#108 – Inside Our Industry – An Industry in Transition

Posted on | Inside Our Industry

The trend towards electric vehicles continues to gain traction. By all accounts, we expect to see phenomenal growth in this sector over the next decade. The following is part of a report by the research firm Gartner, Inc., that predicts some of the changes we are likely to see in the industry.

An Industry in Transition
July 14, 2022, Mike Ramsey-Vice President, Analyst, Gartner Inc.

The automotive industry is in transition, but perhaps not the type of transition that many analysts, forecasters, and company executives expected.

It’s not just CASE (Connected, Autonomous, Shared and Electric)—it’s COSE: Chips, Online, Software, Expensive.

The pandemic-fueled supply chain shortage of semiconductor chips has forced carmakers into the chip business in a meaningful way. In Gartner’s 2022 Predicts: Automotive and Smart Mobility, our team looks out three years or so in the future and makes some educated guesses about what will happen.

One of our predictions is that by 2025, chip shortages that have hurt the automotive sector and trends such as electrification and autonomy will drive 50 percent of the top 10 automotive OEMs to design their own chips, giving them control over their product roadmap and supply chains.

We are well on the way to fulfilling this prediction. In December, BMW signed a long-term agreement directly with microchip developer INOVA Semiconductors, while GlobalFoundries is committing to design. Tesla has been down this road already. Others will follow.

Gartner is forecasting the value of semiconductor content in cars will nearly double over the next eight years to about $120 billion, with the fastest growth in electric vehicle components, and safety and autonomy features.

The pandemic also pushed much, or all, of the sales process online. Customers already had been doing most of the shopping online, but now it is common for an entire transaction to be completed via the Internet. Gartner expects this transition to a system that is closer to how we sell other items to continue.

Volvo, BMW, and Mercedes-Benz have been explicit in their aim to quickly move to 25 percent or more of online sales by 2025, and outside of the U.S., where dealer franchise laws don’t prohibit direct sales, the transition already has begun.

Executives at most of the major carmakers also have been preaching the effect and business potential of software on vehicles. While cars already are stuffed full of code, this software currently is a collection of largely repeating, single-purpose software embedded on little chips distributed throughout vehicles.

The consolidation to fewer, more powerful, and updatable computers, as well as the near universal connectivity (Gartner forecasts more than 700 million connected vehicles globally by 2025), has opened the door to making a car more like a smartphone.

As a result, Gartner is predicting that by 2025, automakers will reduce software-related recall costs by 75 percent. Tesla already regularly makes fixes via firmware updates, and the concept of “recall” may have to be changed because software fixes are fast and require little effort from the consumer.

Of all the promises made by car companies about the benefits of connectivity and software-defined vehicles, making remote fixes without interrupting the life of the owner appears to be the most straightforward for both sides.

Finally, the pandemic led to a shortfall on production of new vehicles, pulling sales lower than expected in 2021. Despite this limitation, profits for carmakers are more than OK, even as revenues have been flat or down for many car companies. Instead, they sold vehicles at much higher prices with much lower incentives.

New car prices are rising so fast that the entire prospect of owning a new vehicle, rather than sustaining or upgrading older vehicles has changed. In October, Gartner predicted that by 2025 the average sale price of new vehicles will exceed $50,000 in the U.S. and Germany.

Full report