Changing Gears 2020 How Digital Is Transforming the Face of the Automotive Industry][

Changing Gears 2020 How digital is transforming the []face of the automotive industry TABLE OF CONTENTS 02 Executive summary 06 Evolution to revolution 10 Digital influence on the auto customer journey 26 The evolution of mobility mindsets 32 Critical imperatives to win: The five gear shifts Executive Summary Digital technologies are causing disruption across the global automotive industry. From digital engineering and 3D printing to smart sensors and the Internet of Things (IoT), digital is poised to disrupt automotive R&D, manufacturing, sales, marketing and post-purchase services. The sector will witness the emergence of new players, such as software and mobility platform providers with nontraditional advantages, who will gain an increasing share of sector profits. Bain estimates that profits from automotive original equipment manufacturers’ (OEMs) traditionally core activities like vehicle engineering, manufacturing and sales could drop by about 8% from 2015 to 2025, even though industry profits are projected to grow about 35% in that same time frame. While the implications of digital span every part of the automotive value chain, this report will focus mainly on its effect on the automobile customer. We surveyed 1,551 Indian customers to understand the digital influence on the purchase journey. We also surveyed 87 dealers and had conversations with top management teams from various automakers. Additionally, we drew insights from Bain’s Global Automotive Consumer Survey that included respondents from the US, the UK, Germany, China and India. Our research reveals that the nature of the game is changing. Technology and new players in the industry are redrawing battle lines in the fight for the customer’s mindshare and, in the long term, the fight for relevance in the mobility space. 2 The fight for the customer Almost 70% of annual auto sales (about 19 million units or $40 billion) will be digitally influenced by 2020, a ~2.3x increase from today’s $18 billion Mobile will continue to dominate the device mix: Social media will influence about 40% of Almost 80% of online research is currently sales (11 million units, $23 billion in conducted on mobile phones. This is expected to rise revenue) by 2020, up from about 20% further with the growth of smartphones and mobile today. internet. High digital influence is shaping brand Younger consumers will lead the digital charge: consideration: Digital will influence 49% of consumers younger than 35 report digital consideration in 60% of consumers by influence on the consideration set compared with 2020, up from about 45% today. 40% of those older than 35. Post-purchase activities are the next digital frontier: The role of the dealer is evolving: Almost By 2020, over 40% of consumers are expected to 50% of auto buyers have made a decision book services online and about 30% will go online to on both brand and model before visiting a purchase accessories, up from 14% and 8%, dealer. respectively, today. Most Indian automotive OEMs are behind the curve in digital investments. They must redefine their marketing and customer engagement efforts to reflect the current behaviour and usage patterns of automobile buyers. 3 The fight for relevance As mobility mindsets evolve, disruptive mobility models and new competitors create threats—and opportunities—for OEMs. New mobility models are gaining acceptance. More than 40% of lead consumers report using app-based taxi services like Ola and Uber more than three or four times per week. Experiences in other markets indicate significant room for growth: India’s annual rides per capita (adjusted for cities where these operators are present) is 3.3, compared with 17.1 in China. Other models that affect different aspects of the mobility landscape, such as route optimisation (for example, Zophop) and public transportation (such as Cityflo and RedBus), are also likely to experience growth. While the demand for automobile ownership in India will likely remain robust, we will continue to see the proliferation of alternative mobility models. OEMs must begin to think of themselves as mobility providers rather than vehicle manufacturers. 4 We anticipate five critical imperatives for automotive OEMs to consider in this new competitive landscape: Explore partnerships and targeted Convert dealerships into brand investments both forward and backward in experience centres by developing Build the capability to integrate the value chain to participate in profitable differentiated retail formats with data from multiple sources and future businesses. innovative virtual-physical layouts. perform the right analytics. BUILD THE INVEST FOLLOW DEALERSHIP IN THE THE PROFIT: OF THE BACKBONE: Evolve business FUTURE: Build models to tap Differentiate data and into shifting the retail analytics 1 profit pools 3 5 format capabilities CHANGE FOLLOW THE THE GAME: CUSTOMER: Use product Radically change digitisation to the investment create deeper mix to follow the ongoing 2 customer online 4 customer relationships Increase the proportion of digital marketing Move from one-time engagement to investments with a disproportionate focus on ongoing relationships by offering discovery and consideration. services like pay-per-use insurance and smart maintenance. 5 EVOLUTION TO REVOLUTION 6 Vehicle R&D/ Supply Prod- Marketing/ Fin. After- The auto industry today is usage/ Design chain uction Sales Services sales mobility witnessing several Internet of disruptions across Things (IoT) Automotive interconnectivity (IoT) the value chain Big Data Big data & analytics Digital Computerised The global automotive industry has engineering production witnessed mostly incremental “evolutionary” innovations in the course of its 130-year Smart Preventative history. Disruptive changes in production Smart sensors plants/sensors maintenance techniques, business models and categories have been few and far between. Virtualisation VR design This traditional paradigm is rapidly changing with the advent of digital disruptions across 3D printing/ additive 3D (spare) the value chain. Digital engineering and 3D manufacturing parts printing printing are shrinking product development timelines and costs, while smart sensors Mobile apps Next-Gen Automotive combined with complex computational (ride-sharing, direct sales, rentals, etc.) capabilities are enabling advanced driver assistance systems (ADAS). Digital Centralised digital engagement Consumer engagement (includes omnichannel) platform Digital channels are also redefining customer engagement. Customers research, buy and Cybersecurity IP protection Autonomous car protection share their experiences online. They also remain connected after the purchase via their infotainment systems for content, to Advanced Production robotics efficiency OEMs for real-time design feedback and to dealers for service alerts. Autonomous vehicles Autonomous vehicles (affects all digital trends) Current impact Future impact Source: Bain analysis 7 New kids on the block: YEARS IN MARKET Players from outside the EXISTENCE CAPITALISATION traditional auto industry are upending the competitive landscape 6 Ola $4B One of the most profound implications of these disruptions is the rapid growth of new Lyft $6B mobility players from outside the traditional 4 automotive industry. For example, app- based cab aggregators have become an integral part of the mobility ecosystem and have attained large customer bases and Mobileye $7B multibillion dollar valuations in very short 17 periods of time. In its 7-year existence, Uber has reached a market capitalisation of about $70 billion Didi $34B while recent investments in 4-year old Didi 4 Chuxing Chuxing, a Chinese cab aggregator, indicate a valuation of $34 billion. Similarly, Quanergy, a producer of LiDAR sensors that enable deployment of autonomous driving systems, has reached a valuation of $1.6 13 Tesla $34B billion in only four years. The growth of these players is transforming the traditional automotive landscape. 7 Uber $70B Notes: Valuations as of December 2016; 1 USD=67.8 INR; 1 EUR=1.05 USD; 1 USD=1,201 KRW Source: Bain analysis 8 AUTOMOTIVE PROFIT POOLS (2015-2025) The next decade will 35% Absolute change (2015-2025) witness a redistribution of $306B $409B 345% profits as a result of these New players value chain shifts -68% Traditional taxi Used cars -25% Parts, Over time, this shift in business models and repair and 33% maintenance sources of competitive advantage will cause the auto industry’s profit pools to shift. According to Bain estimates, global profits Leasing and 31% financing from vehicle engineering, manufacturing services and sales will be redistributed by about 8% through 2025 despite overall industry profit growth of about 35% in the same period. Vehicle Industry profits are being redistributed to -8% manufacturing players like components and systems and sales suppliers, which provide increasingly sophisticated solutions, as well as to nontraditional competitors like mobility platform providers. Component manufacturing 72% and suppliers Global 2015 Global 2025E Notes: Revenues cannot be summed up to calculate consolidated European automotive revenues as some elements of value chain have overlapping revenues which are deliberately double counted; figures shown reflect light vehicles market only; L&FS is leasing and financing services; new players include data connectivity services, autonomous vehicles, commercial car sharing, new taxi (Uber, etc.); component mfg. and suppliers include supplier parts & components in new vehicles

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