As the race to lead a new era of motoring hots up, German automakers need to radically adapt their approaches if they hope to maintain their traditional leadership position.
Mobility as a service – not an easy transition
Automakers are moving toward a strategy of ‘mobility as a service’ (MaaS) with some auto industry leaders predicting that by 2025 they will make one-third of their profit from services rather than the sale of cars. Therefore, OEMs need to reinvent themselves and become a broker of mobility rather than being just a car manufacturer. The market is clearly readying for it, but it won’t be an easy transition.
While consumers have been trained for decades to buy and maintain their vehicles, Generation Z is not very interested in vehicle ownership. And, as the shared economy emerges, the value and philosophy around car ownership is changing. MaaS will see digitally-enabled car-sharing and ride-hailing become key drivers of growth and profitability. This model is expected to far outstrip the profitability potential of traditional car making. But with nimble newcomers already entering this market, today’s automakers will need new strategies and new business models to secure a lead.
A new and different architecture for digital cars – one that enables new services rather than adding services to existing structures – will be a key driver of growth for German automakers. To participate in a MaaS-led era, they need to build new operating systems that crack the rules of complexity and will enable them to deliver the end-to-end experiences users will expect.
German automakers need a new architecture for digital cars – operating systems that minimize complexity and can deliver the end-to-end experiences that users expect in a MaaS era.
A clean slate?
MaaS very nearly wipes the slate clean. The value proposition is very different and new business models—and leadership—is needed for traditional automotive firms to succeed.
Turning an original equipment manufacturer (OEM) into a service company through the addition of software and/or services means turning the business model away from selling hardware. Instead of an engineering-manufacturing-sales-maintenance business, automotive companies become user-, service- and software-driven businesses with hardware (the vehicle) as an add-on.
This raises all sorts of questions:
- Can a service or app deliver the revenue that hardware sales can? If so, what differentiators will assist automotive players to lead?
- If sensors and software become the key assets for OEMs in the future, will their key focus then be to maintain these assets, collecting data and managing the user and the brand? Will it then fall to original equipment suppliers (OES) to build the chassis, batteries, wheels and seats, becoming car manufacturers?
Our research shows that by 2030, revenues from manufacturing and selling vehicles (around €2 trillion) will be only marginally higher than they are today, and that profits from car sales will even shrink slightly (from €126 billion to €122 billion). By contrast, revenues from mobility services are projected to soar to almost €1.2 trillion—with profits reaching as much as €220 billion.
The question then is what will the most important differentiators be—what would help OEMs succeed in the MaaS market?
German automakers need to understand the context in which vehicles will be used (e.g., for commuting, deliveries, business and pleasure) and create built-in services and a mobility platform able to meet the needs of those users. In other words, competitive advantage lies in being able to marry digital enablement of the vehicle with a platform able to deliver any desired services. Thus, mobility-as-a-platform (MaaP) is born.
Using core assets to boost MaaS
OEMs could use their existing assets to boost efficiencies and increase their core mobility revenues. Experiences in other industries demonstrate the power of an approach that combines a premium product with a superior, platform-based ecosystem. Consider, for example, how, mostly through digital services, Apple has garnered 80 percent of total global smartphone profits with a market share of less than 15 percent.
If OEMs were to combine complementary vehicle fleets into a seamless, full scope and switchable service via a mobility platform (encompassing all brands and car-sharing types, including ride-hailing and rentals), they could maximize the use of their basic product.
The strategy of multinational car rental company Sixt, for example, is to be a contextual services provider. Sixt now boasts about 5,000 locations in over 105 countries. Can OEMs compete or find a place in these new mobility models? OEMs could utilize test-driving fleets and boost subscription-based ownership to meet the needs of customers waiting for a new vehicle. And by combining new mobility services with classic sales (which is crucial for short-term growth), they would give customers what they really want: full flexibility.
A focus on strategic components could allow German companies to differentiate and gain competitive advantage.
The bottom line is that German automakers have to learn not to build add-ons but to adopt built-in services. Customers want flexibility and independence. Previously, a car provided that independence. Now, thanks to the instant fulfilment that digital access to mobility enables (service with a single swipe), the need for mobile independence – i.e., ownership – is shrinking. To create mobility services and platforms, German automakers need to adapt rapidly.
Continue reading part 2 and find out why innovation requires agile thinking and practices.