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Fast and Furious

29 September 2017

Electric and hybrid vehicles are likely to account for 58 percent of all new car sales in Europe, the USA and China by 2025.

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This is according to the latest Digital Auto Report 2017 from Strategy& - PwC’s strategic consulting team.

This forecast comes on the back of a policy push by both the French and UK Governments to ban petrol and diesel new car sales by 2040, with the Scottish Government aiming for 2032.
Customer spend on what is being termed as the ‘roboeconomy’ - connected and self-driving cars through to associated digital services - is also forecast to reach EUR 2.2 trillion annually by 2030. 

As the Fourth Industrial Revolution (4IR) continues apace across the auto industry, it’s expected that Europe, USA and China will collectively be home to over 470 million connected cars by 2025.

Cara Haffey, PwC UK automotive leader said “our analysis shows that with a definitive breakthrough on electric vehicles only a few years away, sometime between 2025 and 2030, electric cars will become cheaper to run than petrol or diesel models, when you factor in traditional costs such as depreciation, fuel, servicing, taxes and insurance. 

“Alongside developments in the vehicle powertrain we are also seeing substantial increases in the level of vehicle connectivity. According to the report, over 85 percent of all new cars can already be classed as connected. As our recent study with SMMT shows, this can have a significant impact on the social, educational, health and employability opportunities for young, old and disabled people.

“When you also factor in the growing ‘roboeconomy’, there are a wide range of implications for the auto industry and investors to consider as it looks to the future.”

Mobility as a service (MaaS)

By 2030, just over 20 percent of the profit potential in the mobility market will be occupied by “mobility as a service”, further increasing the pressure on margins in the conventional car production segment. In future, barely 50 percent of sectoral value-added will be contributed from car production or car sales – today, the figure is still around 85 percent. The remaining part will be played out in the fleet management and digital services areas.

The report also suggests that by 2030:

- 36 percent of all mileage in Europe will be in shared-use vehicles with 42 percent in self-driving vehicles.
- Europeans are expected to show the greatest interest in privately owned self-driving cars (16 percent) compared to 11 percent in the USA and 10 percent in China.
- As road-based mobility improves, Europe, USA and China could see a 23 percent increase in the number of miles driven (compared to 2017), with average household spending on mobility around 10 percent less.
- Rapid build-up of self-driving vehicle fleets will result in a 28 percent increase in new car sales. In the long term, however, shared use will mean 25 percent fewer cars travelling on the roads in Europe and the USA and in other mature markets, compared to today.
- Market volume in shared mobility will rise annually by 24 percent in Europe, the USA and China alone over the period to EUR 1.3 billion, with around 33 percent of all new vehicles used for shared mobility.

Mark Couttie, Strategy& Automotive specialist commented, “the automotive sector here in the UK, as with other territories, is likely to undergo a huge upheaval as the transition to shared or self-driving fleets gathers pace.

“Business segments such as the used car trade are likely to be challenged due to rapid depreciation in vehicle values while manufacturers will become increasingly engaged in regular servicing work on fleet vehicles. We’re also seeing some automotive giants reacting to these MaaS disruptors by entering into partnerships with innovative ride-hailing services.
“With planned trials of driverless vehicles underway, the route to commercial reality is firmly on track. As this materialises, the role of the consumer and human-machine interaction will vastly differ from today. For example, the current extremely low use of cars by private owners, which currently stands at approximately 5-10 percent per day, is likely become a thing of the past. 

“One possible consequence of this increased usage could be a decrease in consumer demand to purchase cars, something which the industry - from manufacturers to dealers and distributors - will have to adapt to.”

The ‘roboeconomy’

The first “robot cars” (series-ready, self-driving vehicles) are anticipated from 2023 (Level 4) or 2028 (Level 5), and by 2030 there are set to be around 80 million such cars in circulation in these regions. 

As this “roboeconomy” develops, automotive manufacturers need to decide whether they want to be infrastructure operators with their own end-customer service, to adopt a role as intermediary between the mobility providers and end-customers, or to retreat to today’s core competencies of vehicle development and of their integration capacity as a parts supplier network.

Other potential market opportunities could arise from using digital technologies to improve cars by reducing manufacturing or servicing costs and increasing customer lifetime value.
In the long term, however, successful market participants will also have to overcome the challenge of breaking out from the individual categories and developing into an overarching hub for services and e-commerce, as Alex Koster, Managing Director at Strategy& and co-author of the study, explains - “shareholders expect a clear strategy for how the car manufacturers are going to handle the transformation from the current hybrid status to clearly-differentiated mobility business areas. Owing to the far more frequent and more direct customer contact in future, the car sector needs a significantly more customer-centred approach, not least when it comes to research, and it needs to be looking to strategic partnerships with technology firms when developing digital services.”

About the study - For the Digital Auto Report 2017, ‘Fast and Furious’, Strategy& conducted over 50 interviews worldwide with managers of automotive manufacturers and suppliers, academics and analysts. The study also investigated R&D pipelines and current test series for connected, self-driving and electric vehicles.

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