The sources of profitability will change dramatically over the next decade and beyond. Preparation for the new market landscape must begin now.
A dramatic shift in automotive profit pools is underway. The convergence of three trends – vehicle electrification, autonomous driving, and shared mobility – will profoundly change the automotive industry over the next ten to 15 years. A recent study by The Boston Consulting Group (BCG) found that, in the most likely scenario, the share of industry profits generated by new mobility technology would grow from only 1% last year to 17% in 2025 and 40% in 2035.
As profit pools shift, incumbent OEMs will find their competitive positions under pressure by newly empowered market players, including suppliers, on-demand platforms, and tech giants, as well as cities that play an increasingly active role in mobility. Although the changes will occur gradually, incumbents must lay the groundwork today in order to thrive in a market that will undergo fundamental changes. By exploring scenarios for the market’s development, they can define a strategy for capturing the lion’s share of the profits as new mobility technology increasingly dominates the industry.
1.The Mobility industry will continue to grow but profit pools will shift to New Technology
2. Emerging Profit Pools will grow Dramatically
New sources of profitability emerge
At first, incumbents will enjoy a deceptively smooth ride. New car sales volume will grow substantially through 2025, driven largely by volume growth in China and other developing markets. Thereafter, as volume growth in China slows and breakthroughs in autonomous driving enable cheaper and more convenient on-demand mobility services, new car sales growth will stall.
the global annual volume of vehicles sold for on-demand services could grow to more than 10 million units. Indeed, by 2035, almost one in five passenger miles will be driven in vehicles shared on demand, primarily autonomous electric cars. By that time, 30% of new cars sold globally will be battery-powered electric vehicles (BEVs) and more than 20% will be fully autonomous vehicles (AVs).
Even with these disruptions, industry profits will grow at a rate of about 3% per year through 2035 (see Exhibit 1). However, as AV and BEV adoption increases and new technologies expand the industry’s boundaries, the sources of profitability will change. In the scenario for the industry’s development that BCG views as most likely, the share of industry profits represented by emerging profit pools – including components for AVs and BEVs, sales of BEVs, data and connectivity services, and on-demand mobility offerings – is projected to reach 40% in 2035. By then, traditional profit pools – including traditional components, sales of internal combustion engine (ICE) and hybrid-electric vehicles, financing, and aftermarket business – will represent only 60% of industry profits, down from 99% in 2017. Among the emerging profit pools, on-demand mobility is expected to be the largest, reaching US$76bn in 2035 (see Exhibit 2).
A review of the factors underlying the forecast provides insight into how the market is developing:
New car sales. Economic growth could add more than 17 million units to the new car market by 2035, but volume will remain relatively flat from 2025 onward. Sales volume will be promoted by the continued growth (albeit at a slower rate) of China and other emerging markets. The higher utilisation of self-driving taxis compared with privately owned vehicles will negatively impact sales volume, despite a shorter replacement cycle. Additionally, revenues will be boosted by higher prices for vehicles.
Executives should not leave it to the next generation of leaders to prepare their companies for the new market landscape. Now is the time to get ready
Component supply. OEMs’ share of the component value per vehicle is expected to fall to 15% in 2030, just over half of what it was in 2015 (27%). BCG forecasts that new AV and BEV components, primarily manufactured by suppliers, will represent 50% of the component value of autonomous EVs. Today, the ICE powertrain is the component for which OEMs create the most value. However, it currently appears that most OEMs will not produce battery cells and other new components for AVs and BEVs in-house. In that scenario, suppliers of the new components would be the big winners, while traditional suppliers of ICE-related components would face a stagnant market.