2020 was not an easy year for the automotive industry – and that’s putting it mildly. The pandemic caused dealership closures, production shutdowns, supply chain disruptions, and more. At the same time, companies faced mounting customer expectations about their sustainability and the digital experience they provide.
Understandably, companies are asking themselves, “What’s next?” In this article, we’ll provide some answers, drawing on recent Capgemini research.
You don't need a crystal ball to realize that the whole issue of sustainability is here to stay, and recent research confirms its growing importance. Nearly 80% of customers are now making sustainability-based purchase decisions, according to Capgemini Research Institute data. For the automotive industry, in addition to a general societal demand for sustainable behavior, there is a major regulatory aspect. In Europe, the first regulations regarding vehicle emissions were issued in the early 1990s and they have been repeatedly tightened ever since.
In recent years, awareness has focused on CO2, with ever stricter requirements for fleet emissions – a pattern that will continue. Net-zero CO2 impact for internal company operations will be the standard by 2030. By then, we anticipate that all major OEMs will be offering vehicles driven by mechanisms other than internal combustion engines across their whole model ranges.
The whole topic of sustainability is clearly demanding more and more attention, but within that topic the focus is also shifting and expanding. In the future, societal and regulatory pressures will expand the scope of sustainability concerns beyond electrification and decarbonization until they span the entire life cycle, with an increasing emphasis on social and ethical responsibility. Companies will need to adopt an end-to-end approach to this topic: one that addresses the environmental impact not only of the vehicle, but of every aspect of a company’s operations plus the activities of their partners.
Digitization delivers many of the enablers for sustainable mobility, but is not enough on its own. The industry also needs to embrace cultural change so that it can start to think holistically about sustainability and adapt all its products and processes to this way of thinking. Most of all, it needs to take employees, suppliers, and customers along with it on this journey. The concept of a circular economy has to be firmly anchored in every mind, and become a way of life for all of us.
Sustainability is perhaps the biggest megatrend determining companies’ continued success, and indeed survival, over the next decade – but it isn’t the only one. Another is the need to adopt the concept of Intelligent Industry. The next generation of digital engineering and manufacturing will build on technologies like artificial intelligence (AI), cloud, and the Internet of Things (IoT) to create a data- and software-driven industry. Companies will leverage these technologies to create intelligent products and systems, operations, and services to improve uptime, reduce costs, and boost efficiency – and hence increase value for companies, their customers, and their partners. Software will play a crucial role in the automotive industry and influence every aspect of it.
To adapt to this new environment, OEMs and their suppliers will have to become more like technology companies themselves. Gaining mastery of key enablers will be critical. For example:
• Digital twins can be used across manufacturing and warehouse operations to manage material flow, complete order-to-delivery processes, and realize efficiency and quality improvements in vehicle production. They can also revolutionize tasks like what-if planning and the prediction of behavior under operational changes.
• 5G and edge are key to providing flexibility, with 5G offering unheard-of transmission speed and bandwidth, and edge enabling ultra-fast response times in contexts such as autonomous driving.
• Automation of tasks and decisions increases efficiency and agility, for example triggering actions that preempt interruptions to production. Today, the range of tasks that robots can accomplish is increasing rapidly – not just in production but sometimes also in repair and maintenance. Tomorrow’s robots will be much more versatile.
Companies can harness technological enablers like these to create the highly automated processes and digital platforms. These processes and platforms will make it possible to implement digital business models incorporating technologized products and services, and will make internal and partner processes many times more efficient.
The third and final megatrend that will shape the industry’s next decade is the need for customer-centricity. Younger individuals increasingly expect personalization and online transactions; connected services will come to play a big role in meeting these expectations, with software proliferating inside and around vehicles, not least to support personalization. Sales models will need to accommodate these requirements: Expect subscriptions and agency sales to become more common, for example.
Of course, OEMs and suppliers are already preparing for these challenges to some extent, but most still seem to lack the courage for radical change, and perhaps they are right not to attempt it on their own. We believe that individual companies can only succeed as part of a wider mobility ecosystem: one that includes providers of public transportation, as well as enablers of mobility such as infrastructure and utility providers, and local and national governments.
Despite the importance of the ecosystem, success will also depend on individual companies’ ability to develop internally. Specifically, they will need to enhance their skills and organization, their technology competency, especially around software, and their approach to operational excellence, which should cover everything from continuous process improvement to strengthening supply chain resilience.
It all adds up to a new era for the industry: one we call the “Responsibility Era.” Automotive companies will soon find themselves shouldering responsibility for a whole range of environmental and social objectives. Even when new industry trends and preoccupations come along, these responsibilities will be here to stay, affecting every player in the mobility ecosystem, every stage of the automotive value chain, and every aspect of customer experience.
To succeed in this new era, automotive companies need to find the right balance between on the one hand the requirements of their core businesses and stakeholders, and on the other hand their new opportunities and challenges. Only by doing this can they ensure continuing relevance for their industry and long-term competitive advantage for themselves.
The automotive industry now needs every traditional OEM and new player – and all their partners and stakeholders – to rise to the challenges of the Responsibility Era, and particularly the growing need for sustainability. One thing is clear: Even after the pandemic ends, the transformation of the automotive industry will remain an unstoppable force.
For more about these ideas and the underlying research, please read our report, Finding a new balance in the automotive industry.