The Next Big Things in The Automotive Industry — An Overview

“This car feels like a spaceship. Words cannot describe the limbic resonance” (Musk & [@elonmusk], 2021). In June 2021, Tesla will start delivery of the new Model S Plaid. With a range of over 600km and an acceleration of 13,3m/s², new records for electric vehicles (EV) are set (Tesla, 2021). This example shows that the automotive industry is vibrant, accelerating and changing in its core more than ever before.

What will be the next big things in the automotive industry and what effects do they have for the environment, companies, consumers, and politics? In this essay, these research questions will shortly be answered. The results presented are based on the author’s Bachelor Thesis at the TUM School of Management, handed in on July 1st, 2021.

The topic of what is next in the automotive industry has already been widely elaborated, of course. Nevertheless, there is a need for an overview of current and upcoming developments — not regarding the single topics on their own, but rather connecting and merging different developments and their implications, effects, and challenges for multiple stakeholders.

To neatly answer the research questions, the thesis — and therefore this summarizing essay — is structured based on a PESTEL research, which stands for political, economic, socio-cultural, technological, environmental, and legal factors (Yüksel, 2012, p. 53). The categories, “political and legal”, “economic”, “socio-cultural”, and “environmental and technical” contain specific information, requirements and challenges emerging with the next big things.

But first, what are these next big things? When reading articles and reports about the current automotive market situation, it quickly becomes clear that there are four main developments disrupting — or about to disrupt — the industry. Connected, automated, and electric vehicles (alternative fuel vehicles in general) as well as alternative mobility forms change the current combustion engine- and non-connected vehicle dominated market (Ahlemann et al., 2021, p. 8).

Alternative Fuel Vehicles — Electric cars breaking through?

The trend has been present for many years — but only now, batteries and technologies are getting cheaper and better, charging stations sales increase exponentially (Kalmbach, 2021) and governments public incentives and regulations (Mohr et al., 2016, p. 12).

Socio-Cultural Review

Nevertheless, consumers do not prefer electric over internal combustion engine vehicles (ICEV) in every case. Up to now, drivers are still more concerned about convenience than environmental effects and prefer HEV and ICEV over BEV (Shin et al., 2018, p. 9). On top of that, due to the pandemic, consumers are looking for “affordable, tried, and tested technology in uncertain times” (Proff et al., 2021, p. 5). All in all, only 41% tend to buy an EV — in 2020, this rate was 25% higher (Proff et al., 2021, p. 5).

Environmental and Technical Review

Nowadays, the transport sector is responsible for 22% of the emissions in the EU (Hlušková, 2019, p. 26). To effectively reduce this amount, two strategies are possible: Product stewardship, which means rather incremental, minor improvements such as the inclusion of hybrid motors. These changements allow to innovate without stopping and changing the core industry. However, also radical product innovations are needed to push eco-friendly development. The development of BEV and FCEV are examples for such clean technology innovations (Stefano et al., 2016, p. 1439).

Especially BEV have, concerning technical aspects, a great future, as their electrical-to-mechanical energy transmission is the most efficient (Bollmann et al., 2018, p. 13).

Political and Legal Review

Three strategies are important to enable and stimulate a structural change: Incentives to reduce CO2 emissions, to slow down ICEV sales, and to stimulate EV purchases. They need to be applied thoughtfully, as only an intelligent mixture of bans, incentives and regulations is successful — also bearing in mind 12 million jobs in the European automotive sector (Llopis-Albert et al., 2021, p. 1).

In Germany, regarding the multiple financial incentives for buying charging infrastructure and EV, a breakthrough of electromobility seems to just happen since end of 2020 — underlined by an exponential increase of charging infrastructure and (B)EV (Kalmbach, 2021).

Autonomous and Connected Vehicles (AV and CV)

By 2025, the total CV share will reach the 50% threshold in Europe, in USA even by 2023, and in China by 2029 (Ahlemann et al., 2021, p. 4).

Looking at AV, there is a big difference compared to CV: The industry development and market share of AV are way behind those of CV. In 2030, only up to 15% of new cars sold could be fully autonomous. This is because there are a lot of barriers, starting with regulation and consumer acceptance (Mohr et al., 2016, pp. 5; 11).

Socio-Cultural Review

Regarding CV, in Germany, USA and China, the most important aspects for consumers are safety and navigation, but also other comfortable features — for instance: 42% of consumers in Germany and even 67% in USA and 74% in China find smartphone-mirroring features in a connected car as particularly important (Ahlemann et al., 2021, p. 19). In conclusion, the combination of smartphones and cars are an interesting topic. The future of both industries has a lot in common (Ferràs-Hernández et al., 2017, p. 858).

Autonomous vehicles are by far yet not as common as connected services in cars. Besides the fact that some people simply want to drive on their own, safety factors play a crucial role in the future of AV (Jing et al., 2020, p. 13).

Environmental and Technical Review

Hard-, software, OTA technologies and third-party apps are important CV and AV components in the future (Ahlemann et al., 2021, p. 27).

Especially in AV, many components are designed to avoid dangerous situations and crashes, because safety is one of the most important attributes of vehicles and fundamentally influences purchasing decisions, as seen before.

Political and Legal Review

As software technologies become a more and more important part of the vehicle, privacy issues do also arise. Sensors and other devices are collecting personal data and information. People question what exactly their data is collected for and who else has access to it (Taeihagh & Lim, 2019, pp. 112–113).

Further legal problems are connected to AV. What happens in case of a crash without a physical driver? Who is liable? Or one step earlier: How can AV be tested and introduced in real situations without risking humans?

In conclusion, regulations and directives concerning the CV and AV testing and usage are needed. One recognizes two different approaches of legal incentives: Consumer-oriented strategies — protecting consumer rights, but deterring companies to work under these regulations, or innovation-oriented strategies, attracting companies, but handling privacy and consumer rights not as strict as other countries (Taeihagh & Lim, 2019, pp. 108–109).

Alternative Mobility Forms: A Short Excursion

“50% of the smartness in a smart city depend on the mobility in the city” (Lang, 2021). As seen by this statement, mobility forms are important for the future development of cities and therefore the third next big thing, which will shortly be summarized in the following.

Socio-Cultural Review

Nowadays, many people use their own car to drive to work, on holiday, or to visit friends. With increasing urbanization, this behavior will switch. Vehicles sold in the future are customized — but not for single persons, rather for single purposes. So, depending on the occasion, consumers will take a specific car and share it with others (Joas et al., 2019, p. 3).

Further reasons for this trend are first, that consumers these days progressively prefer having access to a car than owning a car. Second, city traffic and finding a parking spot becomes more and more cumbersome and costly, so does the property of an own car. Third, the smartphone plays an important role as it makes services such as ride-hailing very simple and convenient (Mohr et al., 2016, p. 12).

Limitations and Implications for Research and Practice

The information and results presented have some limitations. Due to the fact that the main goal was to give a broad overview of the current developments and their implications, single topics have not been investigated in every detail. Furthermore, the whole automotive market is facing many changes and the data and forecasts provided might rapidly change, depending on what happens in the near future.

Nevertheless, this essay (and the thesis behind it, especially) provides an all-encompassing first overview which can excellently be used for more detailed research. For practice, especially companies can use the results and recommendations presented in the next part to adjust their future strategy.

Conclusion: Economic outlook towards the Next Big Things — Challenges and Recommendations

To conclude the previous information, six recommendations and challenges can be drawn. First, Consumer preferences must be continuously observed and interpreted — especially if they change, like right now because of the pandemic. Second, one has to offer incentives to consumers to make them follow the path of the next big things. Skeptical attitudes towards the hygiene of shared mobility can be counteracted by more gloves in a car, for example. Third, governments must find the right mixture of consumer- and innovation-oriented strategy, especially to consider disappearing jobs and industries, which is the fourth challenge. The last two challenges concern companies: First, companies must collaborate with other companies to merge knowledge from different backgrounds (for instance in the smartphone industry) and rather follow than lead new possible disruptions to focus on the profitable changes. Second, companies need to invest — as the following graphic underlines, revenue potentials are high in every case. Nevertheless, factors such as unclear legal AV regulations require caution in forecasting.

Revenue Potentials of the Next Big Things

(Ahlemann et al., 2021)

References

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Authorship Information

This article was written by Johannes Werner, a 22-years old student at Technical University Munich / TUM School of Management. It shortly summarizes his Bachelor’s thesis written at the Chair for Strategy and Organization, examined, and supported by Prof. Dr. Isabell Welpe.

The thesis and therefore the article are based on further literature only. No empirical data was created.