IHS Markit estimates that, by 2023, worldwide sales of connected cars will reach 72.5 million units, up from 25 million vehicles in 2015. This means nearly 69% of passenger vehicles sold will exchange data with external sources. The boom is fueled by a growing demand for connected features in cars for communication, safety, and multimedia entertainment. Demand for these services as well as autonomous functionality is driving massive disruption in the automotive industry.
I’ve spent 24 years working for automakers, with 15 years at Ford and more than eight years establishing a connected-car division at Kia. In this time, I’ve witnessed the automotive business model changing from a “build and sell” to a “build and maintain” model, similar to what software makers experienced in the transition to software as a service (SaaS). While automakers have traditionally focused on final assembly, they now speak directly to hardware and software solutions providers and own the system integration and product delivery to complete the value chain.
With more and more software in vehicles, at the point of sale, the OEM is just beginning a relationship with the customer, one that will become stronger as the OEM successfully delivers software updates as well as AI-enabled alerts on vehicle performance and service needs. Cars will get smarter and price points will increase, but customers may purchase new cars less often, making it essential for OEMs to provide continued maintenance and software support, in addition to designing next year’s updated model.
While large OEMs have grown more comfortable with integrating software into vehicle design and production, many lack the support and structure to keep pace with the demand for innovation in areas such as AI (artificial intelligence) and machine learning. Manufacturers must reexamine their supply chains and how they plan to meet the desires of prospective drivers. With cost considerations, legacy models, and established production cycles, adjusting to the new market may seem challenging.
Preparing for the transportation ecosystem of the future can be simultaneously exciting and daunting. Fortunately, there are steps automotive OEMs can take to organize their businesses and capitalize on emerging innovation:
Partner with AI experts: For years, OEMs have employed technical workers with backgrounds in electrical engineering, hardware, and design. The connected generation of vehicles, however, relies more on data proficiency and analytics, including monitoring and working with AI-powered systems that will anticipate a driver’s needs and react to other cars or conditions on the road. Manufacturers should consider partnering with a solutions provider that has experience working across varied industries and understands how best to pair hardware with IoT (Internet of Things) components. It takes time to ramp up in-house capabilities across these segments through recruitment and training, while partnering with an established AI expert will cut costs and help your services get to market more quickly.
Consider an acquisition: An additional option is to purchase already-established firms that have spent time in connectivity research and development. Dozens of startups focus on machine learning, shared mobility, and predictive modeling, among other disciplines needed for the connected and autonomous vehicle environment. For example, Ford invested $1 billion in a Pittsburgh-based startup Argo AI, while General Motors and Uber purchased startups specifically focused on self-driving technology. Ford also hired 400 workers through a partnership with Blackberry; the engineers became part of a new research center focused on mobility and connectivity. As a result, Ford quickly gained a team of engineers with backgrounds in device-to-device connectivity and wireless systems at the operating system level.
See the vehicle as a mobile living room or office: Once autonomous vehicles are widely available, drivers—now hands-free—will begin regarding their vehicles as mobile working or living spaces. People are accustomed to using a smartphone to meet almost every need and whim, and are catered to through UX design, wallpapers, text size, and music streaming platforms. Automotive manufacturers are working on creating dashboards that mimic these types of screens or project the phone’s home screen, but there’s a lot of room for improvement. The connected car is literally an integral part of the customer’s daily journey; the device pairing and experience needs to be seamless, especially while people are still in control behind the wheel.
Automotive OEMs can thrive in the new era of software-integrated vehicles, but they must take necessary steps to ensure their business models remain relevant and capable of supporting rapid innovation. If these companies can re-invent themselves as part of a circular rather than linear supply chain, with updates and innovation delivered daily versus yearly, they’ll be poised to travel safely through the twists of the automotive industry disruption.