Where the Automotive Industry Is Heading in 2017

The automotive industry has always been a sector of fast development. Last year was no exception, as 2016 has seen the industry put the pedal to the metal in terms of technological advancement. But technology isn’t the only factor that’s changing.

Diving deeper into currently unfolding auto industry trends provides insights into how our everyday lives will be different in the coming 10-30 years. Therefore, analyzing the trends that experts expect to see in 2017 is not only fascinating for carmakers and automotive suppliers, but also for weekend drivers — and, as you’ll see, even those without a driving license.

The Automotive Revolution

New gadgets and innovative technologies are driving a disruptive change that experts agree will reshape the foundations of the automotive industry as we know it. McKinsey’s 2016 prognosis for the automotive industry’s future has identified four important technology-driven changes affecting the market.

1) New Technologies: Electrification, Connectivity, and Autonomous Driving

While we’re talking about changes that are more disruptive than simply hooking up cars with the latest gear, it is embedded technology that has enabled these trends to emerge. So it’s important that we analyze just what kind of automotive technology is in the making.

The steadily dropping price of batteries, as well as other technologies, has enabled electric cars to pop up on our roads, and experts agree that hybrid or fully electric cars will soon be cost-competitive with conventional automobiles. Interest in efficient and eco-friendly technologies is also on the rise.

The addition of connectivity capabilities has paved the way for autonomous vehicles. Due to large-scale research projects by Google, Apple, and practically all of the leading carmakers, self-driving cars have been in the center of attention recently. While the use of fully autonomous vehicles in real traffic situations may be further down the road, advanced driver-assistance systems (ADAS) that rely on similar technology have already started partially taking over control from human drivers. This will help shape public opinion and safety/security regulations, but will also drive further innovation in this area.

As software plays an increasingly important role in how modern cars operate, competition will likely force innovation to speed up, and new functionality may be added to your car with a simple software update. Upgradability will become vital. The intertwining issues of cybersecurity and road safety will gain further importance.

Perhaps a less immediate change, but automotive experts and researchers also believe that technologies such as 3D printing and machine learning (AI) will have a great impact on the auto industry. 3D printing may allow us to build better, safer, but not as long-lasting bodies for our cars, allowing more economical accident repair, while artificial intelligence (AI) could help us ensure the security of data.

2) How We Relate to Mobility: Changes in Consumer Behavior

Interestingly, as technology makes vehicles safer, cleaner, and more convenient, it seems like consumers are less likely to get emotionally attached to their cars. McKinsey forecasts that in 2030, 1 out of 10 cars sold could be a shared vehicle. The signs of declining ownership are already apparent, and the report expects this trend to continue and even accelerate in coming decades.

Mobility providers such as Uber and others will enable consumers to simply rent a (shared) car as an on-demand service, specifically for their intended purpose and for a set travel itinerary or period of time. Ownership is expected to be less important, and car customizability will be achieved by modularization and via flexibly configurable software with personal profiles.

3) Where Carmakers Make Their Money: New Sources of Revenue

Mobility solutions aren’t the only new avenues of business opening up for the auto industry. Surpassing the traditional notion of revenue streams (car sales and aftermarket products/services), companies will find new ways to realize value, disrupting and transforming business models on the automotive market. Some new, viable forms of business models may not even have been devised yet.

Connectivity allows vast amounts of valuable data to be generated, enabling the capitalization of data-driven services. Expanding autonomous technology will enable transit time to be used for personal activities, opening up new revenue streams for automotive companies (in the form of entertainment, media, and other services). This will most likely attract new providers to the market, and/or require traditional auto companies to gain competencies in new areas — leading us to the last very important trend that is already shaping the automotive industry.

4) Changing Value Chain in the Automotive Industry: Compete or Cooperate?

Not only will companies have to reimagine their opportunities for realizing revenue in an agile way, but they will also be forced to think about how they compete, and who they compete with. The auto industry hasn’t fundamentally changed since the first cars were manufactured: there are a handful of major carmakers that make a profit by selling cars and other (hardware) products, and some services. With the automotive revolution that the above trends outline, it’s inevitable that new, non-traditional players will enter the market.

To compete with these new entrants, carmakers will have to redefine their role in the auto industry and either assume new business models or gain new competencies. For instance, as software becomes increasingly important, they will need to build a solid proficiency in software development or partner with a tech company that has the necessary capabilities.

How Should Carmakers React and Adapt to These Changes?

In other words, traditional players of the automotive industry will need to become more open, agile, innovative, and able to learn and adapt to fast-changing market trends. Implementing these concepts, in reality, requires a paradigm shift in a variety of areas. Changes in terms of organizational culture and even structure, management practices, but also internal and external communication are inevitable. A more agile, innovative, and integrated approach will have to be applied to all the traditional business processes — contributing to new ways of product innovation and development.