Connected Car Report 2016
December 2016
www.pwc.com/digital
Strictly private and confidential
Will China be the fastest innovator?
PwC’s Experience Centre – China and Hong Kong 2
The 2016 Connected Car report creates insights for an industry in turmoil
2016 Strategy& Connected Car Report and PwC Connected Car Survey 2016
Key Facts
Business model change: How to make money from connected car services as an
auto OEM, both from direct sales of services and from indirect benefits
Market forecast: Our latest 5 years forecast on the revenue potential for auto OEMs
from the sale of connected car packages – by region, segments and type of package
Supply-side view: A perspective on the large-scale changes impacting the suppliers
of connected car technology, including new alliances, new players, new economics
and a view on what it takes to succeed
Market focus – China: A deep-dive look on China from two angles: the Chinese
consumer as the most sophisticated digital “millennial” and the Chinese internet/tech
firms claiming their stake in the digital transformation
Cybersecurity: A critical analysis of Cybersecurity in an age of technology
complexity and fragmentation – can it ever be achieved?
Future technologies: Closing off with a long-term view on how the technologies that
are in the labs and prototypes today will create the future driving experience 2030+
Main Content 5th annual Connected Car study,
developed by PwC Strategy&
Global study, focus on US, Europe, China
5 year market forecasts and detailed pricing benchmarks
>100 interviews with key industry executives: OEMs, suppliers, academia, analysts
Quantitative Online Survey with 3000 participants in China & Hong Kong as well as Focus Group Interviews in Beijing, Shanghai and Hong Kong
PwC’s Experience Centre – China and Hong Kong
B
Connectivity, autonomous driving and changing consumer behavior will enable an integrated mobility solution in the future
3
A
“Traditional” car Connected car
Integrated Ecosystem
Before 2010 Today After 2020
Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong 4
• Revenues will shift from hardware to software, from products to services
• Revenues from mobility and digital services will grow rapidly
• Supplier revenues will shift from engines and chassis to electronics, software, cloud services, and batteries
Addressable revenue share of traditional OEMs and suppliers will decline due to emergence of new revenue streams that are beyond their capabilities
-30%
Addressable revenue for OEMs / Suppliers Addressable revenue for new entrants
Digital services firms
Mobility providers
New technology suppliers
Fintech companies
EV start-upsSource: PwC Strategy& Connected Car Report 2016
≥45%
PwC’s Experience Centre – China and Hong Kong
Autonomous + Electrification
Mobility/ride-sharing/ride-
hailing
Connected Services
Digital platforms
Reduced # of physical
touchpoints
Omnichannel, eCommerce
and personalization
IT Transformation – in
particular back-end
Data analytics
Industry 4.0 – horizontal and
vertical integration
Digital EnterpriseDigital Customer
ExperienceDigital Products and
Services
#1 #2 #3
5
Technology drives a sustained shift in the design and function of the car; autonomous/electrified/connected is #1 investment priority for OEMs
Investment Priorities for OEMs
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
2017-2022 Market Forecast by Segment
The Connected Car market size is expected to almost triples until 2022 –with most growth in the volume segment – at the expense of margins
6
4.2x3.0x 2.3xVolume (78.1 bn$)Total (155 bn$) Premium (77.8%)
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
Autonomous driving will have the biggest potential of the total Connected Car market worldwide
7
3.5x4.0x 2.0xSafetyAutonomous driving Connected Services
Estimated revenues by product package in 2022
Functionalities that allow partial / fully
autonomous driving
E.g. Distance/park/motorway assistant, Traffic
sign detection, etc.
Functionalities that warn drivers and
prevents accidents
E.g. eCall, Automatic collision prevention,
Central danger warning etc.
Functionalities that connect the car to
outside world to enable integrated solutions
E.g. Mobility/vehicle management,
Entertainment, Navigation etc.
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
Despite the ‘New normal’ of the Chinese economy, the outlook for the automotive industry is still positive
8
China automotive market overview Overall China Market
• Overall economic (GDP) slowdown
• Crackdown on corruption
• Disposable income continues to grow
Auto industry
• Sales of light vehicles still increasing thanks to
the tax stimulus
• Overall auto market is expected to grow at 8%
(CAGR) to reach ~26m units by 2020
• Premium car market is expected to grow at
about 11% (CAGR)to reach ~3m units by 2020
• In 2015, Premium car penetration rate still low
with 10%
0%
15%
30%
45%
60%
75%
-
5
10
15
20
25
2006 2008 2010 2012 2013 2014 2015
Mil
lio
ns
Passenger Car SUV LCV* Mini-Van YoY Change (R-Axis)
Source: PwC Autofacts
PwC’s Experience Centre – China and Hong Kong
Three factors will drive the connected car market in China and China is expected to be in the forefront of Connected Car innovation
9
Chinese digital consumers
• 1/3 of population are millennials
• Heavy users of social networks
• 92% Chinese aged 18 to 30 own
smartphones
Government support
• ‘Made in China 2025’
• Government funding for R&D
• Subsidies for new energy vehicles
Tech firm push
• Offer mobility concepts
• Huge customer database
• BAT’s drive to enter auto industry
Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong
Connected functionality has become a key factor influencing customer’s purchase decision, more important than even price and engine performance
10
51% 46% 46%
Connected
FunctionalitiesCar Price Engine Performance
Top factors influencing purchase decision (%)
Source: PwC Connected Car Survey 2016
PwC’s Experience Centre – China and Hong Kong 11
These features have become a key differentiator and customers are willing to switch brands even at a premium
PremiumVolume
Customers’ willingness to switch brands*
30% 40%
* if price difference is less than 20%
Source: PwC Connected Car Survey 2016
PwC’s Experience Centre – China and Hong Kong
Most important features in China are related to traffic/parking information and multimedia streaming
Real-time traffic informationEntertainment
streaming
Internet radio
Parking service
Adaptive brake lights flashing
Music/video/game download
Smartphone interface
Park assistant/pilot
Automatic standstill braking
10%
15%
20%
25%
30%
35%
40%
25% 30% 35% 40% 45% 50%
Usa
ge
Functions availability in car
Functions that are most regularly used
Real-time traffic information
Parking Service
Top services customers are willing to pay
Entertainment Streaming
Source: PwC Connected Car Survey 2016
11
PwC’s Experience Centre – China and Hong Kong
2025 and Beyond2020-20252015-2020
Autonomous will reshape the industry; but a full autonomous version is most likely not be ready before 2025
13
Price for Level 1 and 2 systems continues to fall
Cloud and external systems play a greater supporting role
Full autonomy is introduced; driverless cars gradually take hold
Regulatory framework development
Technology
Price
Adoption
ADAS bundles include multifunction systems
55% cars expected to have some ADAS capability by 2020
71% cars sold in 2025 expected to have some ADAS capability
By 2030, adoption of full autonomy is expected to be <30%
ADAS is expected to be
the key defining feature
of car competition
between 2020 and 2025
Adoption will start from
top premium brands but
quickly trickle down
Individual systems cost will drop, but number of systems increase; overall cost goes up
Key predictions
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
Chinese customers have a great trust in technology and extremely eager to own an autonomous cars
14
Eager to
have one
customers are eager to own a fully-autonomous car in China85%
Entertainment
58% 35%
Dining / time with family
32%
Sleep / rest
21%
Office work
How customers will spend their time during fully autonomous car rides
Source: PwC Connected Car Survey 2016
PwC’s Experience Centre – China and Hong Kong
However, there are concerns where users might feel anxious, frightened and powerless when “riding” in a fully-autonomous car
15
Concerns about adopting self driving carsChina
91%
86%
83%
80%
Safetyconcerns
Cybersecurity
Legalsituation
Cost/pricesituation
customers will still
keep an eye on the
road
55%
Source: PwC Connected Car Survey 2016
PwC’s Experience Centre – China and Hong Kong
PwC’s Experience Centre – China and Hong Kong
The automotive supply chain is changing dramatically – driven by new entrants and big bets in new technology areas
Accelerated incorporation of more intelligent and connected features in the vehicle and huge demand for advanced digital technology for safety, infotainment and convenience
New entrants penetrate the
automotive industry
Traditional players partner
with tech players
Traditional players enhance
internal capabilities
Technology from other industries enters the car (e.g. Consumer electronics, software, cloud)
Players from other industries realizing scale and learning effects outside automotive industry
Gain access to relevant new technologies
Make up for gaps in the technology portfolio and the innovation pipeline through acquisitions or partnerships
Capability gap around software development and artificial intelligence
Rapid innovation process for software in sync with hardware
Trial and error mentality vs. security culture
16Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong
Especially tech players have substantial advantages of scale and learning curve benefits against traditional auto players in the digital space
17
The first Chinese company to finish its first fully self-driving test
in Beijing
Baidu
Joined hands with Foxconn and China Harmony Auto to develop smart
electric cars
Tencent
Partnered with SAIC for internet-connected car. Launched their first
“internet car” in 2016
Alibaba
Tech players benefit from their experience in the digital / technology industry and the deep knowledge of the
customer preferences
Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong
Partnerships are pushing industry boundaries in China creating extremely complex new auto ecosystems
18
Multiple investments by
OEMs and suppliers
OEMs need to decide: all-in
or get out
Difficult for OEMs to learn
the tricks of service
platforms
Uncertain revenue models
and margin potential
Key ObservationsLyft
Apple invested $1 billion in Chinese ride-hailing company Didi, which partners
with Lyft
VW hired the head of
Apple’s car project who previously worked at Daimler
Daimler
VW
DFKI
Daimler invested in
Blacklane, an app for booking
chauffeurs
VW, BMW and Daimler partnered to buy
Nokia’s HERE maps
VW invested $300 million
in taxi-hailing company
Didi acquired China operations
of Uber
High resolution 3D
map
Cooperation focused on vehicle
information systems, Audi all models would be combined with
WeChat MyCar services
Cooperation with Baidu is mainly for smart car, car networking services and big
data
Tech company
Mobility solution providerOEMs
Investment Partnership Personnel move Failed talks
Development of autonomous car
Internet car
Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong 19
Internet companies cannot succeed in connected cars all on their own. Making
and selling cars requires special capabilities, which tech companies don’t have.
It would be difficult for them to match the quality, reliability, and safety standards
the OEMs have already achieved.
- Prof. Dr. Keqiang Li
Director, Research Centre for Intelligent &
Connected Vehicles, Tsinghua University
“
PwC’s Experience Centre – China and Hong Kong
ElectricVehicles
Fuel Cell
Cars
Energy Saving
Cars
The government plans to support domestic companies working on connectivity and new energy technologies
20
‘Made in China 2025’
Initiative
Intelligent Connected Cars
• To reduce traffic accidents by more than 30 percent
• Reduce traffic fatalities by more than 10 percent
• To set safe autonomous driving speed at 120 km/h
• To save energy consumption by more than 10 percent
• Reduce emission by more than 20 percent
Source: PwC Analysis
PwC’s Experience Centre – China and Hong Kong
OEM/Supplier view Customer view
Expensive and complex pricing
Complex / poor UX / uncool / HMI not competitive
Malfunctions / insufficient quality
Poor description
Blurry value add compared to smartphones
Today’s connected car services fail to meet expectations of involved stakeholders and customers
21
High investments
Long time to market-readiness
Uncertain RoI
Totally differing skill sets
Challenges with impact on all company operations
New suppliers / competitors
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
Sale of Connected Car Packages
Attractiveness
Use of Connected Car data
Increase Customer lock-in
/ loyalty
Establish an ecosystem of
services
Monetize digital customer base
22
+ + + +
Connected Car Value Creation Levers
OEMs need to understand the trade-offs between monetization levers; in particular, long-term opportunities are different from short-term cash cows
Mostly one-off
bundled with the car
(e.g. Infotainment)
Use data to increase
efficiency and
product
differentiation
Provide
differentiated
connected services
Comprehensive
ecosystem of
consumer services,
with revenue sharing
Mobility services and
multi-modal
transportation
options
Today‘s Cash Flow Opportunity
Source: PwC Strategy& Connected Car Report 2016
PwC’s Experience Centre – China and Hong Kong
ThanThank you! 谢谢!Thank You! 谢谢!
23
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.© 2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please seewww.pwc.com/structure for further details
Marco Fischer
Director, PwC Experience [email protected]+86 (10) 6533 7119
For more information, please contact