Connected Cars: Forging New Partnerships in the Automotive - Supplier Landscape
Deepthi K. Bhat, Lead Consultant, MFGDCG, Infosys Ltd., firstname.lastname@example.org
Bharath Krishna Bellamkonda, Senior Consultant, MFGDCG, Infosys Ltd., email@example.com
Snigdha Goyal, Consultant, MFGDCG, Infosys Ltd., firstname.lastname@example.org
Kunal Kumar, Senior Associate Consultant, MFGDCG, Infosys Ltd., email@example.com
The concept of connectivity in the automotive industry was pioneered by General Motors, when it introduced emergency assistance with OnStar in 1995. The concept was connectivity, which was previously limited to infotainment, has evolved to remote applications, safety and security, vehicle intelligence, eco driving, vehicle diagnostics and secondary services.
Fig: Evolution of Connected Cars Features
Tocaptivate the nextgen buyers, Automakers are now converting their vehicles into smart vehicles on wheels. Gartner predicts that 250 million vehicles will be connected with a 67% increase in the number of installed connectivity units by 2020. With an engineering legacy, automakers are now partnering with Technology Service Providers (TSPs) to reduce time-to market and increase the car maker's footprint. If they fail to do so, in the long term, automakers could end up as hardware suppliers to tech giants such as Apple and Google.
Factors Forging Partnerships
Automakers are investing in technologies related to vehicle-to-vehicle (V2V), vehicle-to-infrastructure (V2I) services, and fleet services to engage the millennial. Most of these services are realized by partnering with Technology Service Providers (TSPs). Our studies of the investments made by OEMs in Connected Car Services, suggest that the key influencers to forge partnerships are - advanced driver assistance system (ADAS), semi-autonomous driving (SAD), remote applications, single mobile platform that manages the entire digital automotive experience, intuitive and safe access to infotainment, urban mobility and secondary services (usage-based insurance, toll collection). While a majority of these shifts demand collaboration with technology companies, trends such as urban mobility and secondary services require partnerships with fleet service providers, city and government administrators that provide infrastructure services, and research partnerships with universities.
A few examples of such partnerships: General Motors' partnership with Shanghai OnStar and Didi Chuxing - China's largest car-hailing app - to support expansion plans in China; Toyota's partnership with City of Grenoble, Grenoble-Alpes Métropole, Cité lib and the EDF Group (an electric utility company in France); BMW's investments in MyCityWay and Parkmobile. From an infotainment perspective, multiple automakers have partnered with Google, Apple, and MirrorLink to develop a single mobile platform. Until 2016, 35 auto brands have tied up with Android Auto, 41 with Apple CarPlay, and 12 with MirrorLink.
An unlikely avenue that compels automakers to form robust alliances across industries is cyber security. Ransomware designed by professional attackers, could be the most serious form of threat. Consequently, automakers are addressing these issues by opening up information sharing platforms, with security agencies, hackers and other OEMs. Automotive Information Sharing and Analysis Center (Auto-ISAC), German Cyber Security Organization (DCSO), and GM Vulnerability Disclosure Program with HackerOne are some notable collaborations. Auto-ISAC is a collaboration of Automotive OEMs that promotes transparency in sharing cybersecurity threats and countermeasures. DCSO is a holistic effort to address cybersecurity across industries in Germany.
Constraints Around Partnerships
Some of the key challenges faced by the automakers in forming strategic partnerships today are:
- Partner explosion due to regional complexities: Enabling secondary services such as car sharing, usage based insurance, etc. will require OEMs to spend considerable effort in developing local alliances. Based on the area covered, multiple partners for a single region, and service, is a possibility.
- Long lead times to enable services: Scouting for the right regional partner and arriving at consensus on liabilities, could entail significant lead times. Unless tackled swiftly, OEMs could lose their first mover advantage and run the risk of becoming market followers than trend setters.
- Inability to pass on the cost to the customer: While the consumer desires a world of functionalities, his willingness to pay for the same is not proportionate. Automakers have to absorb the cost of enabling digital features. E.g.: The total price of Mercedes E-Class increased by €1,654 between its 2010 and 2015 digital packages while the cost of adding connectivity options was €7,0002. OEMs cannot lose sight of indirect costs incurred due to strong vendor management programs and legal teams to enable these services.
- Strategic Failures: OEMs are investing millions in R&D towards services like urban mobility. Inability to predict the pioneering services with geo-specific variants and converting investments into viable products and services could lead to heavy losses.
- Brand Management: Partnering with third parties for services with possible undetected vulnerabilities in the products, such as safety, will ultimately still be the responsibility of the OEM in case of recalls & lawsuits.
With burgeoning telematics services and complex TSP ecosystems, following are some of the trends we may expect to see in the near future:
- Bundling Telematics Packages: Given most of the telematics revenue is expected to flow from the customers of the passenger car segment, competitive pricing is key. If manufacturer installed options are offered at premium prices, the customer could very well chose a third party add-on solution, available at a much cheaper rate. Eg: Navigation devices are available in the market for €180, as compared to a €600 embedded option offered by the manufacturer2.
- Traditional technological providers reinventing themselves: TomTom, is a classic case of an organization that transformed itself from a portable navigation device manufacturer into a supplier of embedded telematics equipment. Proliferation of smartphones, that left portable navigation-only devices obsolete, forced the supplier to foray into the telematics business for survival. Today, major OEMs like BMW, Daimler, GM, Volkswagen, Toyota and Volvo use the platforms and offerings from TomTom in one way or the other.
- Cyber security: Besides a collaborative approach, automakers could engage with independent security validation services that review application code and provide unbiased views on the security features developed and closed out with their partners.
- Consolidation of Telematics Service Providers: Today, most TSPs specialize in services that pertain to one or two areas of Connected Car Services like infotainment or vehicle diagnostics. Automakers will look at enabling services across the spectrum. Instead of direct partnerships with multiple TSPs across service lines, they will look to minimize the overhead of supplier management. TSPs that provide a consolidation of services and in turn manage the tier 2 and 3 suppliers, will be the go-to partners in the future.
Global penetration of automotive telematics is expected to grow, from the current 48% to 62% by 2020, in the area of Vehicle Diagnostics. Safety & Security, is expected to capture more than 60% of the telematics services3. The evolution of partnerships is observed the most, in the areas of Urban Mobility and Infotainment.
With mobility services touted to be a profitable source of income for automakers in the next 5-10 years, it remains to be seen how the automakers will pool together and convert their R&D investments, partnerships across ecosystem players, regulations and understanding the consumers' needs (and services they are willing to pay for) and stay ahead of their competitors and/or afford to retain their spot. Investment in enabling these services and prudence are inevitable.
In the short term, connected cars services will act more as a product differentiation strategy rather than a source of revenue. In the long term, it will help open up new digital revenue streams through service offerings such as urban mobility, infotainment, and concierge services.
"Gartner Says By 2020, a Quarter Billion Connected Vehicles Will Enable New In-Vehicle Services and Automated Driving Capabilities", by www.gartner.com
"Automotive Telematics Market: Asia Pacific Industry Analysis and Opportunity Assessment 2014 - 2020", by www.futuremarketinsights.com
"Connected Car Study 2015: Racing ahead with autonomous cars and digital innovation", by www.strategyand.pwc.com