How technology is transforming the automotive industry

It is clear we are on the cusp of a revolution in the way we travel from A to B. Every week heralds new breakthroughs in the development of driverless cars – just this week Apple received the green light to test autonomous vehicles in California, confirming the extent of the tech giant’s ambitions in the space. Meanwhile established brands are extending their electric vehicle offerings apace, with VW’s Tesla-challenging ID Cross, announced in Shanghai this week, adding to the evidence of a secular shift in the industry.

These and other developments in travel tech will have far-reaching implications for automotive businesses. But the future of driving does not simply lie in customers buying autonomous and electric vehicles rather than traditional cars. Instead, the way we look at car ownership itself is starting to undergo a fundamental shift.

The rise of cars as a service

Desire for vehicle ownership is declining in favour of access, already reflected in the rapid rise of tech brands facilitating carpooling and peer-to-peer car rentals. At the moment, car ownership is the norm and rental a handy alternative. Soon, however, this structure will be turned on its head.

We will move towards cars as a service (CaaS) – a change in consumption of vehicles away from ownership and towards a subscription or pay as you go model for access.

We are already seeing such models being adopted across many different sectors – with one thing in common: a high cost of ownership coupled with low usage. Take purchasing DVDs for example: discs have suffered as a result of being a rather expensive product which are realistically only watched a handful of times over a number of years. Subscription-based streaming services like Netflix democratise film and TV show consumption and substantially reduce cost per use.

The same is happening with cars. Research from the RAC shows that cars actually sit unused on our driveways 96 per cent of the time. For such an expensive belonging, we really use our cars a tiny fraction of the time. The cost per use is simply unreasonable.

gettyimages-497345454.jpg

Millennials are voting with their wallets

There are a huge number of other factors changing the way that people, particularly millennials, are looking at consumption. Millennials care less and less about ownership – they want their items and services on demand, paid for in bite-size monthly sums.

The next generation don’t want to invest in long-term purchases that will depreciate – and there are good reasons for that. As the housing crisis becomes ever more apparent, why would young people spend thousands on a car when that money can go towards a hard-earned house deposit? The housing crisis is already impacting people’s ability to afford a parking space, which will eventually make car ownership infeasible day to day. And many of today’s graduates enter the world of work with tens of thousands of pounds of debt, so racking up further commitments makes little sense.

Read more: Are robots really here to steal our jobs?

Other technological developments will eat even further into the meagre four per cent of time car owners are using their vehicles.

A key use of cars is of course commuting – but as technology from conference calls to VR boost flexible and home working, driving into the office every day will be increasingly seen as a waste of time and resources. Even having a vehicle to help collect groceries and shopping is becoming unnecessary, with the increasing adoption of online supermarkets, home delivery grocery subscriptions like HelloFresh and of course the omnipresence of online shopping.

gettyimages-486258863.jpg

How the automotive industry will adapt

The switch from ownership to CaaS will be enabled by the growth in autonomous cars and in-car connected technologies. Uber are already taking steps to safeguard their position once autonomous cars are launched – who would prefer to be taken around by a driver if they could be transported to their destination in privacy?

The demand for CaaS will compel a huge shift in the automotive industry. Many manufacturers are already experimenting with shared access models and investing in car clubs and peer-to-peer players. Insurance companies are offering short term cover for peer-to-peer car rentals; this will become the norm as we transition from ownership to car sharing. Insurance will have further questions to consider once driverless cars come to the fore.

Ridesharing services will likely offer pay as you go access to autonomous cars in the nearby area. Car manufacturers will have to fundamentally adapt to the on-demand economy. Cars may no longer be bought as status symbols – ownership of driverless cars will likely be reserved for the rich and those with particular needs - such as families - or special mobility requirements, while popular driverless CaaS models will focus on function over prestige. At easyCar Club we are already seeing that the most popular cars to rent out are economy cars; for CaaS, price and convenience will be key, so manufacturers are likely to focus on reliability, affordability and – for cars used by multiple drivers – durability. Meanwhile, in-car connected technologies which monitor driving style and habits will help CaaS providers tailor their offering to specific drivers.

Looking further forward, with fewer cars sitting idle and less pressure on parking space substantial additional real estate will be freed up – land which can be made available land for accommodation and leisure within urban areas.

A huge number of industries and professions will be affected by the seismic shift from ownership to CaaS. What’s clear is that the next generation won’t settle for expensive, inconvenient models of consumption, and are voting with their wallets. Car ownership is next – the winners will be those that embrace the revolution now.

This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

Comment

Our Companies

Quick Links