Rapid and disruptive developments are repeatedly taking place in the mobility industry. One such change is the digital business transformation in the automotive industry. Increasing connectivity, the IoT, Mobility as a Service (MaaS) and Software as a Service (SaaS), the implementation of new features and services or apps, these are all elements of this business transformation. It evokes increased customer expectations, which manufacturers are responding to by focusing more on the consumer experience. And it requires new regulations for technical areas, which are joined by those for the environmental compatibility of corporate activities. Both together are drivers of investments in digitization.
Automotive experts predict that connected vehicles, smart factories (Industry 4.0) and a wealth of available customer data will drive this development. According to Frost & Sullivan’s Future of Mobility report, IT spending will rise from $38 billion in 2015 to more than $168 billion in 2025.
What can we expect from the digital business transformation in the automotive industry?
A look at history shows that some central aspects of the buying experience in the automotive industry have hardly changed over a long period of time. E-commerce has long been available to dealers and customers for the sale or purchase of new cars. Nevertheless, most customers preferred the traditional buying experience to the digital one. Even the introduction of digital tools such as iPads in showrooms has hardly changed customer behavior.
Now in 2022, customers of all provenance are increasingly willing to make their purchases, including car purchases, online. Automotive companies of all types, whether they operate offline, B2C, or B2B in eCommerce, will seek to further enhance the digital buying experience and further connect with customers digitally, whether through social media, an app, or a website.
The consumer experience is also the focus in the further development of the automobile itself. The car, which used to end with the body, is becoming a software-defined car, i.e., a software-centric electronic device on wheels that can communicate with the infrastructure and the back end, contains AI applications, can be updated over the air (OTA), and no longer has much to do with the way a traditional vehicle functions.
Challenges of digitalization in the automotive industry
Most initiatives to manage technological change in the automotive industry revolve around technology-driven trends and customer requirements and remaining competitive. Trends such as digital transformation in manufacturing, concern for the environment, increased requirements for software solutions, mobility-as-a-service and predictive analytics bring numerous benefits, but also present the industry with at least as many challenges. We have summarized some of them.
In the current difficult economic climate, maintaining liquidity and risk managing are of particular importance.
Companies investing in the digitization of the automotive industry need to focus on the most valuable use cases with the highest ROI. Predicting the ROI of new technologies and identifying optimal use cases in the automotive industry will remain one of the biggest challenges.
Just a few years ago, autonomous vehicles were heralded in the press as the biggest game changer. Since then, the outlook of seeing fully autonomous vehicles on the road has shifted significantly into the future. A 2020 Deloitte survey found that most consumers in Germany (67%) and Japan (61%) are not willing to pay more than $500 to equip their cars with autonomous vehicle technologies.
Similarly, innovative powertrain technologies. 58% of German and 54% of U.S. consumers said they would not pay more than $500 for alternative fuel engines. While there are advocates for these technological advancements, the uncertain investment climate and concurrent unclear customer demand for the technology remain among the biggest obstacles.
Resistance to change
The automotive industry could do more to drive critical transformative initiatives and business models. While the range of electric cars is increasing, range anxiety remains a real problem. More and better communication would be needed here. Also, broader initiatives by the automotive industry and its associations to promote a global or at least nationwide charging infrastructure could be envisioned. The ongoing debate about whether charging infrastructure should be the responsibility of OEMs or the government could be used for this purpose.
While the automotive aftermarket has benefited from B2C e-commerce for a long time, digital commerce has been sporadic in other areas of the automotive industry. Manufacturers face similar challenges.
According to a Qualtrics study, the lack of customer centricity is an urgent challenge for the digital transformation of automotive retail.
Approaches to solving this problem should ensure that the personal experience at the dealership and the digital experience on any device produce similar customer experiences. The growing number of digital natives are sensitive to these experiences, and companies need to rethink how their relationships with prospects, customers, dealers, suppliers, and vendors can help to improve the overall experience of the car owner.
Examples of digital business transformation in the automotive industry
The automotive sector already offers excellent examples of digital transformation: from product innovations to operational changes and customer-focused improvements. Here are some examples of digital transformation in the automotive industry:
- Tesla has long been a pioneer in the use of artificial intelligence and Big Data. Since 2014, the company has been collecting data from drivers using onboard sensors and was able to roll out a wireless update that improved the accuracy of its Autopilot software.
- Volvo’s Polestar brand was named the best positioned car brand for online sales. Like Tesla’s models, the Polestar 1 and Polestar 2 are only available online. However, Volvo also maintains dedicated “Spaces” at physical locations at partner plants.
- BMW has introduced an IoT platform at its Regensburg plant with great success. It enabled the company to cut the time needed to roll out new applications by 80% and reduce quality control issues by 5%.
- Volkswagen partnered with AR-based application developers to tag auto parts with the right tools. This system, known as MARTA, increases the efficiency of service technicians.
- One example of overcoming the limitations of traditional offline business is TruPar, a wholesaler of forklift parts that has future-proofed its operations with unified eCommerce, CRM and ERP integration.
- Mercedes-Benz recently invested 200 million euros in the Electric Software Hub in Sindelfingen, also known as the “software integration factory,” with the aim of accelerating its own transformation. Many functions relating to hardware, software, system integration and testing will be brought together there under one roof. 19 cross-functional units work there on 8 levels and 70,000 square meters of space on the electric/electronic integration process.
The 5 most influential trends for business transformation of the automotive industry
1 Environment & Sustainability Topics
The impact of human activity on the environment remains the number one global issue. Every industry must address sustainability issues and focus on sustainable technologies. Almost every major car brand already has a fully electric vehicle on offer. According to research by CNN, Volkswagen predicts it will sell 1.4 million electric cars by 2025, and it’s quite possible that electric cars will completely overtake gasoline-powered cars by 2040:
The rise of online shopping is driving sales of electric delivery trucks. In fall 2020, Amazon ordered 1,800 electric vans from Mercedes. Joining the trend of many brands to move sales to the Internet as well, automakers are offering customers a convenient experience without having to visit a dealership.
From phones to TVs to watches, most of our devices are already networked in some form, and automotive products are catching up fast. The development of infotainment systems, for example, is advancing rapidly. Cars are getting better at understanding voice commands, monitoring parts for wear based on driving behavior, and adapting to the driver’s personality.
As a digitally enhanced driving experience becomes more standard, automakers need to accelerate updates to vehicle systems. Tesla, for example, has long been a pioneer in wirelessly updating vehicle software. OEMs see significant value in remotely updatable vehicles, and their sales are expected to increase tremendously. The further development of Over the Air Updates (OTA) will continue to be a big topic we just recently reported on in an article about SUMS (Software Update Management Systems).
Machine learning and predictive driving technologies are already widely used in the automotive industry. As these technologies advance and autopilot-ranked systems are developed, the general public will warm to the idea of letting cars drive themselves.
The automotive industry is extremely data-driven, and the amount of data being transmitted by cameras, sensors and computers is increasing daily. Assisted driving is already becoming mainstream, and these technologies will soon find their way into automotive products at all price levels.
4 Digital commerce
Digital commerce technologies are transforming the automotive industry by enabling greater efficiency, cost savings and personalization. The proliferation of new tools and the wealth of available data can be better used for customer service. One example is feedback tabs or surveys on e-commerce and social media sites that can relay information directly to the dealer or manufacturer.
5 Augmented Reality
There are many applications for augmented and virtual reality functions in the automotive industry. Virtual showrooming, for example, allows customers to sit in a chair that mimics a car seat and experience in real time what it feels like to sit in the car of their dreams. Virtual prototyping and virtual configuration can help users to visualize the final product and to understand how all the parts connect.
Service departments, for example, can use augmented reality software provided by the manufacturer to make the job easier for automotive technicians. These technologies can be used not only by OEMs, but also by service departments in the insurance and used car industries.
What are the benefits of digital transformation in the automotive industry?
As digital technologies evolve all around us, manufacturers are increasingly at the crossroads: transform and evolve, or stick with the tried and true? In the long term, digital business transformation offers many benefits, including
- Streamlining supply management in automotive production and facilitating a networked supply chain.
- Innovation of vehicle performance and design
- Expansion into new markets with the sale of automotive parts
- Omnichannel sales and customer service experience
- After-sales support and customer satisfaction monitoring
How can you get started with digital transformation?
Today, more than ever, companies need to stay ahead of the curve and get into the minds of their customers faster than their competitors. They need to identify their current and future needs and work with the right technology partner to meet them. They also need to streamline internal processes, maintain and grow relationships, and reduce costs. Magility helps your company to master the challenges in your industry and transform your brand using the digital revolution.
Enable digital transformation in your automotive business today
The pressure to go digital requires automotive companies to collaborate and partner with technology solution providers. Make digital transformation a core, inseparable part of your business, regardless of which area of the automotive industry you are operating in.