yet sufficiently mature. That means the shift from ICE to PHEV / BHEV will turn out to be a phased transition rather than a revolution. Longer term, industry executives believe that fuel cell electric vehicles rather than the current battery-driven models will be the answer to electric mobility as this will solve the charging issues.

The recent scandals around diesel engine emissions and tightening environmental policies by international governments mean these types of vehicles are likely to be the first to disappear from manufacturers’ portfolios. However, it could also be some time before they are phased out completely as many haulage and transport firms rely on diesel vehicles, along with the farming industry and the transport infrastructure in rural areas in general.

Despite the potential long tail of the internal combustion engine’s decline, it’s vital for manufacturers to not only shift their focus towards electrification, but also innovate in the space. This innovation should stretch to building new digitally connected business models and new partnerships, such as Tesla’s charging networks, that put the consumer at the center rather than the product. This allows them to capitalize on their well-developed customer networks and get a head start against new market entrants.

“Innovation should stretch to building new digitally connected business models that put the consumer at the center rather than the product so they can capitalize on their well-developed customer networks and get a head start against new market entrants.”

1. BMI Research, 2017

1.  ‘The Road to 2020 and Beyond’, McKinsey, 2017

Download the full report below


Get in touchToggle

Contact Us