Digital Transformation Monitor

The race forautomotive data

January 2017

Internal Market,Industry,Entrepreneurshipand SMEs

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Source: PwC / Strategy& ³

Figure 1: Connected car revenues will increase but competition is growing too

The race forautomotive data:Digital platforms versusautomotive manufacturers

By creating communication units on the move, the digital revolution has entered the automotive sector – for longtime one of the white spots on the digitalisation map. A product with more than 100 years of historic development islifted to a completely new level. In this regard, the European automotive industry experiences substantial businessopportunities in the coming years, especially by means of Digital Platforms and Big Data. Yet, traditional OEMs arefacing fierce competition from digital players which are also attracted by these opportunities.

Influence of consumer electronics

Being used to consumer electronicsstandards, new-car buyers alreadyconsider connected functionalities acritical purchasing factor. Hence,customer differentiation shifts to digitalfeatures and mobile services such asBMW’s ConnectedDrive and Daimler’sMercedes me. While OEMs expand theirdigital core competences, consumers’demand for seamless car-smartphoneintegration requires them to cooperate.

In order to successfully cope with thetransformation from developing andproducing cars to delivering more andmore mobility services, automotiveplayers need to define respectivereorientation strategies. Their currentbusiness in hardware-selling is at risk of

For now, connected cars, e-commerce,autonomous driving and the IndustrialInternet have emerged as major drivingforces of automotive digitalisation. Theyadd up to a global economic potential ofEUR 120 billion revenue p.a. inconnected car equipment – hard- andsoftware. In addition, efficiencyimprovements of 20% are expected forOEMs until 2020.¹

Connected car and autonomous drivingare pushing for digitalisation

The connected car market for passengervehicles alone is expected to growenormously. By 2020, over 90% of newcar sales will include telematicspackages. Heavily investing in the secondwave of mobile services, European OEMsand Tier 1 suppliers clearly haveunderstood these trends influencingtheir market position in the long-run. Atthe same time, new market players enterthe industry, e.g. providers of telematics,content, technology and Big Data as wellas telecommunication companies andinsurers.

On the fast lanetowards digitalopportunities

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© Martial Red/Shutterstock.com

Automotive industry representsa total turnover of around 6.9%of the EU’s GDP with

EUR 839 billion

becoming a commodity play andless attractive because of decreasingmargins.²

Digital business scope

Therefore, a major challenge lies ineffectively extending their businessscope into digital products and services.These new digital business modelsrequire consideration of payment,ownership models and critical mass.European OEMs and suppliers react byinvesting in digital competences,detailing Big Data and digital platformstrategies and defining critical controlpoints in value chains. For example,some OEMs focus on enabling seamlesscustomer experience across services,platforms and partners with multi-channel consumer interfaces (HMIs).

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The race for automotive data: Digital platforms versus automotive manufacturers

Integrating along the value chain,automotive and digital players startcompeting on the layers of vehicles,parts and digital services. While valuecreation will soon concentrate on datagenerated by cars, critical control pointsinclude the HMI, Digital Platforms, real-time geospatial information and carsensor data. Three main areas ofcompetition are thus emerging: datamanagement, Human-Machine interfaceand customer engagement.

Competition for data management

Industry players in the automotiveindustry need digital platform providersto be able to use data and staycompetitive. However, these players arecompeting to keep control of the valuechain, and to control the data producedby products and services users.

Digital players are now increasinglypresent across the value chain. As anexample, digital players already manage“driver data”, produced by people usingservices offered in connected vehicles.

Source: PwC Analysis

Figure 2: Digital platforms capturing the value creation of connected vehicles

VEHICLE DATA

CONTEXT DATA

DRIVER DATA

Socialmedia

Wellbeing

InsuranceEntertainment

Homeintegration

e-Call

Weatherconditions

Mobility

Traffic

Safety

v2v & v2i

Usage data

Qualitycontrol

Penetration by digitalplatforms

Frictionzone

low

high

low

highHealth

Maintenance and relatedservices

Strategic importance for carmanufacturers

These include entertainment and socialmedia data, health data, insurance andhome integration data. Vehiclesmanufacturers and digital players arecollaborating to use context data andoffer new services. They are competingfor the management of this data.

Competition for the Human-MachineInterface (HMI)

Also technical components fromconsumer electronics gain entry such asmulticore processors used for central in-car control units. With the consumer atheart of today’s product strategies,traditional and new market players nowstrategically compete for control overthe major in-car communication channel,the so-called Human-Machine-Interface.

Competition for strong brands andcustomer ties

Whereas digital players have experiencein customer orientation and no legacysystems, OEMs currently profit fromexclusive access to valuable vehicle data,strong brands and direct customercontact. However, also OEM’s retailstructures will be affected by the digitaltransformation.

Thus, the European automotive industrypursues intra- and inter sectorial co-opetition, in particular, with largetechnological and digital companies. Forexample, Apple or Android apps alreadycome with a customer base when beingintegrated in car telematics.

Digital integration along the value chain

With their transformative power, digitaltechnologies will reshuffle value acrosshorizontal and vertical value chainsbetween business partners, establishedcompanies and newcomers. Striving forearly leadership in production-readydigital products and dominant scale inindividual mobility business models,automotive and digital market playersencroach on each other’s home turf.

OEMs and Tier 1 suppliers integratealong the value chain from digitalenablers, digital augmented productproviders to digital service providersand aggregators of data and audiences.Similarly, global technology playersmove in the opposite direction. ⁴

Europe is lagging behindfor digital platforms

In the long run, 30% to 40% of the valuein the automotive value chain will becaptured by digital services, throughdigital platforms. Several kinds ofplatforms are growing rapidly:

• Connected vehicle platforms;• Community – e-commerce platforms;• Autonomous driving platforms;• Industrial Internet / Industry 4.0

platforms.

With a high level of diversity andcompetition between OEMs, suppliers,network providers, providers of artificialintelligence technologies dedicated toconnected and automated driving,mobility services platforms, supply chainplatforms of logistic specialists and newIoT platforms, Europe represents astrong market for connected andautonomous vehicles.

However, European platforms are not atscale given the market fragmentationand the advance of the key US digitalplatforms.

The friction zone:strategic areas ofcompetition

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© Syda Productions/Shutterstock.com

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The race for automotive data: Digital platforms versus automotive manufacturers

Source: PwC / Strategic& 1

Figure 3: Competitive barriers and strategic alliances

The rise of autonomous driving becomesa one-off opportunity for players of theconnected car market. Trying to securesignificant market share in the futureand getting hold of strategic value chaincontrol points, European players becomefirst movers. They further engage in co-opetition projects combiningcooperation and competition.

Converging interests forces collaboration

Current initiatives focus on jointlydeveloping scalable connected car andautonomous driving IT platforms, e.g.PSA Peugeot Citroen and IBM or Boschand TomTom. Volvo and Ericssoncombine expertise in driving behaviourwith cloud system integration know-how, whereas Volvo and Microsoft workon augmented reality show-roomsolutions and Big Data applications.

Co-opetitionbetween OEMs anddigital players

3Another example of co-opetionactivity is the Car ConnectivityConsortium, launched in 2011 byeleven companies across severalindustries, to drive global innovationfor in-vehicle connectivity. Foundingmembers include vehiclemanufacturers Daimler, GeneralMotors, Honda, Hyundai MotorCompany, Toyota, and Volkswagen;system suppliers Alpine andPanasonic; and consumer electronicsmakers LG Electronics, Nokia andSamsung. Today, it gathers 19 carmanufacturers, 8 phonemanufacturers, 23 infotainmentsystem manufacturers, 52 ecosystemtechnology partners and 13 testlaboratories.

The Car Connectivity Consortiumdeveloped MirrorLink®, an openstandard innovation platform thatcomprehensively manages underlyingcommunications between the deviceand the car. This frees app developersfrom creating an entirely new class ofdriver-aware apps. The standard isdesigned for maximuminteroperability between a wide rangeof smartphones and cars and allowsall players in the ecosystem to have anequal stake in the boomingconnected-car marketplace.⁸

Box 1: Car Connectivity Consortium:example of co-opetition

The Here case: a successful collaborationcase for European OEMs

Another prominent example presents theacquisition of Nokia’s map service Hereby the trio of BMW, Audi and Daimler.Here was at the time one of the biggerdevelopers of maps and location servicesused in mobile phones.

The convergence of smartphones andconnected cars has created a consequentmarket for location-based services with ahigh-growth potential. Here, with largenavigation and mapping data, was one ofthe biggest actors on the market.

Its sale generated high publicity, leadingto several bids such as from Uber andBaidu. The winning bid from the OEMsconsortium was estimated around EUR2.55 billion, with the three German carmakers sharing an equal stake in Here. ⁶

Partnering with Google in the OpenAutomotive Alliance

Another example is the “OpenAutomotive Alliance”. For its creation, anumber of automotive manufacturerspartnered with Google and othertechnology companies. The objective ofthe Open Automotive Alliance is toaccelerate innovation in the car with anapproach that offers openness,customisation and scale. It aims atdeveloping a common platform that willhelp drive innovation, and maketechnology in the car safer and moreintuitive for customers.⁷

employees areworking directly in theautomotive industry in Europe⁵

12 million

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The race for automotive data: Digital platforms versus automotive manufacturers

data control points. Although this co-opetition ensures seamless car-smartphone integration, it also raisesvarious competition policy concerns.

Innovation hubs

Legacy IT prevents automotive playersfrom gaining quick-wins and adapting tothe high innovation pace of consumerelectronics or digital players. This is whyEuropean OEMs such as Volkswagen orDaimler create innovation hubs. Thesedata labs by-pass usual R&D processes,include external input and are equippedwith start-ups’ flexibility and creativityin order to quickly extend digitalcompetences.

Looking ahead: no time forunderestimation

Overall, it becomes clear that theEuropean automotive sector, the ICTindustry as well as European regulatorsmay not underestimate the importanceof digital technologies in the samemanner as Bill Gates famously deniedthe enormous potential of tablets.

Falling behind in terms of country-by-country market size, digital strength andglobal Big Data players, Europeancountries can only tackle competitionwith a common, European solution. Anintegrated Single Market for automotiveand ICT solutions offers access to morethan 500 million European consumers.

1 Strategy&, 2014, Racing ahead: the connected c@rstudy 2015,http://www.strategyand.pwc.com/media/file/Racing-ahead.pdf

² McKinsey, 2016, Disruptive trends that willtransform the auto industry, Available at:http://www.mckinsey.com/industries/high-tech/our-insights/disruptive-trends-that-will-transform-the-auto-industry

³ Strategy &, 2016, Connected car report 2016:Opportunities, risk, and turmoil on the road toautonomous vehicles, Available at:http://www.strategyand.pwc.com/reports/connected-car-2016-study4 McKinsey, 2014, Connected car, automotive valuechain unbound, Available at:https://www.mckinsey.de/files/mck_connected_car_report.pdf

⁵ ACEA, 2016, The Automobile Industry: The Engine of Europe, Available at:http://www.acea.be/automobile-industry/facts-about-the-industry6 Open Auto Alliance, 2016, Available at:http://www.openautoalliance.net

⁷ Car Connectivity Consortium, 2016, Available at: http://carconnectivity.org/8 Techcrunch, 2015, Nokia Closes Its $2.8B Sale OfHere To The Audi, BMW And Daimler CarConsortium, Available at:https://techcrunch.com/2015/12/04/nokia-closes-its-2-8b-sale-of-here-to-the-audi-bmw-and-daimler-car-consortium/

⁹ EY, The quest for Telematics 4.0, Creating sustainable value propositions supporting car-webintegration, 2013

¹⁰ Center of Automotive Management, Cisco & CarIT,CCI 2015, Connected Car Innovation Studies, 2015

ReferencesBecoming digital service providers andaggregators of data and audiences

Optimistically, European OEMs keep fullcontrol of these points with exclusiveaccess to new profit streams throughoutthe vehicle life cycle. Unique customerexperience provides for additionaldifferentiation. Hence, OEMs’ activitiesemerge from digital enablers andaugmented product providers to digitalservice providers and aggregators ofdata and audiences.⁹

Globally leading in innovative activities –Volkswagen, Daimler, BMW and Volvo –and performing well in terms of marketpower – Volkswagen, Fiat, Renault andPSA – Europe’s automotive sector holds astrong position.¹⁰

Seeking strategic alliances

In this regard, a pessimistic Europeanvision would give these companiessignificant control, shifting profits tosoftware and services with smartphonesat heart. In turn, OEMs would lose theirbrand and core value proposition,supplying cars as commodities.Therefore, European automotive playersseek strategic alliances forcomplementary services with US andAsian companies.

However, such compromises force someOEMs such as Volkswagen to providedigital players with access to certain

Source: PwC / Strategy& 1

Figure 4: Way-to-play options for OEMs, suppliers and digital players

About the Digital Transformation MonitorThe Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation inEurope. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight intostatistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities,challenges and policy initiatives related to digital transformation.

Web page: https://ec.europa.eu/growth/tools-databases/dem/

This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs;Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortiumcomposed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004)

Authors: Laurent Probst, Bertrand Pedersen & Olivia-Kelly Lonkeu, PwC

DISCLAIMER – The information and views set out in this publication are those of the author(s) and should not be considered as theofficial opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included inthis publication. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use whichmight be made of the information contained in this publication. © 2017 – European Union. All rights reserved.