Shifting Gears to Electric: What to Think about Now

Dec. 10, 2020
New consumer preferences and fewer parts in vehicles are changing business models.

From the rise of electric vehicles and rideshare to the emergence of Amazon and other B2C players in the automotive parts aftermarket, vehicle and parts manufacturers have dealt with plenty of disruption lately.

Those developments, plus the weight of the current COVID-19 pandemic and the long shadow cast by the coming autonomous transportation era, have thrust the automotive industry’s standard-bearers into a period of unprecedented uncertainty — and immense opportunity — as they search for sustainable strategic pathways forward.

What happens to traditional manufacturers and suppliers like Volkswagen, General Motors, Bosch and Continental once self-driving vehicles become commonplace, the electric drivetrain becomes consumers’ engine of choice, and rideshare makes as much sense as car ownership for mainstream consumers? Before we contemplate that question, let’s frame it with a few facts.

Consider, for example, that an electric vehicle (EV) engine has only about 20 moving parts, compared to 2,000 in an internal combustion engine (ICE). EVs generally require much less maintenance than their ICE-powered cousins. Powerful consumer trends also are at work. A recent study by Allison + Partners found that more than half of Generation Z (56%) view a car essentially as no more than a means of transportation; in a separate study by INVERS, 64% of Gen Z questioned their need to own a vehicle due to other transportation options.

What all this suggests is that looking ahead, vehicle and parts manufacturers can no longer can count on the traditional auto parts value chain to reliably generate huge margins and profits for them. All told, according to McKinsey, profits among the top 20 OEMs in the global auto sector are expected to decline by $100 billion in 2020. So the pressure is on manufacturers to find new profit centers and recurring revenue streams. Based on extensive work with vehicle and parts suppliers around the globe, we see an automotive business that, while rife with disruption, also is ripe with opportunities to capitalize on shifting transportation market dynamics. Here are three keys to doing so:

1. Get closer with the end consumer. The mobility consumers of today and tomorrow, millennials and Gen Z-ers, value experience most. Speaking specifically of Gen Z’s transportation consumers, Jon Genese, vice president of client engagement at the branding firm Tag, said, “this is a generation of experiences and moments brought to life by technology each and every day.”

For automotive manufacturers, that means putting the customer experience at the heart of all they do. Automakers and suppliers could, for example, partner with dealerships and independent repair shops to develop elevated, concierge-type vehicle maintenance and repair experiences, with the customer’s preferred digital device and the curbside outside their home as the only touchpoints in a seamless service experience. Or, they could follow automakers like Volvo and Porsche down the auto-by-subscription route, where the vehicle comes packaged with maintenance and insurance.

New vehicles carry sensors that provide steady streams of data about performance, driver behavior, maintenance needs and more. Vehicle and components suppliers can use this data to provide car owners with visibility into the operating condition of their vehicles, individual systems and parts, and service needs. By building revenue streams around predictive maintenance opportunities, and fortifying them with other digital services (a timely deal on new tires, delivered right to the consumer’s dashboard or device when sensors show a worn tread), automotive manufacturers create a closed feedback loop with data that can be shared by a business network that includes manufacturers, suppliers and customers.

These income streams require the digital capabilities to not only consistently take the pulse of consumer mobility preferences, but also to gauge customer experience with mobility solutions and respond to that insight accordingly, using a new breed of experience management (XM) tools that provide deeper insight into how customers prefer to engage and communicate, what they expect from their transportation experience and their mobility provider, and the types of mobility services they’re most inclined to use.

2. Get serious about mobility-as-a-service. Auto-by-subscription is one example of how automotive companies are getting creative in pursuit of recurring revenue streams that are built on a mobility-as-a-service model. This shift from the product-centric to the customer- and service-centric creates massive opportunities to develop outcome-focused mobility solutions in which vehicle and parts manufacturers, dealers and other links in the value chain collaboratively leverage their systems, data, relationships and expertise to deliver transportation services that cater to the customer experience.

The possibilities are many. Beyond the subscription services that already are making modest inroads with consumers today, it makes sense for automotive companies to look at services that, for example, package an EV with installation and upkeep of a home charging unit, plus, perhaps, even a battery-swapping service (already happening in China).

Making these types of ventures practical and profitable requires a strong, flexible and agile digital backbone, one that enables a company and its partners to share both operational and experiential data and insight, from the customer and the sensor-equipped, Internet of Things-connected vehicle and equipment. This in turn enables them to identify trends, sense impulses and short-term signals from one another, and from customers, and generally to make well-informed decisions for these new mobility ventures.

The digital twin construct can be particularly valuable in this regard, providing insight into how a vehicle and its components are performing, how they could be improved, and how they should be serviced to provide the best possible outcomes for manufacturer and customer alike.

3. Keep fleets front of mind. As much attention as individual consumers garner, it’s critical for automakers and their part suppliers to deliver superior experiences and outcomes to another key customer segment: fleet operators. That includes not only traditional private and public vehicle fleets, but also rideshare fleets, vehicle-by-subscription fleets and a bit further down the road, fleets of autonomous vehicles.

Bundled services that provide fleets with a full mobility solution — the vehicle, plus predictive maintenance, parts, usage analytics, even insurance, fuel, battery swap, carwashes, and toll payments — could ultimately emerge as a vital source of recurring revenue for vehicle and parts manufacturers, helping them to forget how dependent they once were on the business of selling and installing carburetors, fuel pumps and the like to keep all those old-school ICE-powered vehicles on the road.

Uli Pfeffer and Sara Mendes are senior solution managers in the Automotive Industry Business Unit at SAP, focusing on the automotive aftermarket.

Popular Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!