INDUSTRY REPORT FEATURE: AUTOMOTIVE TECHNOLOGY AND DISRUPTION

Today’s motor vehicles represent perhaps the most sophisticated technology owned by most consumers.

Automotive technology is, however, on the cusp of greater change which could revolutionise not only transport but urban planning, government policy, work and society in general.

The VACC report found that many stakeholders believe the next decade will see the creation of innovations that will impact the automotive industry more than any over the previous century. In particular, trends and innovations relating to electric, autonomous and connected vehicles could potentially create a tipping point of disruption for the automotive industry, and these matters will be examined more broadly in this section.

Mobility trends

Traditional automotive supply chains are set to change as a result of:

  • changing patterns in car ownership and use
  • new innovative automotive business models, and
  • the application of technology combined with new business models.

Car ownership and use

“Car ownership has been a primary aspiration for most people, often being at the centre of people’s lives and embodying elements such as self-worth and affluence,” the report notes.

“There is emerging evidence, however, of a transition away from car ownership and towards car access. This trend is evident particularly amongst millennial consumers, many of whom are struggling to find full-time employment and have developed a sharing mentality in regards to services. Many see little separation between car sharing, rental, leasing and ownership, with cars being increasingly viewed as only one of the means that can move them around, rather than defining who they are.

“The emergence and growth of companies providing mobility services, such as Uber, GoGet, GoCatch, Flexicar and many others, stand as testament to the strength of these societal changes and to the enterprising companies that have managed to capitalise on these trends.”

Drivers’ licences

There is evidence, both internationally and locally, that fewer people, particularly young people, are obtaining drivers’ licences. Drivers’ licences appear to have reached saturation at 0.735 licences per person.

Data on trends in motor vehicle licence holdings by age group is readily available only for Victoria. The data shows that licence holdings by the youngest age group (18-28) declined substantially from 2001 to 2010, although it has since stabilised. At the same time, licence-holding by older Victorians (49 years and over) has continued to increase over the period from 1994.

“In recognition of these trends, city planning is also now being based around multi-modal transportation options that incorporate changing car ownership and use models,” the report says.

“This is seen as a potential solution to issues of increasing population growth, urbanisation, traffic congestion and air pollution, which are growing problems across many cities.”

Connected, electric and autonomous vehicles

Many industry stakeholders believe that perhaps the biggest disruption to the automotive supply chain could arise from the combination of connected, electric and autonomous vehicles, especially if they are arranged as part of transportation networks.

“As of next year, manufacturers will start releasing vehicles with connected features that allow the collection of data and the digital exchange of information with other vehicles sharing the same roads, including the ability to communicate with the road network, surrounding infrastructure and other applications,” the report says.

“Whilst such technology has many benefits, including enhancing overall driver awareness and improving road safety through fewer collisions, connected vehicles coupled with trends towards greater ride sharing and less vehicle ownership may have considerable implications for the automotive industry.”

Potentially this could mean that:

  • for manufacturers, greater revenues could arise from the commercial usage of driver and consumer data captured through connected vehicles, rather than through the direct sale of vehicles
  • vehicle servicing arrangements may in future lean towards direct contracts with large fleet providers rather than small operators
  • for those still wishing to purchase vehicles outright in future, the whole sales process may be provided online, from vehicle selection, customisation and payment, as well as management of test drives. There are already elements of this nature emerging on both manufacturer and Dealer websites, and
  • it is possible that large, expensive vehicle showrooms may in future be superseded by small, sophisticated retail presences in shopping centres and other main locations.

“This trend has already been tested amongst luxury vehicle makes such as Tesla and Infiniti,” the report says.
Electric vehicles

“Battery electric vehicles (BEVs) have improved significantly in recent years, particularly in terms of battery capacity, range and cost,” the report says.

“Tesla Inc has been a major driver and innovator of electric vehicle and battery technology, and the release of the Tesla Model 3 sedan on world markets later this year is anticipated by many to be a ‘game changer’ towards the mass uptake of electric vehicles. The Model 3 will have a range of almost 400 kilometres and is expected to retail in Australia for between $60,000 and $70,000, thereby placing it on a competitive footing with conventionally powered vehicles such as the BMW’s 3 Series, Audi A4 and Mercedes C-Class.”

Whilst the Model 3 is not expected to be available in Australia until mid-2018, battery costs are on a rapidly declining trajectory and are predicted to reach $100 US dollars a kilowatt hour by 2020. The achievement of such a milestone would effectively place electric vehicles on price parity with petrol vehicles and facilitate their wider adoption by the mass market, along with a growing electric charging infrastructure network.

The report states that the disruptive capacity attached to BEVs stems from the fact that they lack an internal combustion engine, transmission, cooling system, exhaust system and many other components typically requiring maintenance. This may reduce the need for many traditional mechanical service and repair skills. Automotive apprentices and technicians will also require new and specialist training tailored towards electric vehicles. What is not clear is whether current automotive technicians will transition into BEV technician roles, or whether new job roles for specialist BEV technicians will be established.

“Based on current purchasing trends, however, and assuming a modest uptake in BEVs over the next three years, petrol and diesel vehicles will still comprise the majority (at least 95 per cent or more) of the Australian vehicle fleet in 2020. Even if BEVs were to achieve price parity or were cheaper than petrol vehicles now, given the average age of the Australian vehicle fleet (10.1 years), it would take the best part of a decade for such vehicles to establish a considerable share of the vehicle fleet on road.”

This sentiment is supported by industry views captured within the 2016/17 Automotive Industry National Survey, where most automotive business do not deem electric vehicles to be a disruptive force over the short and medium term. Rather, they are perceived as a longer-term proposition for industry disruption, in 10 years or more. Interestingly, government revenue projections in the 2017/18 Federal Budget incorporate rising fuel excise revenues over the Budget forward estimates, thereby suggesting that electric vehicles are not expected to make a major impact on Australian roads or government revenues any time soon.

Autonomous vehicles

Motor vehicle manufacturers are embedding more autonomous driving controls in the current generation of vehicles produced, as well as progressing towards the development of fully autonomous vehicles that can undertake journeys without any driver intervention. Fully autonomous vehicles are expected to be commonly available within a few years.

In Australia, research undertaken by the Australian Driverless Vehicle Initiative (ADVI) – a consortium of government, industry and academic partners developing policy, legislation and procedures to facilitate the introduction of driverless vehicles on Australian roads – suggests a take-up rate for autonomous vehicles of between 2 and 5 per cent of new vehicle sales from 2021 to 2026, rising to 100 per cent from 2055 onwards.

Nevertheless, trials of driverless vehicles are currently in operation in most states, with South Australia taking a leading role in becoming the first state to legalise driverless car trials on public roads in 2016. The South Australian Government is also progressing investment in autonomous and connected vehicles through the Future Mobility Lab Fund – a $10 million program for the development, testing and demonstration of autonomous technology.

“The potential benefits of autonomous vehicles for both industry and government are deemed to be highly significant. Autonomous vehicles use roads more efficiently and require less road capacity. This can translate into billions of dollars in traffic infrastructure expenditure that is saved by governments,” the report says.

“There are also potentially large productivity gains in terms of work and time savings associated with autonomous and connected vehicles.

Analysts have estimated that these savings could be in the order of $6.5 billion annually in Australia. This is without even considering the costs savings associated with lower vehicle accident rates and other social benefits.”

Despite ongoing trials and initiatives, however, key problems remain in regards to the widespread introduction of autonomous vehicles. These include potential legislative barriers, the lack of common standards and platforms to regulate the technology and public concerns about safety, reliability and system.

“In the longer term, the potential for disruption is high within sectors such as Body Repairs and Vehicle Towing, as far fewer vehicle collisions are likely to be witnessed in future. This could greatly reduce the number of body repair businesses in operation and displace many skilled workers within the sector. It could also radically alter the underwriting and business models for vehicle and injury related insurance. Insurance companies may switch from selling policies to individuals to vehicle manufacturers, with the cost of insurance perhaps bundled into the vehicle purchase or lease.”

The report states that “Australia is in the midst of a policy vacuum in regards to electric, connected and autonomous vehicles”.

It says the uptake of electric vehicles in Australia lags well behind that of other OECD countries, with a key factor the lack of incentives towards the purchase of electric vehicles. Generous tax credits, subsidies, rebates and other measures are widely utilised in many countries around the world as policy objectives to incentivise the uptake of electric vehicles to reduce emissions and pollution.

“Inherently, the challenge for vehicle manufacturers and proponents of these technologies in Australia is to encourage government to provide better clarity of policy intentions for the future,” the report says.

“Whilst there is still sufficient time, it is advantageous for automotive businesses to start preparing for a transition to these technologies and the disruption they may cause to existing business models. A signal from government about its proposed actions or intentions may help instigate a smoother transition process for the automotive business community.”

Blockchain

Blockchain is a peer-to-peer network that sits alongside the internet and records transactions between two parties in an efficient, verifiable and permanent way, without the need for a central authority. The virtual currency system, Bitcoin, was the first application of Blockchain technology.

The report notes that a Blockchain consortium has recently emerged within automotive financing involving Toyota Financial Services and Daimler AG – the parent company of Mercedes Benz. In simple transactions, such as the transfer of a vehicle title or lease or the handling of a payment, several intermediaries can be involved.

Blockchain eliminates the need for intermediaries as these transactions can be performed directly between the parties and recorded in a public digital ledger that can be shared amongst a distributed network of participants without the need for a central authority. This has the potential to save vast sums of money and generate greater efficiencies.

“Beyond financial services, Blockchain technology has the potential to be applied across the whole automotive supply chain,” the report says.

“Blockchain could electronically document a product’s journey across the supply chain, ensuring full transparency from its origin and all subsequent touch points. This could improve inventory management and assist to avoid fraud in the spare parts aftermarket. All users, from Dealers, customers, workshops, manufacturers and suppliers, could communicate via the Blockchain and authenticate a part through the local public ledger without approval from a central database.

“Car Dealers would also be able to establish a record of car ownership history through Blockchain, thus improving transparency for sellers and buyers of used cars and pinpointing ‘high fault’ vehicles.”

Whilst Blockchain is still in its infancy, use of the technology is expected to accentuate over the next five years and has the potential to impact many industries and transform the way business processes are handled in the future.

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