We believe 2018 could represent a distinct tipping point from thinking, talking about and planning for future mobility to implementing it. It’s the year when a firework of electric-vehicle (EV) launches began and charging infrastructure became solid in key regions; when cars enabled by artificial intelligence (AI) began to replace “dumb” ones; when we moved from advanced driver-assistance systems to autonomous vehicles (AV) in real life; when the automotive and mobility industries shifted from a driver- or owner-focused value proposition to a customer-centered one and when micromobility started to scale up.
You can make the case that all four ACES trends — autonomous driving, connected cars, electrification and smart mobility — made appreciable advances in 2018 despite some setbacks. It was the year when theoretical discussions about the future of mobility turned into concrete actions across businesses, cities and key world regions. Join us in reviewing some of the highlights from this singular year and exploring what the future could bring.
Possibly the furthest into the future measured by large-scale commercialization, AV still appear on track in terms of technology. While manufacturers are still working to ensure safety requirements are met, they seem to have overcome major technology hurdles and most of them made exciting moves in 2018. OEM are seriously considering AV as a business.
They reallocate capacity and their vehicle portfolio to free up cash for AV investments, restructure their organizations by moving key executives to AV business units, and are most aggressive in forming partnerships with cities and local municipalities.
High cost is an ongoing concern, however, which is one reason major automotive, high-tech and mobility players are teaming up (Exhibit 1). The field is becoming more crowded as well — for example, with all three of China’s big tech players now pursuing AV.
The pace of overall investment in future mobility technology is accelerating greatly: between the periods of 2010 to 2013 and 2014 to 2017, the average annual investment across all technologies jumped nearly sixfold, to $25.3 billion per year, from $4.3 billion per year. While investments in sharing and autonomous solutions account for much of this acceleration, investments in hardware like sensors and semiconductors are rather stable, showing a steady trend of consolidation.
Overall, regulation remains supportive of AV. In 2018, many regions adopted new definitions that pave the way for vehicles without steering wheels. We have also noted that industry players are engaging in self-regulation when AV crashes occur by voluntarily suspending testing activities. Such responsibility apparently does not go unnoticed by consumers: in McKinsey’s recent ACES survey, 42 percent of respondents had a positive view of the technology.
Mobility and automotive players increasingly focus on use cases to understand the imminent AV market, as growing numbers of them concentrate on bringing viable products to market as soon as possible. Early target cities include Phoenix and San Francisco and we are hearing much more about so-called “geofenced” applications for use in airports and other similarly enclosed venues. Companies are also working out the bugs on specific AV applications, such as those enabling AV fleets to relocate autonomous carsharing vehicles at night in places like Eindhoven in the Netherlands. It has become clear that different players explore different use cases — from robo-taxis, autonomous shuttles, to private-campus autonomous shuttles — which indicates that this market offers room for multiple players to exist.
It becomes clearer that most AV companies plan to operate the fleet without major infrastructure measures.
As the automotive industry transitions from hardware- to software-defined vehicles, the average software and electronics content per vehicle is rapidly increasing (Exhibit 2). And AI will continue to play an important role (Exhibit 3).
Software represents 10 percent of overall vehicle content today for a D-segment or large, car (approximately $1,220) and the average share of software is expected to grow at a compound annual rate of 11 percent, to reach 30 percent of overall vehicle content (around $5,200) in 2030. Not surprisingly, players across the digital automotive value chain are attempting to capitalize on innovations enabled through software and electronics.
AI is creating value not only in the vehicle itself but also in the company: in the short to medium term, there is a substantial, AI-enabled opportunity that by 2025 could reach an annual value of about $215 billion for automotive OEM worldwide (Exhibit 3).
This corresponds to nine percentage points of earnings before interest and taxes for the whole automotive industry, or a theoretical average-annual-productivity increase of approximately 1.3 percent over seven years — a significant value to boost the industry’s regular productivity aspiration of about 2 percent annually.
This is another trend in which the industry focus is shifting from discussing to doing. Monetizing all that car data is a hot topic in this area, with more companies exploring the prospects for in-car payments. McKinsey’s ACES survey suggests that consumers expect to spend nearly 30 percent of their time in an AV focused on entertainment offers and online shopping.
Industry stakeholders (and governments) increasingly seek to “stack hands” on standards while also finding new ways of cooperating and sharing data streams and cybersecurity (Exhibit 4).
In one case, two ridesharing companies have joined forces to share data with cities.
Although most recognize that today’s and tomorrow’s car will increasingly be connected, there is no clear-cut standard yet to define what “connectivity” means. This lack of clarity is hindering the development of connectivity use cases, as there is no standard language for industry and it is difficult for customers to compare features and understand how the capability of the cars matches their needs. To address the issue, McKinsey developed a Connected Car Customer Experience (C3X) framework (Exhibit 4). The C3X framework describes five levels of user experience in connected cars — ranging from the most basic to the highly complex.
Connected-car advances are forcing traditional automotive companies to rethink car software and electronics architecture, and several have launched AI-supported human-machine interfaces with a totally different level of user experience and truly modular infotainment platforms, enabling also over-the-air updates at scale. Some players keep pushing the boundaries of software and computing power, with one EV company installing the most advanced centralization of computing power in a water-cooled supercomputer. Another key challenge involves efforts to integrate future fifth-generation telecom technologies into connected-car platforms.
Regulation remains the primary market maker for EV, offering substantial incentives as well as noncash benefits, such as special-highway-lane access and favorable licensing arrangements. This strong regulatory “push” helps to make the EV tipping point the most visible among the four ACES trends (Exhibit 5). More countries and cities are announcing plans to ban the internal combustion engine and while the European Union has proposed ambitious passenger-car and truck carbon-dioxide (CO2) reductions through 2030 this year, the United States is the only major government focused on unwinding its aspirational CO2 targets.