Transition to electric and autonomous vehicles will cost auto industry hundreds of billions

17 July 2018

A new study projects that more than $255 billion will be spent on electric vehicle R&D and capital expenditures globally by 2022. A further $61 billion has been allocated to autonomous technology. Intense segment competition, flattening overall vehicle sales, high system cost, and low consumer price flexibility will make the AV and EV market unprofitable in the near term.

Autonomous and electric vehicles are touted to bring a raft of benefits to societies around the globe, from reduced smog and improved traffic throughput to fewer incidences of collisions and increased productivity. But will the transition to future tech be good for American auto manufacturers?

A new study from management consultancy AlixPartners says that the shift in technological emphasis – which for a hundred years was predicated on human drivers and combustion engines – will lead to a ‘monumental capital drain’ in the near term for the auto industry.

‘The AlixPartners Global Automotive Outlook’ found that by 2022, $255 billion will be spent on electric vehicle (EV) research & development and capital expenditures globally. Additionally, a glut of 207 electric models is expected reach the market by 2022 – many of which will be unprofitable due to high systems costs, low production volumes, and intense competition from traditional and non-traditional (Apple, Google, etc.) players.

AlixPartners reports that an additional $61 billion has been initially shoveled into autonomous vehicle (AV) tech. However, consumers are barely willing to pay a premium on the technology as of yet, with the report’s survey noting a willingness to pay only $2,300 for autonomy, while the feature currently costs around $22,900 extra.

Compounding the above issues, the study projects that the global auto market will grow at just 2.4% to 2025, almost a full point lower than expected global GDP growth of 3.3% – which signals a lack of interest in all vehicle types. Vehicle sales in the US are expected to continue declining, falling from 17.2 million in 2017 to 16.8 million units this year, bottoming out in 2020 with 15.1 million unit sales. All the above factors mean that the EV and AV market will be a difficult and unprofitable one for auto firms in the near term.

Global fleet of fully electric vehicles to pass 100 million mark by 2030

“Industry players are sort of caught between a rock and a hard place: If they don’t participate in some way in the ‘new-mobility’ revolution that’s coming, they stand to lose out on what might be the biggest thing ever in this industry,” commented Shiv Shivaraman, Americas co-head of the Automotive and Industrial Practice at AlixPartners.  “If they do participate, as so many are, they have the chance of benefitting from first-mover advantages, but they also face the possibility of going broke in the process.”

Auto industry players, however, can find a silver lining in the expectation that electric vehicles will see strong uptake by global consumers over the next decade. AlixPartners’ optimistic prediction is that EVs will account for about 20% of the US market, 30% of the European market, and 35% of the Chinese market by 2030. The International Energy Agency (IEA) estimates EV ownership to rocket to 125 million units by 2030 from the 3 million owned last year.  The IEA’s estimates for market share are more conservative, with EVs accounting for 23% of the European market and just over a quarter of the Chinese market.

Additionally, AlixPartners projects that AV sales will reach 3 million by 2030. The downside to AV adoption for auto firms is that robo-taxis sold as fleets at lower margins to Uber and Lyft will cannibalize personal car sales. The report pegs the figure at 1.6 million lost retail unit sales in the US in 2030. In the near-term, pre-wide-scale AV adoption, The Boston Consulting Group expects private sales losses of 52,000 in the US due to ride-sharing in 2021, with fleet sales making up for most of it.

While electric and autonomy suppliers will see boom times in the coming years, more traditional parts suppliers can expect tough times ahead. The AlixPartners study found that more than a quarter of supplier revenues are at risk because of electrification, particularly in the areas of powertrain and exhaust systems – which represent 26% of supplier turnover. Such suppliers will have to adapt to shifting needs in the industry or risk dying out.

“A pile-up of epic proportions awaits this industry as hundreds of players are spending hundreds of billions of dollars on electric and autonomous technologies as they rush to stake a claim on the biggest change to hit this industry in a hundred years,” said John Hoffecker, global vice chairman at AlixPartners. “The winners in this free-for-all will be those who have the right strategies and, equally important, execute on those strategies to their fullest potential—as billions will be lost by many.”


Google topples Apple to take top spot on BCG's list of innovative firms

28 March 2019

After ranking first on strategy consultancy Boston Consulting Group (BCG)’s top innovators list for 13 years, Apple has finally been knocked off the top spot, landing at third place.

Google usurped Apple’s crown, and Amazon rose to second place on BCG's ranking of the top 50 global innovators. Microsoft and Samsung rounded out the top five, with Netflix, IBM, Facebook, Tesla, and Adidas filling out the top 10. BCG’s ranking was based on a global survey of more than 2,500 senior innovation leaders.

Tech firms dominated the top end of the innovators list. Traditional industries, however, still accounted for more than half of the top 50: Adidas, Boeing, BASF, Johnson & Johnson, and DowDuPont all ranked in the top 15.

The rising importance of digital technology – including artificial intelligence (AI), platforms, and ecosystems – was the central touchpoint of BCG’s survey. Top innovators are increasingly embracing AI in particular to develop new products and services, and to improve the internal innovation process itself.

"Digital technology and external innovation have become watchwords," Ramón Baeza, a BCG senior partner and the report's coauthor, said. "All of the top 10 companies – and many in the top 50 – use AI, platforms, and ecosystems to enable themselves and others to pursue new products, services, and ways of working."

2019 Most Innovative Companies

Platforms provide a foundation on which companies can develop their business offerings, with Amazon Web Services (AWS) and Microsoft's Azure offering some of the leading cloud-based platform services. According to BCG, ecosystems go a step further, pulling together technologies, apps, platforms and, other services to build an integrated solution. Android and iOS, for example, are now a complex ecosystem of telecoms, phone manufacturers, and app developers. AI, meanwhile, simulates human intelligence to achieve groundbreaking new technologies such as self-driving cars and "smart" digital assistants.

The top firms on BCG’s list extensively use AI, platforms, and ecosystems. Google has invested heavily into AI, which is apparent in the company's smart speaker Google Home, the accurate autocompletion of sentences in Gmail, or in its autonomous driving venture. Android, meanwhile, is a truly expansive ecosystem.

Amazon utilizes the cutting-edge Alexa AI voice technology as well as the widely used AWS platform. Apple offers Siri and iOS.

Of survey respondents, 90% said their firms are investing in AI, with more than 30% expecting it to be the innovation area with the highest impact on the businesses in the next three to five years.

Just under 20% of respondents said their companies were strong innovators and above average in AI innovation (what BCG terms "AI leaders"). Among the subgroup of AI leaders, 94% said they see AI as important to their companies’ future growth, as opposed to 56% of AI "laggards" (who rate their AI capabilities as below average).

"AI will have a significant impact on business processes, but its biggest potential lies in developing new products and services that can yield major revenue streams over time," Michael Ringel, a BCG senior partner and the report's coauthor, said.

Which areas of innovation are you actively targeting?

McDonald’s (21st on the list) is using AI algorithms on digital menus that change according to time of day, restaurant traffic, and the weather. Philips (29th) last year launched an AI platform that allows healthcare industry workers to access advanced analytics that curate and analyze healthcare data.

AI is already unlocking value for advanced users: 46% of AI leaders said AI-enhanced products and services represented 16% of sales, versus 10% for laggards.

In a world of platforms and ecosystems, the BCG report found partnership models are gaining steam. Strong innovators have upped their partnership usage from 2015-18, with incubator use rising from 59% to 75%, academic partnerships from 60% to 81%, and company partnerships from 65% to 83%.

Platforms and ecosystems help facilitate innovation, while expanding reach and collaboration, allowing for stronger, multiparty solutions. “Not all ecosystems are alike, however. They have different types of glue that bind their participants. Money is one type, of course, but knowledge, data, skills, and community can be equally important," Florian Grassl, BCG partner and report coauthor, said.

Four companies on 2018's top 10 list were also in the top 10 in 2005: Google, Amazon, Microsoft, and IBM. BCG deems these companies “serial reinventors,” which sets them up well for continued innovation dominance. Google continues to revise its offerings and algorithms, Amazon disrupts new categories and builds new services, and Microsoft and IBM have successfully transitioned into cloud-based services.

"The tools and technologies of innovation evolve,” BCG’s report states. “The basic orientation toward change – never being satisfied and always being willing to reinvent oneself – remains part of some companies’ lifeblood.”