The automotive industry is at the forefront of digital transformation, embracing it with great enthusiasm. Car manufacturers are heavily investing in modernizing the sector, with a staggering $100 billion invested globally in 2022, according to ABI Research. This investment is projected to reach $238 billion annually by the end of the decade.
The relationship between consumers and cars is evolving. As vehicles become more connected and autonomous, it will reshape how drivers utilize them, fundamentally changing the economics of the entire car industry. To keep up with this shift, carmakers are investing significant amounts in software development and research. The pace of change will only accelerate as the industry moves closer to a software-defined model, where the value of a car is determined by over-the-air updates to its systems, such as infotainment or driving assistance, rather than the traditional materials like metal, plastic, and leather.
The automotive industry is experiencing a period of tremendous change, and there are five key trends that will play a critical role in shaping the sector in 2023 and beyond.
The changing face of vehicle ownership
The way people purchase and use cars is undergoing significant changes, and it’s crucial for car manufacturers to adapt to the evolving landscape of mobility. One notable trend is the declining number of young people obtaining driving licenses, not just in the UK but also in other parts of the world. Interestingly, this trend was already in motion before the pandemic disrupted driving tests.
Various factors contribute to this shift. The increasing costs associated with car ownership and the overall cost of living are major influencers in people’s decisions to forego car ownership altogether. In fact, it’s estimated that keeping a car running now amounts to £3,000 (US$3,700) per year. Additionally, there is a growing environmental consciousness among car owners, leading to a rise in vehicle sharing and carpooling. This alternative is approximately 40% cheaper than owning and operating an individual car.
Furthermore, the rise of remote work has also impacted the need for personal car ownership. With more people working from home, individuals find that they can rely on public transportation a few days a week and may not see the necessity of owning a car. These socioeconomic trends underline the importance for car manufacturers to carefully consider how they can adapt to meet the changing demands and preferences of consumers, as they shape the future of the industry.
Subscriptions will become commonplace in the automotive industry
In the future, the way people perceive and use cars is likely to undergo a significant transformation, with a growing emphasis on vehicle sharing. This shift will lead to changes in consumer expectations, where personalized features like steering wheel positions and favorite radio stations will automatically synchronize across different vehicles, regardless of brand, model, or ride-hailing service. Consumers will demand synchronized ecosystems, prompting car companies to move towards subscription-based, app-driven operating models.
The role of apps and services will become increasingly crucial in the automotive industry. As vehicles become an extension of our homes and offices, the integration of retail and business apps into cars is expected to become more prevalent. Already, we can see this happening, as consumers are able to install standalone apps such as Zoom on vehicles like the 2024 Mercedes-Benz E-Class. According to McKinsey, by 2030, 95% of vehicles will be connected, leading to a surge in entertainment apps such as high-quality gaming and video streaming. For vehicle operators, apps will open up new revenue models driven by subscriptions in the coming years.
New vehicle development
The automotive industry is on the cusp of a transformation driven by cloud computing and artificial intelligence (AI). Manufacturers are already utilizing a range of tools, from computer-aided design (CAD) to thermal and electrical conception, and these tools are increasingly leveraging the computational power of the cloud and the optimization capabilities of AI and machine learning (ML). For instance, in computational fluid dynamics simulations, which play a crucial role in car design, engineers can benefit from cloud computing to obtain AI-recommended results more quickly. This approach will continue to gain importance in the coming decades as vehicles become more connected, and consumers demand enhanced features akin to smartphone upgradability.
To accommodate this shift, vehicle architecture must be capable of delivering these advancements. The transition toward a more software-defined vehicle will require carmakers to reduce dependencies on specific hardware for software operation. Over time, this will bring about changes in the way carmakers operate, with greater software component reuse across vehicle models and brands. This will foster collaboration among various stakeholders involved in car manufacturing and lead to reduced development times. Additionally, it will contribute to bolstering cybersecurity, an area that has often been overlooked in the automotive industry.
Be ready for future
Carmakers’ significant investments in digital transformation and software development highlight their wholehearted embrace of change within the industry. In the next decade, this transformation will accelerate further, marked by a transition toward subscription-based models and a fundamental shift in car design, ushering in a new era of automotive usage. The conventional perception of cars as purely consumer objects will evolve, and they will be viewed as high-tech services to be utilized as and when needed. This shift will bring about positive outcomes for the environment, society at large, and forward-thinking companies operating in the automotive sector.