Connected cars consumers look beyond transportation

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1 Automotive the way we see it Connected cars consumers look beyond transportation The next generation of connected cars brings the convenience of home and office on the road driving loyalty and revenue.

2 Beyond the car Cars were once used solely to travel from point A to point B. The very term automobile a device capable of movement sums up everything we required. That is no longer true. Paying bills, buying fuel, ordering food and organizing activities all need to be options when the driver slips behind the wheel. This change is being driven by the Internet of Things and by a culture that increasingly equates being disconnected with being lost. Consumers now expect their car to be an extension of their home or office space. With changing customer expectations, OEMs are investing in the development of connected cars. In recent times, the focus has been on voice recognition and personalized assistant apps for automated use. Noise reduction using technologies such as HaloSonic from Harman and fibre optic microphone technology from VocalZoom were also adopted by some OEMs. Others are looking for competitive advantage in exploring niche technologies such as gesture-based interfaces and handwriting recognition. Also in the mix are authentication, personalization and driver monitoring. Customers definitely expect more from automotive companies and dealers as digital disruption impacts every facet of our lives. The desire for connected car services is strongest in emerging markets and growing overall (41% of respondents say that they would like them in their next car). Mathew Desmond, Automotive Practice Lead, Capgemini Figure 1 OEM Start-up Initiatives CRM/Payment Services, content, Software System Integration Hardware Infrastructure and apps 1 Players involved Premium and value OEMs eg., Audi, BMW, Ford, GM, Mercedes-Benz, Toyota, VW Automotive Suppliers eg., Bosch, Continental, Delphi, Denso, Hella, Magna Digital Players eg., Apple, Google, Microsoft, NAVTEQ, Spotify, TomTom Customer Account Infrastructure Services Streaming content Mobile Apps App Store OS/platform Software/car/user interface Components Car Design & manufacturing DB/cloud Mobile network Mobility infrastructure Telecom Players eg., Telefonica, Vodafone, AT&T, Verizon, Deutsche Telekom Automotive Insurers eg., Allstate, Progressive, StateFarm 5 (Historical) Core Business Source: Capgemini New Activities 2 Connected cars consumers look beyond transportation

3 Automotive the way we see it Moving towards personalization Human-machine interface (HMI) software and smart mobility domains with voice recognition, artificial intelligence (AI) and over-the-air (OTA) technologies have all experienced significant innovation recently. Car manufacturers are already moving fast in this space. Last year, Ford, BMW and Volkswagen integrated Alexa, an intelligent personal assistant developed by Amazon. This caused a stir in the industry with its zero-licensing cost. More partnerships are expected in the near future. For example, Volvo is using Microsoft Suite in their vehicles. In fact, 12 out of 14 key OEMs have launched mobility service offerings either as a pilot or fully-fledged service and others, such as Ford, GM and BMW, are innovating in the space with seemingly little concern for the return on investment (ROI). Software-defined cars are leading the way to the next generation car-as-a-service model; this combines infotainment hardware and services as a subscription package. OEMs are looking at OTA as a potential revenue stream generator by offering businessto-consumer (B2C) solutions. With Delphi acquiring Movimento and Thundersoft acquiring Rightware, Tier 1 suppliers are already bolstering their software capabilities. Companies like Maluuba (part of Microsoft), inago, Promptu, Sensory and Baidu are working on interesting areas such as natural speech assistants, AI-enabled speech assistants and voice biometrics. These are expected to gain traction in the near future as the technology evolves. (Figure 1) Moving towards autonomy The autonomous car is coming and it will change the car ownership model. Autonomous driving and contextually connected services are key areas of AI. Volvo, JLR, Ford and Mercedes-Benz are already active in these areas. The technology behind autonomous hand-over the ability for the car and driver to safely transition control back and forth has flooded the R&D pipeline of OEMs with biometric solutions built around voice, heart rate, facial, iris and fingerprint recognition. With the entry of technological giants such as Google and Apple into the connected and autonomous car segment, automobile manufacturers are forced to develop innovative capabilities and make cultural changes to compete with them (Figure 2). Thirteen OEMs are investing $7.1 billion USD to fuel the development of self-learning AI in cars. Toyota has planned to invest $1 billion USD in the next five years to develop the in-house capability for AI. One of the key motives is to accelerate the development of the fully autonomous car and personalized user experience. Voice recognition is moving out of traditional use cases such as infotainment and towards integrating vehicle users manuals into the system; these manuals can be accessed with the help of voice recognition. Similarly, Volkswagen s introduction of gestures on the 2017 Golf shows it is an innovator in the mass market. Figure 2 Autonomous Driving Market: Definitions for Levels of Automation Capability F&S Definition SAE Definition The driving modespecific execution by a DAS of either steering or acceleration/ deceleration with the expectation that the human driver will perform all remaining aspects of the dynamic driving task One of the core functionalities of the vehicle s operation is performed by the system while monitored by driver Adaptive cruise control Emergency braking Source: Capgemini The driving modespecific execution by one or more DAS of both steering and acceleration/ deceleration with the expectation that the human driver will perform all the remaining aspects of the dynamic driving task Two (or more) core functionalities are performed by the system while monitored by the driver Tesla Autopilot Traffic Jam Assist Lane keeping assist The driving modespecific performance by an automated driving system of all aspects of the dynamic driving task with the expectation that the human driver will respond appropriately to a request to intervene Under specific operating conditions, the system controls the vehicle; driver needs to intervene when requested City/Highway pilot with minimal driver intervention Audi Autopilot The driving modespecific performance by an automated driving system of all aspects of the dynamic driving task, even if a human driver does not respond appropriately to a request to intervene System can bring vehicle to safety while in automated mode even if driver does not intervene when requested City + highway pilot, with minimal driver involvement Fully auto parking The full-time performance by an automated driving system of all aspects of the dynamic driving task under all roadway and environmental conditions that can be managed by a human driver The driver is out of the loop; under all operating conditions, the system can control the vehicle appropriately Fully autonomous vehicles 3

4 Moving towards safety Governments and regulations may help drive AI innovation in the name of safety. For example, the U.S. Department Of Transportation in association with the National Highway Traffic Safety Administration (NHTSA) announced plans for a regulatory proposal that would make it mandatory for auto manufacturers to install vehicle-to-vehicle communication devices in every automobile they produce in the near future. Driver-assistance technologies like parking assists may also be included as a part of mandatory safety features in vehicles. According to Capgemini s Cars Online 2017, Beyond the Car study, six of the top 10 OEM start-up initiatives are related to safety and driving experience. Monitoring the performance and age of parts, for example, can redirect the driver to a dealer if immediate attention is required. This provides three benefits: 1. A solution to a problem before it becomes more expensive to repair 2. Avoids stranding the driver 3. Increases service and re-purchase loyalty Increased competition Automotive suppliers are trying to establish direct relationships with end customers to help reduce their dependence on OEMs. For example, Bosch s fun2drive app allows customers to monitor their vehicle functions and provides direct connectivity to the nearest Bosch service center. Some digital players are trying to enter the market by adapting their smartphone platforms to automotive customer requirements. The objective is to expand the reach of the technology ecosystems into the vehicle and integrate their infotainment OS and software platforms into the car. Others in the media-streaming business, such as Pandora, Spotify and Deezer, have already formed partnerships with select automotive OEMs. Telecom players are another potential entrant. With 36 million cars with preinstalled SIM cards expected to be sold worldwide in 2018, telecom companies are expecting significant revenue from connected cars. Insurers are already offering telematics-based coverage options. However, there are opportunities for insurers to offer innovative value-added products to drivers as well as OEMs and suppliers. And many start-ups are targeting various technology and data points in cars, although they tend to act as scouts for OEMs who plan to invest on quick ROI areas. 4 Connected cars consumers look beyond transportation

5 Automotive the way we see it Our Cars Online 2017 study showed 57% of global customers would likely switch from their current car brand to one offered by Google or Apple. It is clear the time is now for automotive companies to channel customer loyalty in their direction amidst digital disruption. 5

6 OEM opportunities The growth in connected cars is estimated to outpace overall automotive growth in the next five years, led primarily in Asia and North America. BI Intelligence, the research arm of Business Insider, expects connected car sales to rise at a CAGR of 50 per cent in North America over the next six years, led largely by greater demand in the U.S. In fact, 97 per cent of new car shipments in the U.S. are expected to have Internet connectivity by This is up from 20 per cent in Premium and value OEMs are making significant connected-car investments in order to capture a significant share of new revenue streams. They are attempting to extend their activities from hardware into deploying a software operating platform for a potential app store, as well as into the development of specific apps and other services including content delivery. Embedded Android is expected to consolidate the Linux market and offer OEMs more avenues to sell app-related services. For example, Mercedes-Benz offers a wide range of connectivity services and products including the Mercedes me online platform. BMW s ConnectedDrive offers an integrated platform including infotainment, navigation and safety features. Tesla sees connectivity as one of its key priorities and offers 17-inch built-in touchscreens to enhance its customers digital experience. Interest is coming from Fiat Chrysler (with a direct partnership with Google), GM and Renault Nissan. OTA is expected to be used as a service delivery interface for generating new revenue. OEMs need to use safety and driving experience to create a new digital driving standard that connects the driver, car and environment. This is also an opportunity to generate new revenue streams. Despite the revenue associated with the traditional navigation accessory, OEMs should consider a Connected Vehicle app for smart and real-time navigation to increase customer consideration and the adoption of additional services. Consumers are expecting connected features on cars and will look for these services. A clear trend towards the usage of high-end processors such as Tegra will mean high-quality content in the cockpit. Networked displays will also become more popular. Central display sizes are expected to increase with the trend towards portrait mode, for better clarity within restricted interior space. Combined heads-up-displays will have high penetration in the mediumand small-segment cars, considering their cost effectiveness and ease of integration inside the dash by OEMs selling directly have a competitive advantage over pure-play online retailers because they can deliver a consistent omnichannel experience. They can offer all car models online, as well as servicing and warranty. They can also provide a complete offer that includes the vehicle, financing and insurance. Figure 3 - Data Monetization Activities Usage-based insurance, tolling, and tax Connected navigation/ intermodal navigation Data feedback for OEMs resulting in better R&D Optimizing emergency assistance providers services Geo fenced solutions Predictive maintenance Truck platooning services Improving road infrastructure for transport authorities Connected navigation OTA updates add-ons FMS solutions Stolen vehicle tracking and theft protection Mobility solutions and content delivery Early-stage recall reduction and software updates Coaching drivers based on their Driving style Source: Capgemini Direct Revenue Opportunities Data Monetization Avenues Indirect Revenue Opportunities 6 Connected cars consumers look beyond transportation

7 Automotive the way we see it Conclusion By 2018, new business models around multi-modal services, UBI and maps will evolve. Engaging drivers will be the key differentiator and will remain a top priority. However, there is still no consensus on how data will be managed for these services and whom customers and OEMs will trust with this data. Biometrics will help drive personalization. Within biometrics, brain wave and heartbeat detection are gaining prominence with shared mobility authentication, access and personalization as key focus areas for OEMs. Vehicle security is an ongoing concern for OEMs who are developing advanced forms of biometric security features like iris, heartbeat and brain wave recognition to help eliminate theft. Automotive OEMs are also increasing their R&D efforts to develop precision biometric driver monitoring, customization features using facial and eyelid monitoring and steering inputs as well as heart rate and breathing pattern analysis. These technologies will work to deliver the next generation of the connected car, and please buyers looking to take the convenience of home and office on the road with them. Smart mobility, cybersecurity and software-defined cars remain the key areas of interest across Europe, North America and China. A huge value chain transition is underway and early adopters of disruptive technologies are being rewarded. Todd Martin, Vice President, North America Automotive Leader, Capgemini 7

8 Automotive the way we see it Capgemini s Automotive Practice Capgemini s Automotive practice serves 14 of the world s 15 largest vehicle manufacturers and 12 of the 15 largest suppliers. More than 7500 specialists generate value for automotive companies every day through global delivery capabilities and industry specific service offerings across the value chain, with a particular focus on our AutomotiveConnect propositions for OEMs and suppliers. For more information visit For more information visit About Capgemini A global leader in consulting, technology services and digital transformation, Capgemini is at the forefront of innovation to address the entire breadth of clients opportunities in the evolving world of cloud, digital and platforms. Building on its strong 50-year heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. It is a multicultural company of 200,000 team members in over 40 countries. The Group reported 2016 global revenues of EUR 12.5 billion (about $13.8 billion USD at 2016 average rate). For more details contact: Todd Martin Vice President, North America Automotive Leader todd.a.martin@capgemini.com Mathew Desmond Automotive Practice Lead mathew.desmond@capgemini.com Learn more about us at People matter, results count. The information contained in this document is proprietary Capgemini. All rights reserved.