2020 BRN Discussion, page-24470

Everything you ever wanted to know about digitisation in the auto industry and so many different rocks under which AKIDA could be hiding:

Building a digital automotive industry

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Digitization is set to enhance efficiency, reduce costs and sparkinnovation throughout the automotive industry.

Digitization has the potential to drive substantial improvements in theindustry’s value chain. As original equipment manufacturers (OEMs) seek toexpand from business-to-business through their dealerships to abusiness-to-consumer model, there will be new ways to engage with customers,partner with suppliers and interact with data. The increasingly connectedvehicle will alter business strategies from selling a product to providing acustomer experience-centric value proposition.

Digitizing the enterprise/ecosystem is one of three themes that webelieve will be central to the digitization of the automotive industry over thenext decade. The other themes we examine are connected traveler and autonomous vehicles.

Connected supply chain

The primary benefitfrom interconnecting the supply chain is cost reduction through a bettermanaged end-to-end process. Historically, the supply chain has beencharacterized by long lead times in a complex structure. Digital will lowercosts and accelerate supply chain transparency through continued partner systemintegration, and data gathering and analytics will reduce the number of defectsand speed up the whole process of component design, manufacture and delivery.Much of this integration will be facilitated through the cloud, where everyparty in the chain will be looking at the same data, thereby creating betterflexibility and stability.

Social media monitoring across the supply chain can more quicklyidentify component quality breakdowns where a supplier rather than the vehiclemanufacturer would have to redesign, rebuild and resupply a part. The explodinggrowth of data from the connected Internet of Things throughout the supplychain will demand new skills for workers and managers.

Case study
Bosch

One of Bosch’s projects in development would putsensors throughout its factories and third-party logistics providers. The datawould present a complete view of all shipments in transit from assembly topoint of delivery.¹

Digital manufacturing

The automotiveindustry has been one of the most aggressive in replacing manual labor withautomation. On the assembly line, robots now work alongside humans.New-generation robots can do multiple assembly tasks. Robotics, artificialintelligence and the Internet of Things have all become part of a newindustrial revolution.

Over its evolutionary cycle, the smart factory requires heavy investmentin connectivity and automation, advanced algorithms for managing workflow,scheduling jobs, creating supply-side and customer-side information sets.Investment is also required in technologies that enable virtualization ofdesign and testing to achieve faster time-to-market and lower physicalprototyping and testing costs. Predictive asset maintenance will also moreaccurately anticipate and pinpoint machine and part failures.

Case study
Siemens

Siemens operates a small electronics plant in Amberg, Germany. In 1990, itwas 25% automated. It is now 75% automated and defect rates have dropped tobelow 12 per million. Output has increased 8.5 times with little change in thenumber of employees.²

Disrupted retail

Relationshipsacross the entire retail landscape are being altered by the digital revolution(see Figure 1). OEMs, dealers and customers are dynamically redefining how theyinteract with each other, with consumers increasingly expecting a seamlessexperience across both digital and physical touchpoints, regardless of who theyare interacting with. Customers are using the manufacturer’s digital options(such as its website or online reviews) to educate themselves, comparison-shopand virtually test-drive and build their dream cars.

OEMs and dealers must fundamentally reconsider how they engage withcustomers before, during and after the sale. When and how customers interactwith sales people require different skills across the sales cycle in and out ofthe showroom. The paper-intensive purchase transaction will need to be digitized.

We anticipate around $90 billion worth of operating profits will migratefrom traditional to digital channels open for competition among OEMs, dealersand third-party online platforms. This migration will also drive advertisingand lead generation revenue streams for car comparison websites and third-partyonline retailers, potentially adding an estimated $28 billion to their bottomline.

Case study
Audi

Audi’s virtual showroom in London is designed to sell both cars and theAudi brand. Only four physical cars are on display. On the walls are enormousvideo screens on which customers can see all specifications for their chosenmodel. With authentic sound effects, they can open the doors, look inside andwatch the car zoom away. Audi is also piloting a wearable virtual realitydevice that gives car buyers a first-person interactive experience. Thecomputer program includes tens of millions of different renderings of a model’svarious components and features which the device wearer can see from anyangle.³

Connected service and maintenance

Predictivemaintenance. Increasingly sophisticated in-vehicle diagnostic systems, smartcomponents and ubiquitous connectivity allow the vehicle and even somecomponents to proactively signal when they need maintenance or replacement.Continuous data analysis creates new opportunities for preventive maintenance.This dramatically reduces critical, unanticipated failures and reduces thefrequency and severity of recalls. We expect remote diagnostics enabled bytelematics to add $60 billion of profits to OEMs, suppliers and telematicsservice providers. OEMs can expect to see added benefits of reduction inwarranty costs for subscribers. As a consequence, dealers and independentservice centers stand to lose $44 billion in operating profits over the next 10years.

Next-generation service. The explosion of cheap sensors has brought downthe cost of predictive maintenance and is enabling next-generation servicing.Increasingly, service is becoming not only a mechanical adjustment or partreplacement but also a software upgrade, with the service technician actingmore as a computer diagnostic expert. Software improvements create performanceimprovements in both the overall engine and in individual mechanical systems,contributing to parts lasting longer and optimal performance beingmaintained.

Case study
Tesla

Instead of switches, knobs and gauges, most car functions andperformance metrics in a Tesla Model S come through a single17-inch touchscreen. For the driver, this digital interface reduces complexityand adds flexibility. Periodic over-the-air software updates allow some of thevehicle’s original mechanical design features, including the look and feel ofthe touchscreen, to be upgraded to continuously meet consumerexpectations.⁴ Tesla is the only manufacturer providing automaticover-the-air firmware updates to allow the car to improve safety, performanceand infotainment capabilities.⁵

Where will the servicing be done? For dealers, service is their primaryprofit center and they’re going to do what they can to protect and expand this.Unless regulators step in, OEMs might release their proprietary softwareupdates to their dealers and not third-party repair shops. With thecomplexities of computer code, customers could also have greater confidence inthe work of a factory-authorized dealer than an independent service shopespecially for major software upgrades.

We expect a potential shift of $105 billion over the next 10 years fromindependent service centers and smaller dealerships to high-end, authorizedservice centers. Loss of business through remote servicing could potentiallyerode $6 billion in operating profits derived from the auto-servicing profitpool.

Transformed digital aftermarket

The average age ofcars in the European Union is 8.6 years.⁶ In the United States, it’s 11.4years.⁷ In consumer electronics, older computers eventually cannot acceptoperating system upgrades; will the same be true with vehicles? Secondownership is more common and the sale and service of used vehicles is animportant revenue stream for dealers. Second owners also have expectations thatall of a vehicle’s systems will be current.

A transformed aftermarket will be where a vehicle’s connected navigationand infotainment components can be upgraded. Existing aftermarket players willshift sales and services to meet this burgeoning demand for upgrades that allowthe consumer to stay connected. To better facilitate software and hardwareupgrades, manufacturers and suppliers will be expected to make their systemsforward compatible.

Close to $26 billion of operating profits will be at stake for partsretailers that wish to capitalize on digital channels for customer engagement.However, approximately $2 billion of operating profits could be eroded due toweaker pricing versus offline channels.

Automotive data marketplace

One of the mosttransformative impacts of digital is the development of a data economy.Companies in all industries are seeking to understand what data they have andcan potentially collect, what data others might have, and how they can use allthis information to better serve customers and constituents. This is especiallytrue in the automotive industry, which is one of the most datageneration-intensive industries in the world – second only behind utilities.

To fully realize the commercial and social benefits of the data that isgenerated across the industry, industry participants need a secure and robustdata market where they can come together to trade data. This will alloworganizations to be more targeted and efficient in their data collectionprocesses, both to support their own business objectives, and to transact inthe data marketplace.

We are already seeing early stages of this. For example, TransportAPIconsolidates data feeds from some of the United Kingdom’s transport servicesand makes them available to developers, which use the information to buildapplications that track buses or tell you where the nearest Tube stop is.Transportation infrastructure has been computerized for a long time, but what isnew is making the data available publicly on the Internet.⁸

Data exchanges are expected to create $36 billion of operating profitsfor OEMs from jointly run data exchanges operated at scale, with benefitsderived mainly through third-party monetization and reduced cost of dataacquisition for OEMs contributing to the exchange.

Connected infrastructure

Imagine if vehiclescould talk not just with each other (vehicle-to-vehicle, or V2V) but also withroadside infrastructure (vehicle-to-infrastructure, or V2I). Telecommunicationscompanies are seeing opportunities in machine-to-machine communication invehicles. In the third quarter of 2014, AT&T, for the first time, connectedmore new vehicles than it sold new smartphones.⁹ V2V and V2I are key enablersof intelligent transportation. Sensors, transponders and RFID readers on theroad, traffic lights, bridges and parking lots will create an integratedcommunications network of continuously moving digital information to increasesafety and improve traffic flow.

An integrated infrastructure-based network would be a boon toinfotainment functionality for the connected traveler. Moreover, governmentagencies could use data from V2V and V2I communication to better mitigatetraffic congestion and improve public safety. The National Highway TrafficSafety Administration in Washington has stated that this technology couldaddress 80% of crashes involving unimpaired drivers.¹⁰

Footnotes:
1. http://www.gxsblogs.com/morleym/2014/03/how-the-internet-of-things-will-provide-fuel-for-future-digital-supply-chains.html
2. WEF DTI Automotive Phase 1 Working Draft PPT deck
3. http://www.autonews.com/article/20140511/RETAIL07/305129998/audi-makes-london-showroom-a-tech-rich-showpiece-for-the-brandhttp://www.autonews.com/article/20150113/OEM09/150119858/audi-sales-chief-unveils-virtual-reality-system-for-shoppers
4. http://www.teslamotors.com/models (and author commentary)
5. http://uk.*.com/morgan-stanley-raises-tesla-price-target-2015-8?utm_source=linkedin-ticker&utm_medium=referral?r=US&IR=T
6. http://www.acea.be/statistics/tag/category/average-vehicle-age
7. Source: IHS Automotive reports
8. http://tapicasestudies.weebly.com
9. http://blogs.cisco.com/ioe/the-smart-connected-vehicle-is-here-now-we-need-smart-connected-roads)
10. www.nhtsa.gov/DOT/NHTSA/NVS/Crash%20Avoidance/Technical%20Publications/2010/811381.pdf