How
mobility players can compete as the automotive revolution accelerates
What is
required to navigate the emerging personal-mobility landscape in an uncertain
future?
We often hear people ask, “Who
will be the winner in the transformation the mobility sector is facing?” As
autonomous driving, shared mobility, connectivity, and electrification disrupt
the industry, there is uncertainty about who will come out on top: traditional
players or new entrants, the hardware or the software guys, Western or Asian
companies, product or service companies? In our perspective, however, success
in the emerging personal-mobility landscape will depend less on what individual
players are doing today and more on the choices they make regarding tomorrow’s
strategic direction.
In the first article
on the acceleration of the automotive revolution, we offered an integrated
perspective on two key questions: What is the speed of change, and what do the
new value pools look like? In this one, we present our perspective on the
logical third question: What is required to successfully navigate the emerging
personal-mobility landscape in an uncertain future?
The previous piece
introduced the concept of a new personal-mobility landscape in which players
move beyond rigid roles and, instead, may employ more than one business model,
engage multiple technologies, and be active across mobility layers as their
capacity to deliver value to their customers allows.
In this article, we
take a deeper look at this landscape to identify themes related to how industry
players might actually accomplish this.
Successfully growing or
transitioning into the new mobility industry will require more than simply
defining or reorienting a fixed strategy. Strong navigators will learn how to
choose based on probabilities. At the same time, they will remain agile and not
fixate on a single road forward. As such, mobility players should take four
actions, which we will discuss in more detail: define their strategic posture
and select differentiating capabilities to build, choose their individual
strategic setup, pursue optimal partnerships, and actively manage the
transition from traditional to disruptive models.
1. Prioritizing capabilities to realize a healthy
strategic posture
The future of the
mobility industry is characterized by uncertainty. As such, there will likely
be several ways forward due to the impact of regulations, technological
disruptions, and divergence of consumer needs, for example—each unfolding at a
different pace. Players thus need to think about which developments they
consider more probable than others and how well they are positioned to follow
those paths toward successful outcomes.
In doing so,
identifying relevant technology and business-model competencies that will allow
for differentiation is an important step and should be taken early on in order
to define a suitable strategic posture. On the technology side, mastering
software capabilities or creating advanced skills in electrification may become
key areas for successful differentiation. Similarly, in considering where to
focus concerning business-model competencies, it could be critical to choose competencies using a customer-centric perspective.
Moreover, trends in the
space will also require players to develop a robust organization that enables
capabilities around digitization, automation, and innovation, for instance, to
the point that they are able to compete along their newly chosen core
competencies.
Taking a closer look,
we find 25 competencies in the areas of technology and business models, which
can be clustered into front-end and back-end competencies, as well as five
organizational enablers. Companies must master them all to successfully
differentiate and serve consumers across all four disruptive trends (autonomous
driving, shared mobility, connectivity, and electrification). And most differ
from what traditional players have become used to refining for decades, such as
a skill set around optimizing the development of internal combustion engines
(ICEs).
Beyond building such a
multitude of competencies, achieving at least a defensible position in-house
for each of the four technology-driven trends would require an established
automotive manufacturer to commit to investments totaling more than $70
billion. This conservative estimate is based on the probable number of
attractive products a player would need to offer to compete in a given space
and the necessary enablers required in bringing those products to market.
Our analysis found that
the bulk of the cost of disruption will fall to players supporting traditional
automotive business models that need to deploy significant capital to develop
technologies while bringing new products and vehicle models to market. As
such, building new electric-vehicle (xEV) platforms, converting existing ICE
platforms, and rolling out semi- to fully autonomous technology to a sufficient number of
models (as a share of the fleet of a typical mass-market OEM) may cost at least
$55 billion over the next 15 years.
There is a lower cost
to entry for new mobility business models, such as building a shared-mobility service in a specific region or developing a connectivity
platform for in-vehicle services and advertising. To compete in just one of
these two verticals, a company should be prepared to spend roughly $5 billion
to $10 billion in the same time frame.
This is a high level of
investment. And, as our estimates represent the likely overall cost of entry,
further funds may be necessary to achieve a leading position in any one of the
trends, as competitors will probably make similar moves simultaneously.
No single player is apt
to “do it all,” so incumbents and new entrants alike will have to define their
strategic posture clearly—that is, where they want to shape, follow, wait, or
even exit the mobility industry. Defining this stance includes prioritizing
core competencies and the areas of the mobility landscape they may occupy,
identifying partnerships that will widen their reach, and mapping the path to
their envisioned end state as a successful mobility player.
2. Choosing a mobility strategy based on a clear profile
of qualifications
To build up the new
mobility landscape, all segments in all five layers will have to be fully
served. Individual players will have an ever-growing number of ways to compile
their offers and define their mobility strategy in line with their aspirations.
Looking at the
potential breadth of any actor’s portfolio, we see five strategic archetypes
evolving. Each archetype looks quite different in its coverage of the
personal-mobility landscape. Even within each of the archetypes, different
subtypes can evolve, depending on where players decide to focus and how they
fine-tune their approach .
To succeed within each
archetype, players must carefully select and master a minimal set of technology
and business-model competencies. For example, a
“pointed niche” player may decide to bet on one trend—say, autonomous-driving
technology—and therefore, depending on the planned focus, will need to cover
all software-based front-end and back-end technology competencies. This player
might need to build advanced machine-learning capabilities, double down on
driving software, and create the relevant set of business-model competencies
such as the effective processing of front-end offers.
To offer a complete and
differentiated portfolio within a selected archetype, a company—such as the
autonomous-driving niche player—will need to have a minimum profile of
qualifications. Five characteristics should be considered in selecting the most
suitable strategic archetype:
·
financial
strength, that is, the minimum
available funds and the ability to invest effectively in accordance with the
selected strategy over the course of five to ten years
·
customer
access, that is, the level to
which one has wide access to the relevant base (for example, serving a broad
range of different customers across segments, needs and wants, demographics,
and geographies) or deep access to build relevant knowledge and serve
effectively (for instance, understanding a specific customer type down to daily
routines, individual wants, and needs)
·
talent
access, that is, the
opportunity to widely (across a broad range of disciplines) or deeply (through
specific knowledge in a selected field) recruit and retain relevant talent—such
as software engineers or designers—given the employer’s attractiveness
·
organizational
agility, that is, the ability to quickly adapt significant parts of the organization to a rapidly changing company
focus (by adopting structures, processes, or employee skills to new market
requirements, for instance)
·
ecosystem
embeddedness, that is, the extent
to which one is or can be networked with relevant partners and vendors in a
targeted field or the broader mobility landscape
Accordingly, each
strategic archetype demands excellence across a unique combination of various
competencies as well as specific qualifications. Players looking to be
successful in a given archetype will need to build their capabilities with
respect to their current individual portfolio of skills and assets.
Companies that
understand their profile and the archetype requirements can quickly grasp when
a specific strategy could be met or exceeded, or in which circumstances
underdelivering might become a risk. Identifying individual nuances can clarify
appropriate archetypes and then help players fine-tune their strategy once a
choice has been made.
Imagine, for example, a
company that aspires to become the standard provider for holistic
autonomous-driving technology kits. The company has the necessary expertise in
software, is well networked to also cover required hardware components, and has
a strong employer and consumer brand. While this sounds promising for a
holistic systems-player strategy, the company is also financially well-equipped
and could therefore consider becoming an even broader player in the industry,
potentially moving into the domain of a fully integrated mobility player
instead of focusing on a single system. It is then up to the company to
evaluate its strategic posture and preferred way of moving forward in the new
mobility landscape.
3. Forming the right partnerships for managing reach
across technologies and business models
Besides gaining clarity
on where and how they want to position themselves, players need to think
about how they can extend their reach in the mobility landscape and build relevant
partnerships for future success. We have identified 13 types of partnerships,
each of which offers a specific approach to help manage a player’s reach across
technologies and business models, and to create and capture additional value.
Partnerships, by
nature, are unlikely to be a fixed construct. They may vary by area of the
mobility landscape, as well as by the core competencies they are best suited to
cover. For example, dedicated partnerships for setting new standards in the
industry may, generally speaking, be well suited to cover technology and
business-model topics but should ideally be oriented toward disruptive offers,
such as how to think about and handle the deployment of robo-taxis, once
available. By contrast, partnerships on synergetic product offers primarily
focus on expanding business based on existing technologies and thus can be
optimally used for a gradual transition into more disruptive business models.
At the same time, as
new partnerships grow more mature, they will probably include more elements of
capturing existing value, even if they originally set out with the goal of
creating entirely new value pools. Consider a newly established platform for
sharing data on autonomous-vehicle behavior: while at the beginning such a
partnership may be focused on opening up new opportunities for its
contributors, it may shift toward securing the created—and potentially other
existing—value pools.
Selecting where to
partner, the most suitable type of partnership, and the right structure will
not be straightforward as the industry becomes more complex and diverse.
Players will presumably face an increasing number of potential partners across
all layers of the mobility landscape and from a large set of industries that
are all looking to serve the mobility end consumer.
Not surprisingly, we
already observe many new offers stemming from rather unconventional
partnerships in the mobility space. Take, for instance, competitors
collaborating on high-definition maps or new players from different industries
such as retail and fashion building on opportunities from fully connected
vehicles and car data-enabled services
As advances in mobility
continue, we expect more and rather diverse partnerships to evolve. For
example, multiple industry players have already started discussing the need for
autonomous-vehicle remote-control centers, which would serve to help navigate
highly autonomous cars in unexpected or emergency situations. Such centers
could play a crucial role in getting autonomous technology off the ground and
achieving an initial, critical level of adoption, for example, through
providing consumers and safety authorities with a sense of security, knowing
there is a defined fallback mechanism to start with. A variety of stakeholders,
including regulators, fleet operators, and AV-system providers, may be
interested in controlling these centers in the future.
On a less concrete
level, we could include making electric vehicles serve as mobile power banks
for businesses and private households, leveraging autonomous vehicles for more
attractive storage or even real-estate deals, or basing entire interior-design
businesses on equipping purpose-built vehicles of all kinds. However such
partnerships are structured, the future is likely to bring interesting
collaborations to benefit the industry and end consumers.
4. Actively transitioning from the traditional automotive
world to the new mobility landscape
Beyond looking at how
to choose the right strategy and partnerships, we also need to acknowledge the
automotive revolution as a fundamental transformation of the industry. In our
perspective, players should approach it as such—and the rules of transformational change still apply .
This may sound like any
another transformation, but for the automotive revolution, it will be
particularly crucial to draw attention to the business-case element of the
upcoming transition. Financial decisions will have to be made in light of the
need to serve two worlds: the traditional automotive business, which will still
make up a sizable portion of the industry by 2030, and the disruptive,
technology-driven trends, which will grow to take over the mobility industry.
Defining the right balance across when, where, and how to invest in one field
or divest from another will be of the utmost importance.
The impact can be
immense, and players in the new mobility ecosystem have very different starting
positions based on their current roles and competencies. To quantify the
potential evolution of profitability and investment, we ran a war-game simulation that modeled the potential decisions of various
players hundreds of times and assessed the effect of competitive dynamics on
profitability. Through this analysis, we identified three core components of
decision making that seem to help determine success:
·
Investment
focus. This entails weighing
the trade-offs and taking a considered approach on whether to be balanced
across exposure to disruptive trends or to focus more on narrow competencies.
·
Investment
timing. The second component
involves managing long lead times for technology development and market entry
while staggering high-cost investments and deciding whether to front-run
industry developments or take a fast-follower approach.
·
Agile
organizations. Major events, such as
regulatory decisions or the entrance of one or two large players into a market,
can disrupt a company’s long-term investment strategy while reducing market
share and creating downward pressure on margins. Agile organizations must first
anticipate and second react to this risk, specifically when significant amounts
of capital and corporate focus are committed to one space.
Looking at average
performance and top performers across numerous simulations, we also see how
fundamental dynamics for different player types inform various strategies:
·
New
mobility and platform players. New mobility players start from a position of tight
profits and constrained cash flow, but with organizations that are potentially
quite agile. These players could see massive expansion of their current
profits, achieving growth of a hundred times or more. However, they must
carefully position themselves to respond aggressively to potential new entrants
and changing regulation that could dethrone them.
·
New
technology and specialist players. Large technology players and specialized companies
focused on bringing one or two disruptive technologies to market have the
luxury of timing and targeting their go-to-market strategy while working with
numerous players to scale technologies and profits across large volumes. For
these players, a variety of approaches proved successful; whether manufacturing
lithium-ion batteries, developing connectivity platforms, creating
in-vehicle-services ecosystems, or even rolling out a shared-mobility fleet,
all generated strong returns in competitive environments. With access to large
amounts of capital—giving them the ability to decide when to enter, if at
all—the key obstacle these players needed to overcome was the ability to
identify sufficient OEM partners and the best business models. In our testing,
only 30 percent of the simulated companies were able to both enter the
automotive market and generate long-term profits.
·
Automotive
OEMs. Automotive manufacturers
faced a more varied path to long-term profits. High levels of fixed capital,
long product cycles, and the need to transition to new technologies in the face
of an uncertain future mean shareholders of some companies may need to prepare
for an intense phase of capital redistribution and pressure on profitability.
In our simulations, we still saw various decisions leading to success, but
close to half of all simulated strategies resulted in negative or neutral
profit growth.
Many large OEMs diversified their
bets across a range of powertrain and autonomous systems, keeping core
intellectual property and investments in-house and staggering their investments
to minimize risk and spread costs. However, in some successful paths, OEMs
achieved an even more radical transformation of their businesses, divesting
tens of billions of capital from their core ICE business as they shifted large
portions of the portfolio to xEVs and advanced autonomous vehicles while
rolling out their own mobility platforms.
Smaller OEMs, including
emerging-market players and niche-market specialists, were forced to sharpen
their focus if they were to succeed. In some instances this meant falling back
on producing the core vehicle, while strategically sourcing high-volume
disruptive technologies (such as partially autonomous driving systems and
hybrid propulsion) to grow their market share at the cost of a substantial
profit give-back to the system suppliers. Other OEMs created outsize growth by
focusing on one disruptive technology, such as battery electric vehicles or
fully autonomous vehicles, building a brand and being first to market at the
expense of all other potentially addressable segments.
Our simulations
revealed a wide variation in the ability to grow profit across types of players
and strategies as the industry goes through a wide-reaching disruption and
transformation.
Many of these outcomes
themselves were critically sensitive not only to the actions of others and the
evolution of overall industry structure but also to exogenous shocks. In the
war game, a battery manufacturer could achieve substantial returns by investing
in a multibillion-dollar battery-manufacturing facility and supplying to one or
two mass-market OEMs. This investment would fail absent the ongoing and increasing
regulatory support for xEVs; alternatively, it could generate 30 percent
greater returns through improved battery chemistry. Similarly, the success of
fully autonomous vehicles represents a paradigm shift for shared-mobility
players’ revenues and profits, but technology failure or regulation delaying
the rollout could keep that business on a more conservative long-term path and
lead to negative returns for players heavily invested in the technology.
The level of
uncertainty facing many of these major investments is significant. While our
analysis suggests the existence of winning paths, the road to the future is
uncharted. But the four key actions we explored here could help players
navigate in the emerging mobility landscape. Staying flexible while at the same
time learning to operate based on probabilities will continue to increase in
importance.
As the pace of
technological change in the industry accelerates, we believe the question is no
longer whether the disruption will occur. Rather, it’s how quickly and to what
extent players will have to reimagine their businesses to serve the mobility
consumer of the future. The new landscape will require new technologies,
competencies, and partners, while still relying on traditional businesses and
products as part of the solution.
The size and potential
impact of the automotive revolution requires more than gut feeling to drive the
right decisions for a successful mobility strategy. Only a good understanding
of the potential outcomes and a data-driven mind-set can enable actors to
adjust to the full impact of the disruption on their business. War games, such
as the one we conducted, seek not to forecast the future but to simulate a
range of possible scenarios and understand how they could affect the
profitability of a variety of players. They also allow companies to test their
strategies in the face of an uncertain future and enable key decision makers to
approach impending changes with an industry-wide perspective.
We hope this article
encourages organizations to think about probable futures, decisions, strategic
alternatives, the moves of other players, and the importance of a
future-oriented vision. The next 15 years will usher in a new mobility
landscape, with large shifts in the deployment of capital and the capture of
profits. Navigating what’s ahead will require businesses to approach the market
with a long-term vision and to clearly communicate with shareholders and
partners about the road ahead.
By Kersten Heineke, Timo Möller, Asutosh
Padhi, and Andreas Tschiesner October
2017
https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/how-mobility-players-can-compete-as-the-automotive-revolution-accelerates?cid=other-eml-alt-mip-mck-oth-1710
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