Turbulent Times Ahead for Global Automotive Industry According to New Oliver Wyman Report

New York – Seven trends in the automotive industry will drastically change the car itself and how we will create and use them between now and 2030 according to a new Oliver Wyman report titled “Future Automotive Industry Structure – FAST 2030.”

The report identifies the trends impacting global manufacturers and suppliers as: connected vehicle, autonomous vehicles, e-mobility, digital industry, new pay-per-use distribution channels, changing customer structure and the human-machine interface.

“The automotive industry is facing a perfect storm of transformative technology and changing customer behavior,” said Joern Buss, Oliver Wyman partner and author of the report. “There will be turbulent times ahead, which will not only impact manufacturers but also suppliers, many of whom will need to reassess their existing business strategies to stay competitive in the future.”

This third volume of the report, released every five years, with the German Association of the Automotive Industry (VDA), found global automotive value creation to rise by 30 percent by 2030 with global passenger car production also growing by 30 percent to 123 million units.

Value creation is defined as value added by all participants in the automotive production chain. These include suppliers, manufacturers, but also service providers for engineering activities, software and logistics.

While this growth is positive, it comes with considerable structural changes and cost pressure which the industry is not prepared for. The report found:

China gaining ground in the premium segment

Value creation for the global automotive industry will shift significantly in favor of the emerging markets. According to the study, North America, Europe, Japan and Korea will lose 10 percentage points of their share of value creation to emerging markets by 2030. “China will soon overtake Europe to take the leadership position in manufacturing,” said Buss.

The study predicts that Europe will continue to dominate the premium segment in 2030, still holding 50 percent of total value creation but that China’s share of the premium segment will climb from 13 percent to 20 percent.

Suppliers will face real challenges

New technologies, as well as increased CO2 regulations, is creating a major market for electric and driverless cars. However, suppliers will need to redesign and expand their existing product range – as more and more software-driven, dynamic vehicle and power control systems will be needed in the future.

If smaller and medium suppliers do not adapt to new business models or embed digital integrators, they may be left behind, while existing global large-scale suppliers find their role expanded by offering even more complex systems, such as complete chassis “skateboards” for electric cars or entire systems for driverless cars. At the opposite end of the value chain, online and direct after-market businesses will develop strongly and pose a challenge to suppliers. In addition, software and engineering providers will be increasingly relied upon during this fundamental shift.

“Despite cost pressure, companies are making huge investments in new technologies, both on the drive side and in digitization,” said Johannes Berking, Oliver Wyman principal and co-author of the report. “They can’t afford not to, because only those who are already laying the foundations for new structures and approaches – while also attracting and retaining highly qualified talent -- will be successful going forward. ‘Re-innovation in a time of disruption’ will become a survival strategy in a supplier landscape characterized by consolidation and realignment, and manufacturers will also have to adjust to this strategy.”

About the study

For the study “Future Automotive Industry Structure – FAST 2030”, Oliver Wyman worked in collaboration with the VDA and its members to analyze the factors causing the transition in the automotive industry and how suppliers in particular can prepare for these changes. Hundreds of experts at manufacturers and suppliers around the globe as well as independent technology experts were surveyed between August 2017 and January 2018.  A detailed list of the study’s content are below:

Future Automotive Industry Structure – FAST 2030:

A snapshot: The global automotive industry today

• A success story for a whole century
• The automotive industry: growth drivers of the global economy!
• More regional value creation in new automotive regions
• Growing requirements due to increasing products complexity
• Automotive suppliers: Recovered from recession, but not in shape for the future

Seven trends are forming the automotive industry of the future

• Trend #1: Changed client structure
• Trend #2: New distribution channel pay-per-use
• Trend #3: Digitization of the value-added process
• Trend #4: E-Mobility – the first game changer
• Trend #5: Autonomous cars – from assistance to full automation
• Trend #6: Revolutionizing of Human-Machine-Interface (HMI)
• Trend #7: Connected cars – networked infrastructure – digital services

Outlook on the value structure of the automotive industry in 2030 

• Three dimensions of development in value creation – an overview
• Development of added value until 2030 – methodology and model
• Regional shifts of value creation and production eastwards
• Horizontal shifts: the reorganization of segments and automotive systems
• Vertical shifts until 2030: Warps in the market structure

Strategic options for automotive suppliers 

• Cross-functional transformation of business operations
• Business models 2030
• Digitizer: Specialists for smart components and smart mechatronic
• Digital integrators: Delivering digital modules and systems
• E-Driver: Specialists for the E-powertrain
• Ramp-downer: Specialists for the winding up of dated technology
• Tier-0.5-Supplier: Between OEM and premium supplier
• Direct sales: Direct selling specialist in the aftermarket
• White-Label-contract manufacturer: Everything except branding
• Digital service provider: Supplier of digital, data-based services
• Hardware-Software-development service provider: The best out of two worlds

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,700 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.