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The automotive industry in 2025: what industrial options?

With the emergence of new, often disruptive, forms of personal mobility, the automotive industry is facing a drastic change in its role and its relationship with consumers, end-users and society in general. New forms of partnerships are also emerging. Innovation and technology are crucial drivers for these changes, while automotive suppliers are its key actors, alongside OEMs, new industrial players and service providers.

April 2016
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With the emergence of new, often disruptive, forms of personal mobility, the automotive industry is facing a drastic change in its role and its relationship with consumers, end-users and society in general. New forms of partnerships are also emerging. Innovation and technology are crucial drivers for these changes, while automotive suppliers are its key actors, alongside OEMs, new industrial players and service providers.

In an increasingly connected and urbanized world, we can expect the current balance between public and private automotive transport to change drastically. Thanks to digitalization and autonomous driving, the use of cars will become much more flexible, while electrification will make them better adapted to urban environments. This dual phenomenon will almost certainly reconcile cars with the urban world.

Patterns of mobility consumption are also beginning to change. However, whether they are using their own vehicle or sharing one, drivers will remain focused on a better driving experience for themselves, their passengers and other road users: quality and safety, simplified driving (i.e. increasingly autonomous and connected cars), air quality, and the contribution to combating global warming.

Today, innovation in the automotive sector must meet higher expectations in terms of consumer and user quality of life. Major suppliers are on the frontline. Valeo places its strategy at the heart of this evolution by focusing on innovation and technologies that reduce carbon emissions and offer more intuitive, autonomous and connected driving.

The decarbonization of mobility

The challenges of progressive vehicle electrification are closely linked to the macro-economic context of global automobile production.

In general, even if societal aspirations differ widely from one region of the world to another (awareness about global warming, need to reduce fuel consumption, energy independence), public policies in the transport sector (which accounts for one quarter of global CO₂ emissions) have been heavily engaged in implementing economic solutions that reduce the carbon footprint. This trend is accompanied by increasingly stringent and converging emission standards in all regions of the world (Japan, Europe, USA, China and India).

Due to the impact of regulations promoting the emergence of cleaner vehicles, the automotive sector is now very sensitive to climate change and sustainable development.

Along with research on cost saving, market analysis confirms the demand for more efficient vehicles as a general trend: drivers are now seeking cars which are not only increasingly energy-efficient, but also equally powerful, safer, more connected, more automated and with a simpler control interface. In this context, recent analysis[1] shows that hybridization, electrification, connectivity and digitization are the key trends until 2025.

These requests are of course differentiated according to markets and degrees of urbanization in different geographical areas. The relocation of global car production from the West to Asia, where over 50% of vehicles are now produced, is also a major factor to consider, particularly given the share of megacities and world population based in emerging countries. With 23.6 million light vehicles produced in 2015 (27% of global automotive production), automotive production in China has more than doubled since 2007, with an increase of 5% in 2015 and over 8% in 2014.

Other emerging countries (Southeast Asia, India, South America and Russia) have strong potential for growth in the medium term, despite mixed performances over the last two years. The relocation of automotive production towards Asia and emerging markets is expected to continue in years to come, given the limited outlook for economic growth and weak household equipment rate in these countries. China could very well represent approximately one third of the global automotive market in 2030. Hence, this shift will strengthen the role of Asian (including Chinese) public policy in worldwide automotive innovations: China’s support for hybrid and electric vehicles will be instrumental in the evolution of global mobility.

However, current projections suggest that the electrification of vehicles will be contrasted and progressive. The penetration of electric vehicles in mature automotive markets and in China will be limited, despite increasingly strong expectations towards low-carbon mobility. This is mainly due to the progressive way in which most consumers accept change. However, it is also attributable to the high cost of key technologies for electric vehicles, hence their widespread support through public policies: for example, based on the figure that an electric vehicle needs to be subsidized up to €10,000, support for 10% of the annual global fleet, i.e. 8 million cars, would cost €80 billion per year!

Overall, according to our current projections, the larger part of the global automotive fleet in 2025 will include vehicles combining different levels of hybridization and integration of increasingly powerful electric motors, combined with conventional thermal propulsion. “Pure” electric vehicles will account for a small minority, while thermal propulsion without any degree of hybridization will decline.

The first stage of hybridization in thermal vehicles, that of engine start-stop systems (used at traffic lights for example), offers fuel savings ranging from 5% to 15% in congested urban environments. Valeo was the first supplier to offer this system, which should spread even more quickly in coming years, on a global scale.

In addition to electrification, the transition to low-carbon mobility through additional technological innovations will make vehicles more autonomous, more intuitive and more connected.

Apart from the electrification of propulsion systems, the main technologies that contribute to reducing vehicle fuel consumption are related to the optimization of thermal engine functions, but also to the car interior, the decrease of energy consumption by other functions and lower-mass components.

Complementary technologies for engine management (known as auxiliary systems) also contribute to the decarbonization of vehicles. For example, lighting systems play an important part in reducing the energy consumption of vehicles. In this regard, 100% LED projectors now offer better night vision in difficult conditions (fog, rain, etc.). Apart from a five-fold decrease in energy consumption compared to halogen bulbs (ratio between lighting efficiency and energy consumption), these projectors also offer manufacturers great freedom in terms of design.

Hence, the decarbonization of cars is the result of several technological factors, some of which combine into systems in order to improve performance.

Increasingly autonomous, intuitive and connected vehicles

In conjunction with decarbonization, the trend towards increased autonomy and connectivity in the automotive market deeply influences the experience of mobility.

Thanks to a series of intelligent technologies that have emerged in recent years, autonomous driving systems improve both safety and driving comfort (detection of obstacles and other vehicles, fully automatic parking features, ergonomic representation of an aerial view of the vehicle surroundings, etc.). These transformations increase the integration of high-tech systems within the vehicle, including ultrasonic sensors, radars, cameras, laser scanners, data fusion and polymorphous data processing software.

These new technologies require strengthening of the vehicle’s connectivity with its environment, and lead to the development of new interfaces between the automotive world and telecommunications and Internet players. The management of big data by final consumers can pave the way for new digital players, such as mobility service providers or specifiers of new vehicle types.

This disruption should lead to the emergence of new forms of mobility. This involves both the transformation of collective and private transport services, with players such as Uber, but also the creation of car-sharing platforms such as BlaBlaCar or of car leasing services between private individuals, such as Drivy or Koolicar. This digital transformation offers new opportunities for value creation in the automotive market: what was once an individual, linear practice is now becoming an interactive, collaborative and flexible experience.

The emergence of new technological solutions optimizes fleet management while improving user experience. Valeo, for example, has developed an access and start system that allows drivers to use their smartphone to lock, unlock and start their vehicle while keeping their data and their virtual key on highly secured platforms.

New challenges for the consumer

The development of these innovations and their increasing integration in vehicles raises questions from consumers and users, mainly concerning ease of use, confidence in technology or confidence in the use of data.

Technological acceptance by consumers is a crucial driver for evolving towards greater connectivity and ease of individual movement. Car component manufacturers focus primarily on intuitive use, enjoyable driving and the gradual acceptance of these new technologies: automatic parking is a good example. Consumers are drawn into the field of autonomous vehicles by low-speed, difficult maneuvers (parallel parking). This intuitive approach requires the development of simplified and safe human-machine interfaces, in order to facilitate transitions between autonomous and manual driving modes.

Alongside these technological and commercial opportunities, consumers are concerned about the ownership and use of data collected by both vehicles and infrastructure, particularly about potential business uses of such data, or abuses of privacy: do the collected computer data belong to the driver or the owner of the vehicle, the car manufacturer or the ICT firms? Cyber-security is a major issue for connected vehicles. These changes in consumer requirements need to be acknowledged and stakeholders need to find solutions that provide both security and confidence.

Towards a necessary cooperation between sectors

From what we see of these societal changes and their associated issues, the automotive sector is facing a significant technological challenge. Unlike previous cycles of innovation, some of the upcoming evolutions involve other economic sectors (telecoms, services, insurance, etc.). In particular, we need to switch from a reflection on the ownership of vehicles to a reflection on mobility services that includes vehicles: this requires us to adapt the way we think.

The use and the deployment of autonomous vehicles also require a progressive review of our business models and our national, regional and international legal frameworks, all of which involve much broader issues than the simple question of the driver’s presence in the vehicle. These changes particularly affect insurance and technical regulations.

Similarly, the automotive industry also needs to establish a partnership with the telecommunications industry. The many challenges involved in the use of autonomous vehicles cannot be addressed by one sector alone: the deployment of connectivity and network coverage, the improvement of the functional safety of vehicles and networks, and the standardization of interfaces all need to be solved through partnerships.

Finally, of course, for autonomous and connected vehicles to develop, regulations will need to evolve at the same pace as technology: this is the role of public authorities.

Jacques Aschenbroich
Chairman and CEO, Valeo