The Value of Connectivity in the Automotive Sector – a First Look

Abstract

This study looks at the actual value that connectivity in vehicles can bring to society and the different sectors affected, Connectivity is one of the four critical megatrends facing the automotive industry. These trends are autonomous driving, shared mobility and electrification, yet connectivity is both separate and integrated to these other megatrends. The importance of connectivity is therefore fundamental to the future evolution of the industry. The vehicle is emerging as the next digital platform which may be analogous to the evolution of the smartphone and the opportunities that connectivity provides has incentivized automakers to increasing install embedded connectivity to capture the value from this new ecosystem. Such vehicles are often termed connected vehicles. One estimate from McKinsey Advance Industries (2016) predicts that on-demand mobility and data-driven services from such vehicles could account for approximately $2 trillion (or approximately 30%) of the automotive revenue pool by 2030, with data connectivity services accounting for between $450-$750 billion per year. This growth is built upon advanced mobile telecommunication standards, in particular, cellular standards, which provide the enabling infrastructure for new connectivity-based products and services to emerge in the automotive/mobility sector. Below are highlighted results from the study: • Connectivity is a megatrend that is transforming the automotive industry towards a new mobility sector. In the near future, most new vehicles will be increasingly equipped with embedded connectivity capabilities due to safety regulations, development of V2X functionality, and the potential service revenue. • The growing value of connectivity in the automotive sector is predicated on the development of high performance, open telecommunication standards, such as advanced cellular technology (e.g. 4/5G). • The vehicle is becoming the next big digital platform, generating competition between the existing mobile/smartphone ecosystem and the emerging vehicle ecosystems for control of the value of automotive/mobility services. • Connected vehicle applications are still small but are growing. Current estimates of the revenue from the vehicle ecosystem to automakers were calculated at $670 (US) and $593 (WW) per connected vehicle, based on a subset of existing applications in 2018. • The total revenue from connectivity-enabled products and services in the automotive sector was calculated to grow from $223 billion to $483 billion from 2018-2023 for a subset of existing revenue pools, with forecasts predicting as much as $2 trillion by 2030. • Market revenues do not provide the whole picture, especially when multi-sided business models are deployed. Therefore, the total economic value, including consumer surplus and relevant externalities, is important to bear in mind when determining the value of connectivity in the automotive sector or regulation of the sector.