The road ahead for automotive in 2021? It’s about software and experience. The automotive industry has traditionally been a forerunner in technology adoption and this continues. While expectations for most new years are simply extensions of prior trends, due to COVID-19, 2021 promises something different…
The four broad automotive trends heading into 2020 were connected, autonomous, shared, electric vehicles, and COVID-19 significantly affected each of these. Car connectivity is a high growth area, and more than 70% of vehicles shipped globally will be ‘connected’ by 2021. COVID-19 is actually accelerating this trend to continuously monitor vehicle performance and passenger safety, comfort, and health.
However, autonomous is taking longer to materialize. JD Powers expects that even by 2035, merely 10% of all cars sold will be autonomous. Consumer adoption from margin to the mainstream will depend more on legal innovation than technology capability. Car e-hailing received significant investment in 2019, but social distancing requirements hit this segment hard in 2020, and Uber and Lyft saw a 20% drop in ride-sharing demand. These firms must overcome the pandemic and also worker classification issues for demand and profitability to return for the long-term. 2020 was expected to be an inflection point for electric vehicle adoption, but EVs have been hit hard by pandemic-related supply chain disruptions and decreased demand for urban mobility.
The trends we see in the automotive sector in 2021 fall into two broad categories – onboard software and the driving experience. These are specific trends for software in cars:
- Onboard infotainment: from policy to pleasure – Both basic and psychological needs of drivers and passengers need to be addressed during vehicle usage. The focus will shift toward self-fulfillment, which includes productivity and creativity using data and content. Embedded intelligence is not only to monitor critical vehicle parameters but also for infotainment, a revenue stream to be tapped. OEMs face stiff competition from new entrants in Silicon Valley. Realizing that vehicle software can disrupt their traditional engineering strengths, some OEMs have developed their own vehicle operating systems. Daimler has two targets for technology supremacy – electric drive and operating system software that extends to end-user applications.
- Autonomous driving: from margin to mainstream – Autonomous driving to SAE Levels 3 and 4 will become a common vehicle feature. The car can take control under specific circumstances, but the ecosystem needs to evolve and innovate to handle legal liability in case of accidents. Nissan recently announced its plan to make autonomous driving a basic feature in its upcoming models. Lacking the legal albatross, it is full speed ahead for fully autonomous vehicles used for industrial applications such as in warehouses.
- Contactless driver-vehicle interaction – Driver-vehicle interaction is broadly of two types – driving and comfort such as phone calls, music, or temperature control. Non-driving voice, gesture, and touch-based operation will see increased adoption, combining comfort with safety through distraction avoidance. For the driving experience, General Motors, Hyundai, and other OEMs recently invested in a startup to develop augmented reality to project graphics for driving conditions onto the windshield.
These are the trends related to the experience of driving a vehicle with safety, hygiene, and comfort:
- Digital omni-channel buying experience – Physical touchpoints in a vehicle sale will be replaced by digital channels. In consumer-facing front-end technology, the auto industry hopes to match Disney World, which has a phenomenal 70% rate of first-time customers returning to its theme parks. Evaluation of models, features and the purchase process will happen virtually through digital channels, to avoid human-to-human or machine contact. Customers will seamlessly shift between devices or channels and not lose any context. Maruti Suzuki has a 50% market share in the Indian car market, and they recently digitized 21 out of 26 touchpoints in the purchase journey.
- Car subscriptions at a tipping point – Consumers are more willing than ever to pay according to usage and not purchase outright. The subscription business model provides the flexibility to change products and pay on a monthly basis and avoid the onerous initial payment. Accountability to ensure vehicle quality across the lifecycle will shift from consumers to the OEM or dealer. To ensure profitability, OEMs need to exploit technology to the fullest extent and maximize vehicle operating time. Car subscription sales will grow and will tip ownership by 2025.
- Mission-critical connectivity – Subscription-based business models need reliable and secure internet of things connectivity at all times to account for each critical event in the vehicle lifecycle. Edge computing will act as a backup in case of network outages. This is a real issue, as Tesla recently faced an outage during which its customers were not able to access their cars. Beyond safety, connectivity is a revenue stream, and Komatsu decided to make its vehicle monitoring system Komtrax a standard feature in its own vehicles and also available for others.
These technologies have proved they are capable. Now it is a matter of adoption and economics. From COVID-19 to tech skills availability to government support, the auto industry needs to overcome and collaborate to transition from disruption to transformation, in order to continue their long track record of prominence and profitability.
1 - These countries are leading the race for autonomous cars, Sep 2018, World Economic Forum