How the auto industry is preparing for the car of the future

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How the auto industry is preparing for the car of the future

Autonomous and electric cars, connectivity, and ridesharing are changing the way auto industry players think about value chains, data analytics, and manufacturing.

Behind all the talk of robo-cars, electric vehicles, and increased car connectivity is a focus by major car companies on serving customers’ more intricate technological needs. In this episode of the McKinsey Podcast, senior partners Asutosh Padhi and Andreas Tschiesner speak with McKinsey’s Simon London about how four trends—autonomous driving, connectivity, electrification, and ridesharing—are paving the way for entirely new forms of mobility.

Podcast transcript
Simon London: Welcome to the McKinsey Podcast. I’m Simon London with McKinsey Publishing. Let’s start with a question. What’s the smartest device you own? Is it your phone, your laptop, maybe you’re wearing a smartwatch? Well, if you drive a car that’s less than a few years old, it’s probably smarter than any of these. And your next car will be even smarter: more sensors, more connectivity, more processing power. Perhaps even the ability to drive autonomously.

This is all very exciting for us consumers, and for carmakers and suppliers it means there’s a lot of change coming down the road. For a quick spin through the issues, I’m joined today by Asutosh Padhi, a senior McKinsey partner based in Chicago, and Andreas Tschiesner, a senior partner based in Munich. Asutosh and Andreas, thanks so much for taking the time today.

Asutosh Padhi: Thank you, Simon.

Andreas Tschiesner: Happy to be here.

Simon London: I’ve heard you talk about the four ACES, which is a useful framework and almost a pneumonic device for thinking about the trends. Why don’t you just give us a quick tour of the four ACES.

Asutosh Padhi: Our view is that the automotive industry will see more disruption in the next ten years than it has seen in the last 50 years. This disruption will be driven by four factors that we call the ACES. It stands for autonomous, connectivity, electrification, and ridesharing. Autonomous really is, along a full range, what we call from level one to level five, with level five being a driverless car that can operate in any part of the world.

Connectivity is, you start to think of the car as a computer on wheels, and a computer generates massive amounts of data. A car is going to have 200 million lines of software code in the future. All of Facebook in comparison today is roughly about 50 million lines of code. So it’s a massive change.

Electrification is the shift away from the bedrock of the industry, which has been the internal-combustion engine to a whole range of battery applications. It has been driven by the environmental factors.

Exhibit

The only reason electrification currently exists is because of regulations. But regulations are going to drive initial adoption that then provides the scale that the industry needs for electrification to become a viable economic option. So our view is that we are likely to get to a tipping point by which battery costs drop from $200 to $225 a kilowatt-hour today to the neighborhood of roughly $100 a kilowatt-hour, which is going to be the breaking point when fleets, for example, will start to prefer electric vehicles over the internal-combustion engine.

On ridesharing, all of us have been users of Uber and Lyft. And we’ve all experienced the benefits and convenience of ridesharing. This is what we call ridesharing 1.0, where consumers are taking existing cars that are typically standing in the garages or in the parking lots for about 97 percent of the time and thinking about how they can monetise an asset in which they put in the money.

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