For long, competition in the Indian automotive industry has revolved around acquisition and maintenance costs, fuel economy, and engine power. With the increasing commoditization of hardware and the increasing premium-ness of software-based services, the traditional norms of competition are changing.
Technological advances and innovation, driven especially by tech giants like Amazon, Apple, and Google, are driving this change. New competitive dimensions such as connected features and services, vehicle design, and internal user interface and experience are influencing consumer outlook towards cars. In addition, growth in electric vehicles and development in the autonomous vehicles space is accelerating this competition.
Indeed, connected cars and services will be a critical differentiator of our times.
Connected cars – transforming the automotive industry
A global Capgemini study, Connected Vehicle Trend Radar 2: The road towards profitability for automotive connected services, states that more than 350 million connected cars are expected to hit the road by 2023 – almost 24% of all cars worldwide, up from 8% in 2018. First launched in the late 1990s, with General Motors offering its OnStar services to customers, connected cars have grown exponentially with advancement in technology.
India’s connected car market is expected to grow by over 20% in the next few years. All luxury and premium car OEMs in India offer connected services across all models, but the services offered by OEMs vary as they produce for the mass market. The availability of connected services ranges from 20–70% (as a proportion of cars sold where TCU-/dongle-based connected services are an option) across different non-luxury, non-premium OEMs. As the Indian market is highly value-conscious, many OEMs offer free connected services for up to three years.
Connected cars have created the massive potential for automotive players to tap into new sources of value that exist across six touchpoints – infrastructure, service providers, drivers/passengers, other vehicles, homes, and OEMs/dealers. Opportunities exist for increasing revenues, reducing costs, and decreasing working capital across the value chain. Many of these new opportunities will require setting up new business models.
Connected services are also driving a significant shift in value pools across the value chain. And this shift is drawing new entrants to target specific, and in many cases narrower parts of the automotive value chain. These new entrants are enabled by advances in areas such as mobile, cloud, analytics, and computing. No wonder, technologically powerful players such as Apple, Google, Amazon, and Otonomo are identifying and targeting such opportunities … and threatening the incumbents.
Roadblocks along the connected journey
Though huge revenue-generation opportunities related to connected services exist, research shows that customers are still not ready to pay for the connected services that OEMs offer. For example, the Capgemini study shows 44% of customers do not have connected services in their vehicles. And of those that have, only 51% use them.
An analysis of customer feedback from India indicates that the value perception and quality of connected services vary among OEMs – the more premium the OEM, the better are the connected services; but the more the mass-market outreach, the poorer is the value and quality perception.
For example, customer complaints about poor UI/UX, non-intuitive and complicated apps, network connectivity, and lack of real-time vehicle information are a case in point. Automotive is a 100-year-old industry focused on metal, hardware, and operational efficiencies. The industry must start giving equal, and soon, greater importance to software-driven innovation.
Many OEMs still consider software-based connected services as a “twin” of their hardware products with the OEM in the middle as the sole provider of such services. This mindset needs to change due to significant differences between the development and provisioning of services against that of cars. The lack of new ways of working is resulting in the development of connected services that are still not meeting the expectations of a wide customer base.
OEM response … overhauling the go-to-market strategy
The key to winning with, and monetizing, connected services is to identify those services valued by customers and support them with the right business model. As OEMs start by offering their initial few services, it becomes tempting to continue with their established ways of working. This approach may result in new monolithic systems that aren’t scalable to support new services rapidly.
To correct this, OEMs should set up Digital Platforms as a foundation for developing and provisioning new connected services through innovation. The operating model for managing such platforms will be different from managing the OEM’s core technology systems, which is aimed at ensuring efficient supply chains and business operations. The new model should have different governance mechanisms, with decision rights devolving to the “tribes” and “squads” rather than concentrated with top management.
Beyond developing such services internally, OEMs need to evaluate alternate approaches that require reimagining their role in the connected car ecosystem. Many OEMs still tend to see new players as competitors. Depending on their strategy, and on a case-by-case basis, OEMs should accept new players as contributors to their connected services portfolio and partner with them to take pole position along this competitive dimension.
These operating and business model changes will not only support connected services but also support the other revolutionary area – autonomous vehicles!
Leading the charge for Intelligent Industry
Technology has created huge new opportunities for the automotive industry. With intelligent automation enabling new entrants to sense the opportunity and make fast moves to tap the potential, a new future is being written for the industry. Companies that have spent decades perfecting the art of vehicle production are reinventing themselves.
Connected services are still in their early days and hence the time is apt for OEMs to ramp up their capabilities. These capabilities will require time and experience to mature. Hence, it is imperative for OEMs to speed up their connected car and services journey. As the impact of the COVID pandemic wears off and people mobility begins, the automotive industry is best placed to drive the charge towards Industry 4.0.
Author: Ashish Sharma, Automotive Sector Lead, Capgemini Invent India
Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.
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