Thrilling Changes Are On The Horizon, But Are Automakers Ready?

Judy Cubiss and Ginger Shimp

Germany’s Autobahn highway system is associated worldwide with speed. It’s also an apt metaphor for the automotive industry’s ongoing transformation, due to the digital economy, which is accelerating at a breathtaking rate.

Long known for its massive value chain – involving product innovation, car manufacturing, supplier and dealer relationships, as well as marketing and advertising – the process has delivered consistent profits for decades. The resulting evolution has necessarily been incremental.

Those days are over. New technology is disrupting the traditional automotive industry model and forcing car makers to totally rethink their approach, not only for the physical cars themselves, but also for the services connected to the car.

Recently, Brian Fanzo and Daniel Newman, co-hosts of the popular S.M.A.C. Talk (Social, Mobile, Analytics, Cloud) Technology Podcast, caught up with Uli Muench, global vice president, automotive at SAP SE, on an episode of an extraordinary series titled Digital Industries, which examines how digital transformation is affecting 16 different industries.

The future of travel — and what that means for the automotive business

electric carLike hovercrafts or virtual reality, for years electric car technology has seemed to be right around the corner without ever gaining mainstream traction. Today any impediments to its success are largely gone. Battery technology has matured and grown, which in turn has helped make electric cars more marketable. On the one hand, modern batteries let consumers drive further between charges, while on the other hand they enable car makers to simplify the manufacturing process, as creating an electric engine is much easier than building a classic internal combustion engine. As a bonus, electric engines are far cleaner and greener thereby reducing pollution.

These developments are one reason why investors have shown so much enthusiasm for Tesla, despite that company’s relatively modest sales numbers in comparison to legacy automakers. Further, electric car fever has gone global; California is no longer the only electric car hub. A significant amount of electric engine manufacturing capacity has been added in China, a place equally bullish on the future of electric mobility.

Muench calls Chinese interest in electric cars huge. “Mass production (of electric cars) is going to occur in China,” he says, adding that he believes a Chinese electric car, mass produced at an attractive price point, is a mere five years away.

hyperconnected carThe shift from combustion engines to electric engines is an exciting development. Yet the move toward fully connected and autonomous vehicles is perhaps even more intriguing. A future where vehicles are connected to other cars on the road – and to the cloud – offers myriad possibilities. One example that Muench discussed was around a concept vehicle with new software allowing today’s vehicles to use sensors to pick up information about changing roadside conditions. This information is then displayed across the entire dashboard in augmented reality form.

The possibilities for networked vehicles don’t stop inside the car. In the future, software will enable not only fully autonomous vehicles, but also automated parking, fueling, and other services. Even more exciting, these developments may be realized even sooner than most believe. Recent projections show that by 2030, 95% of all road miles will not be driven by humans.

“The experience of getting from point A to point B is going to be a completely different one compared to today,” Muench enthused.  Listen to a short clip from the podcast:

SMAC podcast

How automakers are adapting

So what does this mean for legacy automakers and their massive production and supply chains? As you might expect, the industry is well aware of the situation and is working furiously to adapt. Ford has created a standalone business unit, Ford Smart Mobility, dedicated to developing the latest technologies. BMW, meanwhile, is notable for its car-sharing and parking services. Other legacy automakers, such as GM and Volkswagen, are also making serious investments in mobility services as well as other cutting-edge technologies.

The benefits of this shift will be staggering. Enormous efficiency gains will be realized when people no longer have to waste time during commutes. The role of human error will be minimized, leading in turn to fewer accidents and injuries. Those collisions or injuries that do occur will be backed up by large amounts of generated data. This information will make the process of assigning liability or criminal responsibility much easier.

Muench foresees a future in which humans enjoy the experience of driving, but only recreationally, a  development that would undoubtedly be great news for companies such as Ferrari or Harley-Davidson. It’s also something that will forever change our relationship with travel.

Ultimately, the emergence of autonomous cars, ride-sharing, connected vehicles, and other looming technologies will lead to a transformation of the automotive industry on a scale never before envisioned. Technology will free us from the time-wasting drudgery of most commutes, leading to productivity gains. Opportunities for personal enrichment will spring forth. The use of electric engines will ease the strain on the environment. All these changes will create a safer and cleaner planet.

Car manufacturers are working furiously to be at the vanguard of this transformation. They are being supported by software firms, who create the underlying technology to make these advancements possible. This is a relationship that will only grow in importance, as Muench pointed out during his recent appearance on S.M.A.C. Talk.

“Today, a typical car contains more software than you’ll find in Microsoft Office,” he said.

85 percent of automakers believe the digital ecosystem will generate higher revenue than the hardware of the car

KPMG Global Automotive Executive Survey 2017,” KPMG, January 2017.

The takeaway

Every business operating today is a technology business. The most successful automakers understand that thriving in the digital economy requires nothing less than a reimagining of their business models and processes, as well as the way in which we work. This means a focus on elements such mobility, smart vehicles and plants, digitally connected supply chains, and other key technologies.

By following these strategies and building a robust digital core, today’s automakers will be able to keep pace with the dizzying speed of the digital revolution.

Transforming into a truly digital business is so much more than just implementing new technology to meet the demands of a digital age. It’s more than keeping up with the deluge of transformation happening all around us. Digital transformation is about understanding how to harness these changes and incorporate them into your business strategy. It’s about driving agility, connectivity, analytics, and collaboration to run a Live Business. A digital core empowers you with real-time visibility into all mission-critical business processes inside your “four walls,” and in your interactions with customers, suppliers, workforce, Big Data, and the Internet of Things.

To listen this episode of Digital Industries for the automotive industry, co-produced by SAP and S.M.A.C. Talk Technology Podcast, click here. For more on how SAP can help you drive your own digital transformation in the automotive industry, visit us online.

Judy Cubiss

About Judy Cubiss

Judy Cubiss is Global Marketing Lead for Industrial Machinery and Components and Automotive at SAP. She has worked in the software industry for over 20 years in a variety of roles, including consulting, product management, solution management, and content marketing in both Europe and the United States.

About Ginger Shimp

With more than 20 years’ experience in marketing, Ginger Shimp has been with SAP since 2004. She has won numerous awards and honors at SAP, including being designated “Top Talent” for two consecutive years. Not only is she a Professional Certified Marketer with the American Marketing Association, but she's also earned her Connoisseur's Certificate in California Reds from the Chicago Wine School. She holds a bachelor's degree in journalism from the University of San Francisco, and an MBA in marketing and managerial economics from the Kellogg Graduate School of Management at Northwestern University. Personally, Ginger is the proud mother of a precocious son and happy wife of one of YouTube's 10 EDU Gurus, Ed Shimp.