Forrester attended the International Motor Show Germany, rebranded as IAA MOBILITY. It took place in Munich between 7–12 September, 2021. The event was staged as a hybrid event. It managed to attract 400,000 “real” visitors, making it one of the largest trade fairs since the pandemic started. The buzz was noticeable, although visitor numbers were down from 2019, when IAA attracted 560,000 visitors.
Importantly, since its move from Frankfurt to Munich, the event broadened its scope considerably beyond the traditional automotive focus. It now includes all forms of mobility. The event represented a big shift away from the pure focus on automotive issues towards multimodal mobility. As a result, new mobility carriers, technology vendors, and many startups were represented alongside the large OEMs and their suppliers. IAA pursues a bigger ambition by targeting all mobility opportunities, addressing sustainability, and focusing on customer requirements for multimodal mobility.
Digital Platforms And Software Take Center Stage
We don’t claim to be automotive experts. As analysts, we focus on unlocking customer-obsessed value with a future fit technology strategy that builds adaptivity, creativity, and resilience. Yet it was fascinating to see how the automotive sector is transforming. We were struck by several themes that underline a fundamental repositioning of the sector:
- Software and operating systems define the brain and heart of the future vehicle. The notion that cars are computers on wheels has been uttered countless times during the fair. This shift has been in the making for many years. What is increasingly clear, however, is that this shift is also transforming the value propositions for automotive firms. The quality of software and software design determines operating efficiencies, innovation capabilities, in-car infotainment, customer services — and, thus, customer experiences. Open interfaces and open APIs are a critical part of this transformation. Traditional automotive manufacturing firms, however, still look relatively weak in the software area — despite initiatives such as CARIAD, the automotive software for Volkswagen. This makes traditional OEMs vulnerable to attacks by software players — and Chinese competitors that seem to go through this transformation faster.
- End-to-end digital process chains define the smart factory. Smart manufacturing is all about execution. Legacy manufacturing processes offer a lot of room for efficiency improvements. The move from on-premises to a cloud-first approach is gradually happening in the automotive sector, but there is still a long way to go. Moreover, many manufacturing processes are still analog and offer little transparency to operations managers. Similarly, machinery on the assembly floor often remains unconnected and thus provides no insights into important aspects of the manufacturing flow. Without having full transparency into processes and machine operations, smart manufacturing remains a distant dream. Process mining will therefore become a hot topic for the automotive industry. Process mining brings much more transparency and help to improve quality issues, delays, and supply bottlenecks. And smart manufacturing is becoming so complex that no single OEM or tech vendor can tackle all these challenges alone. Hence, ecosystem partnership capabilities are critically important.
- Data analytics and artificial intelligence are at the center of evolving value propositions. Real-time and near-real-time data will be important for developing autonomous driving, great customer experiences, and driving operational efficiencies. Data is at the center of decision-making, insights generation, and customer engagement. To be effective, data interoperability is key — and data must be shared with partners and competitors to create true value for the customer. For instance, drivers will expect to “upgrade” their cars along the lines of how they upgrade their handsets every other year. Drivers want to take their “settings” with them – like they do via the iCloud when migrating between iPhone versions. Today, however, data migration from one automotive OEM to another remains a real challenge. Initiatives such as GAIA-X and Catena-X could become important enablers in this context. If OEMs fail this task, then other data platform players will emerge to handle customer/driver/car usage data. The likes of Google, Amazon, Alibaba, and Apple are waiting in the wings.
- Business models are gradually evolving toward as-a-service models. Mobility as a service was a major theme at the fair. But the concept goes beyond the ad hoc car rental services like Share Now. Mobility as a service is about the way consumers engage with the car and the role mobility plays in their life. New revenue sources of data-driven business models are emerging. A software platform is the basis for new mobility services, such as over-the-air updates or infotainment. Consumers want to be connected, entertained, informed, and looked after. Providing a billing and application management platform for ecosystem partners — for instance, transport businesses and OEMs — constitutes an important aspect of the mobility-as-a-service pitch. The orchestration of services for the driver and the passengers offers even greater value, however. This role could be taken on by a broad range of trusted players, including OEMs, financial services organizations, or technology firms.
- Energy generation and depleted batteries might still undermine the case for electric vehicles. IAA was all about sustainability and going electric. Hydrogen engines were limited to buses and trucks. Combustion engines were an afterthought. And yet, there were several voices pointing to the need for clean energy generation for electric vehicles to contribute to CO2 reductions. And battery experts predicted new challenges for handling depleted battery stacks. Estimates suggest that in Europe, by 2030, about 70 million batteries will be installed in vehicles, including hybrid cars. Batteries lose about 2% of capacity every year, plus additional capacity that depends on the distance traveled. This will open a large market for battery support services. On the downside, by 2030, about 1.5 million batteries will need replacing, growing by 20% every year from then on. Hence, batteries will become a big challenge from a recycling perspective. Preparations should be made now to deal with millions of batteries that will potentially end up at dumping sites.
- The automotive sector transformation requires a mindset shift. Software-enabled business models put the driver and passenger at the center. This demands a mindset transformation of business leaders, new ways of working, and faster development cycles. Yet what was also blatantly obvious at IAA was that the automotive industry is dominated by white, middle-aged, alpha males. Their approach to innovation is mostly waterfall-based. Customer engagement is managed through dealerships and garages. Management styles are top-down. And employee experiences are handled through unions. This world is fast coming to an end. For the automotive sector to attract and retain the right talent and to move to agile production and open innovation, coaching-style management and fresh mindsets are fundamental. Ultimately, this transformation is a cultural challenge.