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Retrospective and Predictions for Mobility
December 2021

The automotive industry and mobility at large underwent a significant transformation in 2021. Multiple factors contributed to this change, including supply chain issues, emerging EV OEMs pressuring incumbents, new CO2 regulation in Europe and consumers shifting online. This transformation resulted in a radical shift in powertrain mix, new types of partnerships, new ways of working across the ecosystem and more.

My predictions for 2022 focus on a select set of topics: electrification, autonomous driving, partnerships beyond the traditional ecosystem and distribution.

 

Electrification – More OEM Commitments and Partnerships as We Climb the S-Curve

The penetration of battery electric vehicles (BEV) currently stands at about 10% in Europe or China and 2.5% in the USA. Many countries have already set deadlines for the ban of ICE-based vehicles, e.g., Norway in 2025 or the UK in 2030. During 2021, most OEMs committed to shifting to BEVs or fuel cell EVs (FCEV) at some point. Some brands have set deadlines for their new vehicles, such as Cadillac (2021), Jaguar or Genesis (2025), Audi (2026) or Peugeot in Europe (2030). Others announced when they will stop selling ICE-based vehicles all together, such as Volvo (2030), VW (2033) or GM (2035).

I expect that OEMs that have not yet committed to shifting to clean vehicles will do so in 2022. These are mostly Japanese OEMs, which will likely continue to promote FCEVs as a promising alternative to BEVs. Many OEMs that have already committed may pull their deadlines forward (at least regionally) as the BEV mix ramps up faster than expected. In 2022, I expect BEVs to hit 15% of the market in Europe and China and 4-5% in the USA as exciting products are introduced. By the end of 2022, the global fleet of BEVs could reach about 15M, almost 2x today’s fleet.

The electrification boom combined with the on-going chip shortage is also forcing OEMs to rethink their supply chains. At the very least they are extending their visibility through the whole supply chain to increase resilience. Electrification prompts additional challenges: the need to secure sufficient capacity for batteries and raw materials (e.g., minerals). 

Most OEMs have now locked in battery capacity several years out. In 2021, we started to see partnerships all the way to mining and refining, such as Renault with Volcan or BMW with Lilac for lithium. 2022 will see the remaining OEMs locking battery capacity and many also securing raw material mining and refining.

 

Autonomous Driving – Robotaxi and Goods Transportation Pilots Multiply

In 2021, we experienced a significant transformation of the autonomous driving (AD) ecosystem. Massive funds were committed to the leading AD stack developers – over $15B across the top 8 players at a cumulative valuation of about $100B. Likewise, 8 Lidar startups have gone public via SPAC, raising over $2B. The leading companies in the AD space now have plenty of dry powder to recruit, to invest in more cities or acquire smaller tech players. Overall, this results in regained confidence and acceleration towards deployment.

Waymo and AutoX are already operating fully driverless robotaxi services that are open to the public respectively in Phoenix (USA) and Shenzhen (China). In 2022, we will several new pilots. Cruise (backed by GM and Honda) will operate a fully driverless, commercial ride-hailing service in San Francisco, whereas Waymo will do the same but will have to keep the safety driver. 

The leading stack developers will also prepare to deploy in more cities in 2022, mainly in the USA and China whereas Europe will continue to lag. Zoox will start testing in Seattle and may announce their deployment plan for the vehicle introduced a year ago. At the back end of 2022, Cruise is expected to start producing its purpose-built “Origin” robotaxi.

Freight transportation and deliveries will also inch closer to autonomy. In 2021, Aurora started to haul freight for FedEx. Gatik recently removed the safety driver on its commercial middle-mile, fixed-route deliveries, and Starship reached two million deliveries to date with its sidewalk bot. Waymo, Aurora and TuSimple each announced plans to establish networks across along US highway to connect with trailers and perform tractor maintenance. In 2022, I expect more pilots as well as planned networks starting to turn into physical assets, preparing for deployment in 2023-2024.

 

Partnerships expand beyond the traditional ecosystem

Multi-tier supplier-customer relationships are increasingly turning into agile co-development partnerships across multiple stakeholders, including across tiers. As we evolve towards software-defined vehicles and frequent OTA updates across an increasing number of functions, development loops become short and agile, and remain active throughout the life of a product. 

This trend will accelerate in 2022. We are indeed moving fast towards new E/E architectures (domain and zonal compute) which enable more ubiquitous OTA updates, and introducing more features-on-demand and subscriptions which both require more SW-HW interactions. See my recent article on maximizing lifetime customer value with new business models.

We have also observed recent partnerships outside the traditional ecosystem, especially towards software, cloud, and data management. Google has made inroads first with Android Auto and more recently with the embedded Android Automotive with OEMs such as Volvo, Renault or GM. The deployment of the system on new models will experience a boom in 2022, providing Google with access to more of the vehicles’ inner-workings. 

Cloud players built new positions in the automotive industry in 2021 with partnerships such as Continental with AWS or ZF with Microsoft (Azure). OEMs and mega-Tier 1 suppliers are experiencing a boost in the amount of data they work with as well as in the need for speed and agility in their collaborative projects. 2022 will see several new long-term partnerships in this space.

 

Retail Shifting Closer to DTC with Recurring Revenue Streams

Tesla disrupted the dealer-based distribution model with its direct-to-consumer (DTC) approach. The pandemic greatly accelerated people’s appetite for online purchases, which forced the auto industry to shift a large part of the buyers’ experience away from showrooms. Tesla has also showed the industry the benefits of having a direct relationship with owners and users. This includes full control of pricing, potential for recurring sales (feature-on-demand, subscription), short customer feedback loop or enhanced customer understanding. See my recent article for a financial and operational analysis of Tesla.

A few OEMs have experimented with subscription models with limited success to-date. In 2021, one of them, Volvo, announced its intention to sell its EVs exclusively online, and its sister brand Polestar is full DTC. Furthermore, US-based emerging OEMs – e.g., Rivian, Lucid, Fisker – are all also 100% DTC. In addition, Cadillac shrunk its distribution network by a third as it as it goes 100% EV, paying off dealers that would not commit to an all-electric future.

In 2022, I expect a few OEMs will follow Volvo’s footsteps. This may be for select product lines or sub brands – Audi announced such a move for their EVs starting in 2023. I also expect more OEMs will start offering insurance products as have Tesla or Rivian.

The chip supply chain crisis has caused dealer inventory to drop very significantly, from typically 60 to 100 days in the USA to a few days. In the country, over 90% of all vehicles are bought off dealers’ lots. Once the crisis is behind us, I expect the USA to come a bit closer to the European model where about half of all vehicles are built to order. This will reduce inventory-carrying costs and discounts as well as free up capital, provided customers find the patience to wait a few weeks.

 

Many other domains will be deeply transformed in 2022. I selected these four as they result in strategic shifts that impact not only incumbent players, but the broader ecosystem. What is coming is not for the faint of heart. The disruption is deep.

Marc Amblard

Managing Director, Orsay Consulting

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