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The Great Mobility Tech Race

Winning the battle for future profits


Research Highlights

JANUARY 11, 2018


Auto industry is facing unprecedented change; in
technology, society and regulatory trends

Automotive is being re-shaped by shifts towards


electrification, self-driving vehicles and shared mobility

This level of change is poised to have a significant effect on


the vehicle and mobility market...
Executive summary

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
...but also on the players in the industry and their
profitability

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Value creation is likely to shift away from traditional OEMs
and move more towards suppliers

And, there is a new set of technology players and profit


pools that emerge driving new value in the space
1
industry
15 years, profoundly
Three major trends will

changing the automotive


converge over the next 10-

SLIDESHARE Profit Pools_media presentation deck FINAL.pptx


Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
The auto industry faces never-before seen change
Social
Technological
Regulatory
Urbanization
Sharing
New way of
working

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Autonomous
City regulation

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driving
Electrification

Connectivity
Integrated view necessary Emission standards
to assess implications
3
Key change drivers reinforce each other—with large implications for the industry
Schematic

Key drivers Outputs

Battery costs TCO EV vs. ICE Share of EVs


Car sales volume
Energy prices EV adoption curve
CO2 emissions

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
AV adoption curve
Gov. incentives & bans Share of AVs Revenue pools

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AV technology costs
Self-driving taxi TCO
(cost per km) Profit pools
SD taxi utilization Share of on-demand
SD taxi adoption barrier

Industry trends CAPEX requirements


Margin development
Margins of comparables

4
Car sales volume will stall—bringing decades of growth
to an end
New car sales Emergence of self-
(Global, in M units) driving, on-demand
mobility models
108
Global 104
financial
91
crisis
Chinese
market

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
66
Oil opening up
crisis

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Postwar 46
41
boom years
First mass- Golden 30
produced 20ies 22
car
13
5 5
0 1 1

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Total vehicle sales Vehicles for on-demand services New car sales Today

Source: BCG analysis 5


Electrification, self-driving cars, and on-demand shared
mobility offerings will change the face of the industry
Electrification will Self-driving cars will hit Shared mobility offerings
become more prevalent our streets in will gain acceptance
Share of new car sales Share of new car sales Share of on-road passenger miles

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

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30% 12%
14% 6% 11% 18%
1% 6% 2% 1% 5% 3% 4% 9%

2017 2025 2030 2035 2017 2025 2030 2035 2017 2025 2030 2035
Gasoline & diesel Human-driven cars Personal car
Hybrid & mild hybrid (HEV) Personal self-driving cars (L4/5) On-demand
Plug-in hybrid (PHEV) Self-driving taxis (L4/5) (from 2025 on: mainly self-driving)
Electric vehicle (BEV)

Source: BCG analysis 6


We looked at three scenarios for how the industry could
develop and focused on the most likely one

Selected drivers Conservative Most likely Aggressive

Decrease 5% p.a. – in line with


Battery costs Decrease 2% p.a. Decrease 10% p.a.
consensus estimates
Gradual - driven by steady

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Consumer EV adoption Hesitant Rapid
infrastructure expansion
Gas down, electricity up (gas: $1.50/ Constant (gas: 2.50 $/gallon; Gas up, electricity down (gas: $3.50/
Energy prices (gas, electricity)

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gallon; electricity: 0.15 $/kWh) electricity: 0.12 $/kWh) gallon; electricity: 0.10 $/kWh)

CO2 emissions regulation (e.g., CAFE) Targets are relaxed Currently expected regulation Targets are tightened

Autonomous Vehicle components Decrease 12% p.a. (2025–2035), in


Decrease 5% p.a. (2025–2035) Decrease 20% p.a. (2025–2035)
costs line with similar technologies
Commercial deployment of Deployable for mass use in cities by Deployable for mass use in cities by Deployable for mass use in cities by
self-driving on-demand services 2027 2025 2021

AV legislative framework Worked out by 2027 Worked out by 2025 Worked out by 2021

Source: BCG analysis


Modeled scenario 7
do not possess
Profit pools will grow in

competitive advantages
areas where incumbents

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Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
The mobility industry will continue to grow, but profit
pools will shift to new technology
Revenues, $trillion

3.7 4.7 5.3 5.8

Profits, $billion
+2.9% p.a. 380
336
303

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
26% 40%
226 17%
1%

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99% 83% 74% 60%

2017 2025 2030 2035

Emerging profit pools (incl. AV & BEV component suppliers, BEV car sales, data & connectivity and on-demand mobility)
Classic profit pools (incl. classic component supply, ICE car sales, financing and aftermarket)
Source: BCG analysis 9
AV=autonomous vehicles; BEV=battery-powered electric vehicles; ICE=internal combustion engine
Today, the long-established car business is driving
industry profits
Profit pools – today (2017, in $B)

Traditional profit pools Emerging profit pools

67 79 24 54 1 <0 1 <0

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
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'Classic' New car sales AV and BEV New car sales Data & On-demand
Financing Aftermarket
components (ICE & hybrids) components (BEV) Connectivity mobility

Average profitability (RoS)


~7% ~5% ~13% ~10% ~9% < 0% n/a < 0%

 $226 billion
Source: BCG analysis 10
But future growth takes place in fields in which auto
players do not possess competitive advantages
Profit pools - future (2035, in $B)

Traditional profit pools Emerging profit pools

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
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70 60 33 66 26 21 28 76
(+3) (-19) (+9) (+12) (+25) (+21) (+27) (+76)
'Classic' New car sales AV and BEV New car sales Data & On-demand
Financing Aftermarket
components (ICE & hybrids) components (BEV) Connectivity mobility

Average profitability (RoS)


~6% ~4% ~13% ~10% ~8% ~3% ~14% ~10%
2017 2035  $380 billion
Source: BCG analysis 11
We expect a significant structural shift in profit pools

New-car sales stall after 2025 as on-demand models in cities pick up

New-car sales margins structurally decline with electrification and


higher share of fleet business

With growth of AV and BEV components, value creation shifts further


away from OEMs to suppliers

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Aftermarket business negatively affected by switch to electrified

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vehicles (EVs), but effect comes slowly

On-demand mobility explodes, as self-driving cars make services


affordable and convenient

New profit pools in data & connectivity emerge, taking off with self-
driving cars

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Substantial investments will be
necessary to unlock growth areas

They include
• AV technology

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
• Battery production capacity

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• Charging infrastructure
• Self-driving taxi fleets

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Substantial industry wide investments required to unlock growth areas: >$900B
through 2030 (> $2.4T through 2035)

‘Classic’ New car sales AV and BEV New car sales Data and On-demand
Financing Aftermarket
components (ICE and hybrids) components (BEV) connectivity mobility

1. AV technology (R&D) 2. Battery prod. capacities 3. Charging infrastructure 4. Self-driving taxi fleet
Cumulated investment, in $B

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Cumulated investment, in $B Cumulated investment, in $B Cumulated investment, in $B

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45 220 130 1,800

>72M self-driving taxis produced


> 5,000 additional engineers “57 additional Giga-factories” > 38M additional public charging
required spots For reference:
For reference:
For reference: For reference: $1,800B = 4.3% of cumulated
$220B = 13% of battery OEM car sales revenue
$45B = 1.7% of cumulated OEMs supplier revenue through 2035 $130B = 40% of German Federal through 2035
R&D expenses through 2035 Budget 2017

Cumulated investment through 2030 Cumulated investment through 2035


Source: BCG analysis 14
OEMs face a ‘double whammy’ challenge: margins will
decline while growth areas require new investments
Simulated effect on OEM profitability in the medium-term

While profit goes down… ...Investments will need to go up

Ø OEM RoS Ø OEM CAPEX/revenue

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
~ -1%pt
~ +1%pt

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6.6% 8.0%
5.5% 6.8%

2017 2025 2017 2025

Source: BCG analysis 15


momentum
chance to gain
Market landscape is
transforming, with new
tech players having good
strong kid
searched for:

16

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Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Shift in market structure expected
Mobility industry in the future
Cities:
Cities End user Emerge as new relevant players, with a
strong influence on future urban mobility
Digital integrators
Digital integrators:
Google Apple Tencent Tech giants natively integrate services—
and capture the customer interface
On-demand platforms
On-demand platforms:

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Broker autonomous on-demand rides

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OEMs

OEMs:
e.g., VW BMW Daimler GM ... Face stronger suppliers and risk losing the
customer interface

Suppliers Suppliers:
e.g., Bosch, Continental, Nvidia, LG, Delphi, ZF Electronics and software become crucial—
newcomers find themselves in strong
positions
Source: BCG analysis 17
Large option space for industry players still exists
Not exhaustive

Suppliers Auto Mobility Cities


makers services

Traffic management and infrastructure integration

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
On-demand platform
On-demand fleet management (ops, financing)

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Data and connectivity services
Autonomous driving software and data
HD maps
AV sensors and ECUs
EV batteries and components
EV charging infrastructure
Source: BCG analysis 18
Author team and regional experts Selected publications and research
Thomas Dauner Carsten M. Schaetzberger The Reimagined Car: Shared,
Senior partner Partner Autonomous, and Electric
BCG Stuttgart BCG Stuttgart A report by BCG
December 2017
Nikolaus S. Lang Rolf Kilian
Senior partner Senior partner Connected Vehicles and the Road to
BCG Munich BCG Stuttgart Revenue
An article by BCG
Andreas Jentzsch Thomas Palme December 2017
Partner Principal Making Autonomous Vehicles a Reality:
BCG Munich BCG Stuttgart
Lessons from Boston and Beyond

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
A report by BCG and the World Economic Forum
Michelle Andersen Philipp Sadek October 2017
Partner Associate

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BCG Detroit BCG Vienna
Self-Driving Vehicles, Robo-Taxis, and the
Urban Mobility Revolution
Davide Di Domenico
A report by BCG and the World Economic Forum
Partner
July 2016
BCG Milan

To request more information on this research, To request a media interview, please contact Eric To discuss the findings with a BCG expert, please
please contact BCG-Info@bcg.com. Gregoire at gregoire.eric@bcg.com. contact Irene Perzylo at perzylo.irene@bcg.com.

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