Automotive & Commercial Vehicles

Decision-makers in the automotive industry are facing unprecedented challenges. Trends such as Mobility, Autonomous driving, Digitalization and Electrification (MADE) are causing fundamental shifts in both technology and business models. Moreover, destabilizing developments in recent years such as "deglobalization", caused by geopolitical tensions, and accelerating climate change are forcing the car industry to reconfigure complex global supply chains and speed up the shift from internal combustion engines (ICEs) to electric powertrains for new cars.

The automotive industry clearly needs to transform. In fact, manufacturers of motor vehicles – especially legacy players – must manage three transformations at the same time. To help automotive executives navigate these unchartered waters, we have created what we call our Automotive Triple Transformation framework, consisting of three Ps:

Position – Rethink the future: In the wake of geopolitical tensions, MADE challenges, new competition, climate change, and changing customer expectations, what will the future fields of play (markets, segments), value propositions, business portfolio and business models be?

Perform – Realign the now: How can you optimize your current business performance to enable (and finance) your transformation to a new industry value proposition, business portfolio and business model?

Progress – Renew the corporation: How can you future-proof your company by delivering on ambitious sustainability and DEI (diversity, equity, inclusion) targets, while winning the war for talent in the automobile industry?

The four MADE trends continue to drive disruption in the automotive industry. Before the COVID-19 pandemic, new shared mobility services were growing rapidly, threatening individual passenger vehicle ownership and hence new car sales volumes. For cars designated for shared mobility, even industry-leading OEMs (original equipment manufacturers) saw themselves downgraded to mere device manufacturers. Understandably, the start of the coronavirus pandemic caused a pause in this development, but the trend is now starting to regain momentum in the industry.

Autonomous driving – self-driving cars – especially at level 4+, threatens to further exacerbate the shared mobility trend with the promise of drastically reduced costs per mile. Digitalization and software have become the new battleground for differentiation in the automotive industry and has carmakers losing ground to tech companies and digital players. Electrification has also dramatically accelerated over the last year, with cities, states or entire countries announcing sweeping bans on ICE-powered motor vehicles just one or two vehicle generations away, triggering ambitious electrification commitments by almost all legacy automakers. At the same time, new pure-play electric car OEMs and startups have seen staggering increases in their valuation, far surpassing many legacy players in the industry.

The disruption doesn't stop at the motor vehicle manufacturer level, either. Powertrain suppliers also need to identify their future role and shift their business portfolio towards new high-quality automotive sector technologies. And major legacy Tier-1 electronics manufacturers supplying automotive technology to those engaged in vehicle manufacturing have to fend off new tech companies and digital players, while at the same adapting their business models to react to the impact of hardware and software disintegration.

Companies engaged in manufacturing vehicles, from Honda and Subaru to Volvo, and the industry suppliers that provide them with motors, brakes, tires, drive systems, electronic parts, infotainment systems and so on, face an urgent need to rethink their future value proposition, business portfolio, business model, partnerships and investments based on realistic future scenarios for the motor industry.

The automotive industry recovered surprisingly fast from the initial downturn in vehicle sales caused by COVID-19 – only to hit the next crisis in form of the chip shortage, threatening revenues and profits in the second half of 2021.

The dramatic acceleration in the electrification of motor vehicles is putting pressure on the cashflow needed to fund this transformation of the industry. In the foreseeable future, the margins on electric vehicles (EVs) will not achieve the same levels as those on ICE vehicles. Consumers expect fresh, unique experiences. The ever-increasing role of digitalization and software requires new approaches, new organizational setups and new investments in innovation and capabilities from automobile manufacturers. At the same time, complex global supply chains are vulnerable to trends such as deglobalization and increasingly frequent natural disasters, ultimately threatening car production. Vehicle manufacturers, whether in Germany, Japan, China or elsewhere in the world, must reconfigure themselves in line with climate change in order to increase their robustness.

Step changes in customer experience, improved efficiency, reduced complexity, lower costs and supply chain robustness are needed in order to boost car sales. In parallel, players in the auto industry must establish new hands-on capabilities and develop new technologies centered on the connected car and on-demand, real-time services. The industry faces a truly Herculean task.

To stay relevant for customers, employees and investors, it is not sufficient anymore for players in the automotive industry to focus on product innovations, revenues and profits. A radical rethink is required, from the assembly line to the dealership, from automaker to automotive technician.

The obvious signs of climate change, growing demands for social justice and rapidly changing expectations regarding work-life balance require a dedicated effort to renew the corporation. Consumers are increasingly weighing up auto manufacturers' commitments to sustainability and ethical standards when making their vehicle purchase decisions. Large institutional investors have started to ban investments in companies in the industry that don't meet stringent ESG standards. And new talent, which is critical to attract to enable the transformation, increasingly factor sustainability, climate action, DEI, purpose and the flexibility of work environment into their long-term employment decisions.

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