The recent launch of Tesla’s mass-market vehicle, the Model 3, has people wondering what the connected car landscape will look like in the future. Tesla projects exponential sales growth, vastly exceeding current production capabilities. While Tesla is at the forefront of the headlines, other automobile manufactures, entertainment platform companies, data management companies, software and hardware companies scramble to dictate standards and stay relevant to the market dynamics of the automobile. What does this mean for the future of the automobile? Companies will partner, merge and acquire to avoid obsolescence caused by this breakneck speed of technological automobile innovation.
Growth of the Connected Automobile:
As an increasing number of homes and offices become connected, the same level of connectivity will be in demand for the in-vehicle experience. Industry experts believe that over 90 percent of vehicles will be connected by 2020. This estimate is fueled by announcements from companies like Toyota, claiming that it will soon have 100 percent world-wide fleet connectivity, meaning the fleet will have capability to connect to the internet. In its primitive form, this connectivity consisted of safety features from companies such as OnStar. Connectivity since has progressed to include GPS and navigation services, remote diagnostics, and entertainment services like Spotify. Innovation and development across connectivity, internet of things (IoT), and autonomous vehicle capabilities is reacting to drastically improve the driver and passenger experience along with the ability to operate 100 percent safely and effectively, all autonomously.
In addition to consumer demand, public policy is driving the need for connectivity. For example, eCall policy in the EU demands connectivity out of every European automobile. To provide another example of automobile technology progression, the simple DIN radio was a staple element of automobile entertainment until its recent replacement by display audio that integrates with drivers’ cell phones. Within the next five years the DIN radio will be on its way to being a vintage feature, replaced by digital connected infotainment.
The Effect on the Automobile Industry:
This growth in demand and supply of technology will lead to changing market dynamics for all players.
Mergers and acquisitions will continue to be a key trend surrounding the connected car and automotive infotainment category. A shift in market power may arise and there is potential that the infotainment platforms become more powerful than, or one and the same with OEMs. The following types of technologies are all squaring off to determine which company drives the decision for OEMS and consumers:
- Big Data and Analytics, IOT & Cloud
- Data Security
- Transmission Control Unit
- Display Audio
- Digital Clusters
- Active Safety Features
- Autonomous Vehicle Software
- Rideshare Software
For example, will the consumer of 2022 purchase a car based on the IoT and cloud capabilities, or based on the hardware and driving capabilities? Or will it be based solely on the comfort and entertainment? Perhaps based on integration with smart phones, homes, and offices? Or will there be another reason?
Consumers could even make their purchasing decisions based on extraneous differentiators like cabin material. Corning, the glass company, recently displayed its “Connected Concept Car” indicating intentions to throw its hat in the ring as another player battling to own a value-differentiating element of the connected automobile.
The differentiators in value will be determined based on the consolidation race. In a situation where the original equipment manufacturers purchases these software, hardware and infotainment capabilities, consumers will continue to purchase cars based on the OEM. If, for example, a platform company like Samsung or Apple acquires enough capabilities, consumers may care first about their data, IoT and infotainment platforms. This could mean the future automobile consumer purchases a Google car and the OEM that builds the core automobile becomes irrelevant to the purchaser. This inversion of the current landscape is very possible.
Another potential outcome is for the landscape to become randomly coupled. In this scenario, the inside of the car is one grouping and the external and driving elements are separate. Or maybe the rideshare and autonomous drive software is separate and all hardware are together. In this scenario consumers, would buy a Ford vs. Toyota and then decide between Amazon, Google, or even Facebook.
Some signs of this race to acquire, partner, and avoid being squeezed out is made evident when analyzing Samsung’s recent moves. Samsung is directly targeting the connected car space and is one of the top brands used across OEMs. It has made investments in IoT, cloud, and is its top five in telemax control units among the industry. Samsung tried to acquire Magneti Marelli for lighting, head units, clusters, displays, and telematics control units to further expand its presence across the automobile cabin, but the deal was cancelled in November of 2016. If Samsung had acquired Magneti Marelli along with its recent acquisition of Harman, which has increased its capability across audio and entertainment, it would be in a commanding position across the in-cabin space. These capabilities would have allowed it to leverage vertical supply chain and present partnership opportunities to OEMs a one-stop entertainment shop. If Samsung merges with or acquires a company with software capabilities, then the automobile landscape will have shifted and the software/infotainment capability will dictate over the OEM.
In the end, the winner may be the company that partners with or develops the capabilities that leapfrog Velodyne, the current leader in autonomous car, mapping, safety, and in-cabin entertainment. The company that replaces this current autonomous vehicle technology could be the next major unicorn that that then dictates the future of the industry.
Things To Expect:
We can expect continued tier-1 consolidation and a race for companies to own enough differentiation factors to drive the purchasing decision. We can also expect big data, IoT and analytics to become a major focal point and increasingly important as the connected car integrates across devices and takes on more autonomous functionalities. Data and technology security will become increasingly necessary as software technologies and partnering with infotainment companies like Harman, now Samsung.
It is safe to say that the landscape and the automobile consumer purchasing decision of today will be flipped on its head in the very near future.