The Value of Connected Services · equipped with faster 5G connectivity. This is driven by an...

The Value of Connected Services

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The Value of Connected Services

Forward

Improvements in mobile communication technology combined with the expectations of the ‘always on’ generation of consumers is leading to a rapid increase in the number of connected vehicles on the road. Beyond immediate improvements in consumer experience and safety & security features, vehicle connectivity presents significant opportunities for monetisation of services.

A whole new ‘ecosystem’ is emerging for connected services and this market is predicted to increase more than six-fold over the next decade.

This white paper presents examples of upstream and downstream connected vehicle services, their potential value for vehicle manufacturers, and the key challenges OEMs face in adjusting their business models.

1. Global automotive trends ....................................................................................................................4

2. Connected vehicle ecosystem .........................................................................................................7

3. Value of connected vehicle services .........................................................................................11

4. Global market for connected vehicle services ...................................................................16

5. Today’s value chain ...............................................................................................................................18

6. Implications for OEM ............................................................................................................................22

Vehicle connectivity is a term which describes the ability for a vehicle to both send and receive information with external systems. By 2030, it is expected that 100% of new vehicles sold in the major automotive markets of Europe, North America and China will have a minimum of 2G connectivity, and a large proportion will be equipped with faster 5G connectivity. This is driven by an increase in customer expectation for connected features combined with the ability to introduce this technology at a relatively low cost.

As connected vehicles become more common, the volume of data collected from cars will see a sharp increase. With an array of vehicle and environmental sensors connected to a high-power central computer, more detailed information is available for each vehicle on the road. Information could include current energy efficiency, weather conditions, vehicle diagnostics or even the driver’s favourite media streaming service. Connectivity allows all this to be communicated in real time, either with other road users, manufacturers or third-party service providers.

Connectivity can therefore bring benefits for OEMs across the entire value chain and, in turn, enables new market opportunities for connected vehicle services.

The connected vehicle services market is expected to grow at 20% CAGR over the next 10 years with a market size worth over US $500B by 2030. This market size is derived from new revenue streams, cost reduction enabled through data analytics, and improvements to vehicle and human safety and security.

We expect that some OEMs will become well placed to benefit from connected services by expanding their offerings beyond the manufacture and supply of vehicles. Connected vehicle functionality can be leveraged to reduce development costs and to introduce new services for downstream revenue generation throughout the lifecycle of their product. The challenge is to maximise the potential of the data and to provide additional services that customers are willing to pay for over the lifetime of the vehicle.

Introduction

More information about the authors and other members of the Mobility Team are given on page 23.

Authors:Robert Camm – Junior Business Analyst, Ricardo Strategic ConsultingMurtuza Ali – Senior Consultant, Ricardo Strategic ConsultingMike Blyth – Principal, Ricardo Strategic Consulting

The Value of Connected Services 3

1 Global automotive trends

Megatrends

Global megatrends are impacting the automotive industry in many ways, more so than ever before.

Stricter environmental regulations to limit the impact of greenhouse gases require automakers to invest heavily and move to more sustainable energy sources. Population growth and urbanisation are leading to demand for alternative mobility solutions away from traditional vehicle ownership. Connectivity drives demand for more smartphone style features in-vehicle and enhanced personalisation for each user.

Social and techno-economic trends drive new requirements and behaviours across the whole automotive supply chain; connectivity in vehicles provides an opportunity to address and derive these benefits across the value chain.

Figure 1: Global megatrends and potential challenges

Connected vehicle trends

The presence of connected vehicles has slowly been growing over time as cellular connectivity and smartphone functionality have been introduced to vehicle platforms.

With new vehicles, connectivity will be central to the user experience. We explore some of the key trends driving this imminent introduction.

Connected vehicle sales

To understand the scale of connected vehicle introduction, analysis was conducted to look at overall vehicle sales for major automotive markets and the level of connectivity. Analysis from IHS, KPMG and PWC all suggests that by 2030 all new vehicles in Europe, North America and China will have at least 2G capability. Vehicle connectivity level by major market is shown in Figure 3.

From 2020 all new vehicles in Europe and North America will have at least 2G connectivity. Premium vehicles representing ~30% by volume will have

faster 4G/5G connectivity, and by 2030 it is expected that over 70% of vehicles will have faster 5G connectivity.

In China, the introduction of connectivity in 2020 will mainly be in premium and join-venture vehicles. Adoption will then increase and by 2030 all new vehicles will have connectivity. Slower adoption is due to a lack of regulation such as eCall, which makes connectivity mandatory.

Figure 2

Figure 3: Vehicle sales (in millions) and connectivity type

7-9 billion by 2050

66% of population urban 2030

66% “Middle Class” by 2030

Information: Exponential growth

Climate change, air quality, resources

Focus on society & sharing

Population Growth

Urbanisation

Increasing Wealth

Connectivity

Environmental Awareness

Anti-consumerism?

• Resource Issues• Mobility & energy demand• Geopolitical shifts

• Rise of megacities• Urban mobility• Overcrowding

• Access to education• Healthier-but-older• Demand for solutions

• Interconnectivity• Analytics & AI• Digital communities• The Circular Economy• Risks of non-adherence• Punitive regulation• Reduced focus on growth• Wealth re-evaluation• Challenging “ownership”

Megatrends Evidence / Cause Implications and Challenges

OEM emphasis on software and connected services Consumer demand for smartphone features

Government legislation for connected vehicles

Increase in e-commerce spending during commute

• Ricardo interviews with OEMs and Tier 1 suppliers shows a shift in focus, with software and connected service offerings seen as the best way to differentiate from competitors in the future

• eCall was made mandatory for all new passenger and light commercial vehicles sold in Europe from 2018

• eCall requires 2G as a minimum which is driving an increase in standard connected vehicle technology fitment

• There is a growth in the number of drivers using smartphones and in-car systems to pre-order and pre-pay for services that are vital to their commute, such as fuel, food, coffee and parking

• Analysis from PYMNTS estimates that drivers in the US engaged in an estimated US $230B of commerce activity while driving

• Consumers demand that their connected life can continue within their vehicle, with full integration of smartphone features and synchronisation with their personalised services

4 The Value of Connected ServicesThe Value of Connected Services 5

Impact of COVID-19

The outbreak of COVID-19 has caused disruption across the automotive industry. Most suppliers, manufacturing plants and dealerships have been forced into shut-down as lockdowns were enforced around the globe; restricting both production and sales volumes. Whilst the full effect of the outbreak is not yet known, there are some key considerations for how this can impact the supply chain and consumer behaviour.

• There will be a stalling global demand for vehicles as the virus spreads and emergency measures are in place. IHS currently forecasts a sales drop

of more than 12% compared with 2019. A global recession as a result of COVID-19 means that the industry will not recover instantly

• OEM introduction of new vehicles could be delayed into 2021, ongoing product development activities may be re-evaluated

• Attitude towards public transport and shared mobility could change. A longer-term shift to remote working could also change consumers’ mobility demands and preferences

2 Connected vehicle ecosystem

Growth of the connected services market is not solely reliant on introduction of vehicle technology. Investment in infrastructure and involvement of third-party organisations is crucial for the adoption of connected vehicles.

To develop the connected vehicle ecosystem, it is important to have localised support which allows for implementation and adoption. For example; fast mobile network coverage is important to allow the real time exchange of data from vehicle to data centre, and smart infrastructure needs to be in place on the local road networks for safety benefits to be realised. Government support is also essential for the development of the ecosystem as they will need to

approve the infrastructure development and deliver legislation which promotes data standardisation and sharing, key steps for maximising value from connected services.

From an OEM perspective, there is no value investing in connected services when the infrastructure is not there to enable it. It is therefore important to consider the whole ecosystem for development of products and services. Doing so is key to a successful introduction and consumer adoption.

Figure 4: The three main areas of the connected vehicle ecosystem

Forecasts show that all new vehicles sold in major automotive markets will have some level of connectivity by 2030

The increase in the number of connected vehicles is driven by a change in focus for OEMs towards software & connectivity. This is also coupled with an increase in customer demand. An increase in e-commerce spending in-vehicle shows that there is high revenue potential with connected services.

Production forecasts show that by 2030 all new vehicles will have at least 2G connectivity, with over 70% of these having the faster 4G/5G connectivity. The high number of connected vehicles on the road presents a large revenue opportunity for OEMs and third parties to provide connected services into the vehicle.

The full effect of COVID-19 on the automotive industry is not yet known. However, when work does restart successful product launches and continued product development will be crucial. Introduction of new connected vehicles vastly improved from the previous generation could encourage customers to upgrade their vehicles.

Connected Vehicle Ecosystem

Connected Vehicle

Infrastructure Systems

Third-Party Organisations

What are the connected vehicle technologies?

What data can be recorded on the vehicle?

What are the key infrastructure systems (physical & digital) interacting with connected

vehicles?

What external processes or organisations enable growth of

the ecosystem?


Vehicle operating system

• Vehicle operating systems manage increased complexity

• Allows for new vehicle features and applications• Provides security features to protect vehicle

controls and data privacy

Vehicle sensors

• Speed: actual and average• Fuel Consumption• Accelerometer• Safety: airbags, seat belts• Diagnostics: fault codes• Maintenance: tyre pressures, oil level

Environmental sensors

• Road conditions: temperature, gradient, surface• Weather conditions: windshield/wiper information

Communications, location and navigation

• New hardware to support 5G, Wi-Fi and Bluetooth• GPS to accurately determine vehicle location

Central computers and data storage

• High performance central computers to manage complex data processing

• Increased data storage to manage and store data

Advanced HMI

• Increase in number, or size, of digital displays• Gesture controls, heads-up display and voice

control to reduce driver distraction• Increased personalisation of vehicle systems and

services

Connected vehicle

Connectivity is enabled by improvements in communications, computing power and advanced software platforms. Examples of key systems are given below:

V2X and Smart Infrastructure

• Smart infrastructure that can communicate with vehicles is required

• Examples: Traffic lights, roadworks, emergency services

Accurate positioning and detailed mapping

• Accurate positioning is crucial for autonomous driving but also useful for location-based services

• Detailed mapping will help present localised information clearly to driver and for autonomous systems

Cloud computing and analytics

• External servers are required for processing and storing large amounts of data generated by the vehicle

• Data analytics is required for detailed insights

High speed data transfer

• The network needs to be capable of transferring data at high speeds

• Improvement to cellular coverage is important to reduce dropouts whilst driving

Infrastructure systems

Investment is required across physical and digital infrastructure systems to support advancements in vehicle connectivity. Examples of infrastructure systems interacting with and enabling connected vehicles are given below:

Cyber security specialists

• Cyber security specialists are required to maintain and protect all the systems collecting, storing and using data

Control centres

• Control centres will be required to locally manage traffic flow

• Coordinate emergency response via control centre

Legislation and regulations

• Policy makers are key to enable use of connected vehicles and data collection

• Regulations to ensure fair use and safe storage of data are important for consumer confidence

Advertising

• Advertising agencies will have large amounts of data to provide targeted adverts in-vehicle

• Work with OEMs to provide a suitable experience

Data centre

• Data centres will be required to process and store data either for OEM or third-party applications

• Data anonymiser can act as a service between the user and either OEM or third party to protect consumer data

Third party companies

• There are several third parties that will have an interest in vehicle data

• For example, highways agency could use data to identify areas for improvement and safety critical repairs

Dealership / service centre

• Key to connected vehicle sales to grow ecosystem

• Use data for predictive maintenance/

Third-party organisations

To develop the ecosystem, involvement is required from external organisations including regulatory bodies, cyber security specialists and data centres. Examples of third-party organisations that will be involved with, or may provide connected services are given below:

Vehicle technology, infrastructure systems and third-party organisations are all equally important for the growth of the connected vehicle ecosystem

It is impossible for OEMs to introduce connected services by focusing on the on-vehicle technology alone. They also need to consider the infrastructure and external organisations required to develop the ecosystem. For each vehicle technology there is a related off-vehicle dependency that will also need to be developed.

OEMs will also need to work with industry consortiums, regulators and third parties to enable progress with the introduction of connected vehicles. Where OEMs choose not to provide connected services themselves, they may want to work with the service providers to ensure experience is optimised for their vehicles.

Considering the ecosystem, the largest challenges will be with systems that require significant time and investment. Smart infrastructure with V2X capability will take time to implement across the road network. Control centres will be important to the ecosystem but also require time and investment. Developments in infrastructure will be important to unlock the full potential of connected vehicles. For example, V2X enabled traffic systems will be required to fully realise potential safety benefits.


Other parts of the ecosystem such as fast 4G/5G cellular networks and cloud computing are already in place, driven by the consumer electronics industry, meaning many connected vehicle services can be introduced by OEMs today.

As the ecosystem grows the status in each region could vary, such as the progress with smart infrastructure and quality of cellular coverage. This will influence the services that can be introduced and the revenue potential in that area. Connected service providers will want to target regions with the highest potential.

Vehicle OEMs need to understand the value of connected vehicle beyond the point of sale and the value of connected services across the product lifecycle. This may require a fundamental shift in commercial operating model.

3 Value of connected vehicle services

Connected vehicles present several monetisation opportunities through additional services. Whilst the list of potential applications is exhaustive, they can be grouped into three main categories:

• New revenue streams: connected services that are provided additional to the vehicle sale price and traditional aftersales services. These create the opportunity for new revenue streams over the vehicle lifecycle

• Cost reduction: data obtained from the vehicle that is used to drive cost reduction within the value chain, for example reduction of development and warranty costs for the OEM.

Connected services such as route optimisation and predictive maintenance contribute to cost of ownership reduction

• Safety and security: introduction of V2X systems will have a positive impact on road safety, for example warning drivers of nearby emergency vehicles. There is also opportunity to use collected environmental data to improve road design and safety

Figure 5: Description of each monetisation method

New Revenue Streams

Cost Reduction

Safety and Security

• By having connected vehicles there are opportunities to sell new products/services into vehicles

• There is also the opportunity to collect more data on vehicle usage and user behaviour

• Connected vehicles create opportunities to reduce costs within vehicle product development and through the duration of ownership

• This presents savings for OEMs, fleet owners and personal owners

• Connected vehicles allows safety critical data and warnings to be shared in real time

• Over the air software add-ons/upgrades

• In-car entertainment• Targeted advertising• Sale of data to third parties• Location based data• Vehicle usage monitoring

• Collecting field data: - Development cost reduction - Warranty cost avoidance• Predictive maintenance• Smart fleet management• Traffic optimisation fuel savings

• Reduction in number of accidents

• Improved response times• Driver monitoring• Improve road design based on

safety data

Description Examples


Vehicle Data

Figure 6 considers how data is collected from the vehicle, how it can be used and the how this creates value. This list provides a few examples although the number of data variables available from the vehicle is much higher. As connected data usage increases, service providers will explore new ways to utilise data and this will also create requirements for new sensors to be installed on future vehicles.

Currently there is an industry effort to establish a common data standard for communication between

connected vehicles and external systems such as infrastructure and data centres. The two main message formats used in Cooperative Intelligent Transport Systems (C-ITS) are Cooperative Awareness Message (CAM) and Decentralised Environment Notification Message (DENM). The use of common data formats will make it easier for third parties to interpret and use connected vehicle information, and for information to be shared between vehicles (V2V) and with infrastructure (V2I).

Figure 6: Data collection methods and how this adds value

In the majority of vehicles on the road today, the hardware provider generates the revenue; this is typically either the vehicle OEM, or a provider of plug-in hardware. As with early connected services such as fleet and driver telematics, where dedicated plug-in retrofit hardware was used. More recently there has been a shift to a model where data can be accessed and value can be generated by multiple sources such as; OEMs, suppliers, customers, e-commerce providers.

The availability of connected vehicle data and the

associated communications network allows OEMs and third parties to develop parallel solutions and provide new services. Some companies will find the most value in connected vehicle data alone to drive external activities; others will use vehicle data for development of new services, which then feeds back into the vehicle, either through new services or improvements to existing services. In each example, collection and communication of the data is the key enabler for growth of the data ecosystem.

Connected services

Using the platform of the connected vehicle, equipped with communications, advanced operating systems and a range of sensors, there is the opportunity to

provide a range of new services to the vehicle. Figure 7 gives several examples of connected services and how this creates value for the provider or user.

Figure 7: Example connected services

Value of strategic partnerships

During development of connected services, OEMs will face a dilemma of whether to develop their own services in-house or to partner with third-party connected service providers. Below we present

two examples of connected services and consider the benefits to the OEM of developing in-house or partnering with an external company.

Example 1: Navigation Services

Many OEMs currently offer real time traffic updates to the built-in vehicle navigation, often as part of their connectivity subscription service. However, companies such as Apple, Google and Waze offer free navigation services which can also be used through smartphone mirroring. As popularity rises for free navigation services OEMs could discard their own applications and instead embed third party services to their vehicle operating system. This has the potential to reduce development costs without effecting the vehicles functionality. The clear downside being the loss of downstream revenue, and the risk of diluting the customer relationship.

Technology Information Collected

How Information is Used

Revenue Stream

Cost Reduction

Safety & Security

• Driving data: speed, acceleration, fuel consumption

• Safety data: seatbelts, airbags• Diagnostics: fault codes• Maintenance: tyre pressures,

oil level, brake wear

• Vehicle health monitoring: predictive maintenance and scheduling

• OTA updates to fix faults/errors

• Fleet management

• Road conditions: temperature, gradient, surface

• Weather conditions: windshield/wiper information

• Issue weather and road condition alerts to other vehicles (V2X)

• Improvement to road surfaces

• Vehicle position • Location services: nearby places of interest

• Targeted advertising

• Satellite navigation destinations

• Traffic conditions

• Determine places of interest for user (targeted adverts)

• Route optimisation and traffic management

• Live map updates

• Collect information about how the driver interacts with the vehicles features and most used services

• Targeted advertising• In car entertainment• Vehicle development

Vehicle Sensors

Environmental Sensors

Location

Navigation

Vehicle Operating Software

• Communication with infrastructure (V2I)

• Communication with other vehicles (V2V)

• Safety improvements

• User can monitor vehicle from mobile device

• Unlock and start vehicle

V2X Connectivity

Vehicle Management

• Weather and road condition alerts

• Fleet telematics

Cloud Services & Data Sharing

• OEM can issue updates to customer

• Unlock new features• Personalisation

OTA Updates

• Fault diagnostics• Predictive maintenance• Service scheduling

Vehicle Health Monitoring

• Traffic management systems

• Route optimisation• Live map updates

Map & Location Services

V2V

Communication – 802.11p & Cellular (4G LTE & 5G)

Main Value Creation

New Revenue Streams Cost Reduction Safety & Security


In both examples there are benefits in developing services in-house or working with an external partner. There is also the possibility to do both, which gives the customer freedom to select their provider. In each case it will be important to compare the revenue opportunities and value of data ownership, and the risk to the customer relationship, against potential cost savings.

For each connected service the business case for in house development versus external partnership will be different. It is also expected that this business case will continue to change as connected vehicle usage increases and requirements change. New and unique services that require subscription and are exclusive to a given OEM will eventually be free to use and offered by all OEMs and some third parties. As this dynamic

market evolves OEMs will face the challenge to continually adapt.

Connected services can create value through additional revenue streams, operating cost reduction and improvements to safety & security

There are several ways to add value in the context of connected vehicle, through revenue generation, cost reduction or safety improvement. More vehicle sensors and real time communication increases data detail and availability. The data created feeds the ecosystem of OEMs, suppliers and third parties. Data is often an input to further activities and can be re-used at various points within the value chain, differentiating it from other commodities.

OEMs are well placed to capitalise from all these types of value creation as they currently hold the customer relationship, albeit often through a dealer network. It is therefore important that they continue to be competitive to retain customers. One risk is that technology companies could rival OEMs with connected services or even take control of the primary customer relationship. It will then be important for the OEM to either offer enhanced features or to partner with them for mutual benefit.

By offering products/services beyond the point of sale, the lifetime revenue for a given product will change. This could alter the business case for a product or lead to more aggressive vehicle pricing strategies. A key part of this analysis will be assessing the size of the market and the revenue potential for connected services.

OEM benefits of in-house development

• Potential for downstream revenue• Retain the customer relationship• Primary owner of vehicle generated location

data• Improved integration with vehicle• Control over cyber security and software

updates

OEM benefits of external partner

• Reduce product development costs without impacting vehicle core functions

• Eliminate costs to manage/update service • Potential for user preference towards popular

external service

Example 2: Vehicle Health Monitoring

Another connected service many OEMs offer is ‘vehicle health monitoring’. Where data is collected by vehicle sensors and used for diagnostics, preventative maintenance and service scheduling. In most cases this information is accessible via a mobile application which presents vehicle and driving data. Whilst this service is often free, it presents OEMs with an opportunity to use vehicle data during future product development activities. External companies such as insurance, breakdown cover and fleet telematics providers also offer retro-fit plug-in systems that offer similar functionality, both for personal and fleet owners. As external companies will look to integrate these features into connected vehicles, eliminating the need for dedicated hardware, OEMs will face a challenge on whether to compete or to partner with them.

OEM benefits of in-house development

• Primary owner of vehicle failure data for product development and warranty cost reduction programs

• Upstream cost saving and downstream revenue opportunity

• Improved cyber security

OEM benefits of external partner

• Reduce product development costs• Eliminate costs to manage/update service• Interoperability between vehicle

manufacturers for customer• Potential to attract new customers

14 The Value of Connected Services

4 Global market for connected vehicle services

The connected services market is set to see significant growth over the next 10 years with a CAGR or 20%. This takes the total market size to an estimated US $500 billion by 2030. The market can be segmented by functions and services providing revenue generation, cost reduction and improvements to safety and security.

The key drivers for high market growth are:

• Constant development in communication technologies

• Increase in sensors and vehicle functions• Consumer demand for integration of smartphone

features and connectivity into vehicles• Safety and congestion benefits and changes to

legislation• Investment in connected infrastructure

The largest market segment is predicted to be services enabling new consumer revenue generation, which includes new B2B and B2C opportunities created by the connected vehicle.

The next largest segment is cost reduction, as there

is value generated throughout the value chain by using connected data to reduce operating costs. The OEM may also use connected vehicle data to reduce development costs.

Vehicle data is valuable for continuous safety and security improvement of products and services. The cost of which will eventually fall to the customer through the purchase of the vehicle and connected services. However, improvements to safety and security presents a potential cost saving to owners and third-party organisations. This could be achieved through a reduction in; traffic incidents, number of vehicle thefts and response time for emergency services.

Currently North America is the largest market for connected vehicles and services, driven by progressive legislation and high R&D activity in this region. It is expected that due to earlier adoption compared to the rest of the world, this will remain the largest market beyond 2030.

In Europe, ongoing adoption of connected services means this is also a large market. However, growth over the next 10 years is expected to be limited as vehicle sales slow, following COVID-19.

Figure 8: Global connected services market by segment Figure 9: Global connected services market by region

Today the connected vehicle market in Asia is smaller than North America or Europe. Forecasts of a recovery in vehicle sales and the introduction of connected services is expected to deliver higher growth.

Other regions such as South America and Africa will grow at a faster rate over this period as the percentage of connected vehicles sold increases and infrastructure is developed to support this.

The connected services market has strong growth potential over the next 10 years, driven by development of technology and increased consumer demand

• The connected services market shows strong growth over the next 10 years at 20% CAGR

• Based on the market segmentation, the most value for an OEM will be with new downstream revenue-generating services and cost reduction programs

• North America is currently the largest market, however beyond 2030 Asia will become the largest and most valuable region

• The size of the market and projected growth means OEMs should look beyond the vehicle sale to maximise monetisation from connected services


• Based on the market segmentation, the most value for an OEM will be with new downstream revenue-generating services and cost reduction programs




Cost ReductionSafety & Security

Revenue GenerationCost ReductionSafety & Security

Revenue Generation

North AmericaCAGR ~17%

AsiaCAGR ~25%

EuropeCAGR ~18%

OtherCAGR ~29%

2020 2025 2030 2020 2025 2030


5 Today’s value chain

Connected services create new opportunities for downstream revenue creation, however value can be added across the whole product lifecycle.

Figure 10 presents some of the key stages in the product lifecycle. For each of these stages there is an opportunity to benefit from connected data and services. Multiple organisations could benefit from this.

Figure 10: Automotive value chain and opportunities for connected services

Upstream value creation

Connected services presents the opportunity of upstream value creation. This covers the research, development and manufacturing activities prior to vehicle sale.

Research and development

• Opportunity for OEM and suppliers to use connected vehicle data during research and development phase

• Use of data could reduce product development time, improve product quality and user experience

Supply of hardware and software

• Connected vehicles create a requirement for additional hardware on the vehicle, this could be high power computing, sensors or communications devices

• Advanced software platforms are required for connected vehicles, this could present opportunities for suppliers and technology companies

• Suppliers could also look to develop new connected features which can be integrated to the vehicles core functionality

Downstream value creation

Connected vehicles also create downstream value opportunities. This applies to traditional aftersales services such as; service, repair, insurance and breakdown cover. Whilst connected services creates new revenue opportunities which could be accessed by a range of organisations. Examples are given below of how connected vehicles could create downstream value.

Service and repair

• Remote diagnostics can help to identify issues, and service or repair can be scheduled. Identification of issues prior to component failure could save money for the driver

• Predictive maintenance can use data collected from vehicles to optimise service schedules

• Over the Air (OTA) updates can be issued to address potential problems without the need to visit a dealership, this presents a cost saving for the OEM, dealership and owner

Insurance and breakdown cover

• Pay-as-you-drive insurance policies are enabled with connectivity, which could be a new revenue stream for insurers or reduce cost for owners

Road infrastructure

• Connected vehicle traffic data can be used to improve or expand the road network in congested areas

• Vehicle data such as braking, suspension and speed could be used to improve safety, informing road layout changes and re-surfacing

Warranty cost reduction

• There is the opportunity for OEMs to increase the volume of data collected from vehicles. This could include more comprehensive failure data, using this to drive future product development activities could lead to warranty cost reduction

Consumer connected services

• New products or services will be created that utilise connected vehicle technology

• Potential for a wide range of organisations to benefit from this. As the vehicle owner, OEMs are at an advantage to offer services that add the most value

Examples of connected services

Figure 11 shows examples of connected services currently offered by OEMs for passenger vehicles. Price and availability of services can vary depending on region, this information is presented to give an idea of the features on offer and the pricing strategy.

Figure 11: OEMs current connected service offerings

Supply of HW / SW

Production Point of Sale Service & Repair Insurance & Breakdown Cover

Road Infrastructure

Connected Services

Tier 1 SuppliersTier 2 Suppliers

Technology companies

OEMs OEMsDealershipsAdvertising

agencies

DealershipsService Centres

InsurersRoadside assistance

Highways agencyEnergy suppliers

Emergency services

Mobile networks

OEMsTechnology companiesAdvertising

RetailData centres

Cyber security specialists

Product DevelopmentUpstream Value Creation

Aftersales Service Downstream Value Creation

Provider & Service Selected Basic Features Selected Premium Features Price

• Navigation• Access to media streaming over

Wi-Fi

• Live traffic• Satellite-view maps• Media streaming over cellular

• Live traffic• Local hazard information• Wi-Fi hotspot• Mobile application for vehicle

management

Tesla Connectivity

FordFordPass

• Purchase additional data plan from network provider

• Vehicle status monitoring• Voice commands• USB map update

BMW Connected Drive

• Over-the-air map updates• Real time traffic information• On street parking information• Concierge service

£10 per month for Premium connectivity

Free

Basic Features £59 per yearAll Features:£239 per year


From the services covered, each OEM has their own approach both for the features offered, and the pricing strategy. Ford has made all its features free to use, whereas Mercedes is charging for features offered as standard by other OEMs.

The strategy for each OEM will most likely change as these services are more widely adopted. For example, OnStar has been developing over the last 20 years and now has a 4G LTE fleet of approximately 11 million vehicles. They have been able to gradually improve the service from emergency assistance to a range of connected vehicle services, using vehicle data and customer feedback to improve vehicle features and connected services. On the other hand, VW WeConnect is a relatively new connected service which is only compatible with the latest models, representing a much smaller customer base.

Future connected services

In the future there will be a variety of different services created for connected vehicles. These will meet changing customer demands and will also evolve with technology and infrastructure. Connected services that have high revenue potential include infotainment services, advertising and in-car payments.

Infotainment Services and Advertising

The opportunity to provide third party applications and advertising to vehicle HMI presents many new revenue opportunities:

• Autonomous capability and advanced HMI systems allow for new services to be offered to drivers and passengers

• As levels of autonomy increase the services offered will also change as less input is required from driver

In-Car Payments

This presents multiple new revenue streams, enabling in-car payment could also increase spending from users through convenience

In-car payments gives the driver the ability to pay for products and services through the vehicle infotainment system. This could include:

• Fuel station pay at pump• Charging bays• Parking• Drive-thru food/drink • Fuel station pay at pump• Charging bays



• Based on the market segmentation, the most value for an OEM will be with new downstream revenue-generating services and cost reduction

programs




Value chain analysis shows that there is opportunity for upstream and downstream value creation from connected vehicle services.

Upstream there is opportunity to use connected vehicle data to drive cost reduction programs, by streamlining product development processes. This could be a way for OEMs to recover the large investments made in new software platforms for connected vehicles. This will however require changes to current product development processes to integrate the use of connected vehicle data and insight.

There is the most value to be created downstream. Connected services provide a new revenue opportunity for OEMs and can generate revenue over the lifetime of the vehicle, rather than just the point of sale. Major OEMs have each launched their own connected services, however most are in early stages of introduction and adoption.

As more OEMs introduce services and adoption increases, the pricing strategy and service offering will become more critical. To offer the most competitive pricing it will be important to conduct full lifecycle analysis and to maximise use of connected vehicle data.

Figure 11 cont.

Provider & Service Selected Basic Features Selected Premium Features Price

• Live traffic• Map updates

• Remote parking• In-car office• Navigation services• Vehicle status monitoring

• Breakdown call• Vehicle status monitoring• Driving data• Service scheduling• Parking position

Mercedes Me

VW WeConnect

• Mobile lock & unlock• Internet radio and media

streaming• Online traffic information and

navigation• Wi-Fi Hotspot

• Lock & unlock• Vehicle status report• Service scheduling• Emergency support

Audi Connect • Live traffic information• Traffic light information (V2X)• Voice recognition & Amazon

Alexa• Live parking information

• Vehicle diagnostics• Service scheduling• Driving data

GM OnStar • Voice assistant• Remote key• Connected navigation• Remote personalisation

Varies on services selected, examples: Remote office £19 per year, Me-Charging Service £89 per year

€75 per year without navigation, €145 per year with navigation

Prime Subscription: $199 for 6 months

$14,99 pm remote access plan, $39.99 pm unlimited access plan


6 Implications for OEMs

Marc WisemanPresident

Marc has over 30 years’ experience in advanced automotive technology development and commercialization. His expertise includes assessing revenue growth and operational performance opportunities for global clients.

Mike BlythPrincipal

Mike has over 12 years’ experience in automotive propulsion and mobility solutions – as an engineer and a consultant. With a specific focus on the mobility value chain and pilot market identification, Mike has a holistic view of the current and future mobility industry.

Aneesh PadalkarPrincipal

Combining ADAS engineering expertise with cross-functional working experience in corporate strategy, finance, purchasing and marketing, Aneesh has developed a well-rounded knowledge base over 13 years working in this evolving mobility space.

Piyush BubnaManager

Piyush has 10 years’ experience in transportation technology development and strategy. He has led engagements with OEMs, startups and suppliers on business case assessments, market study, technology roadmap, product strategy and supply chain.

David AbdulmasihSenior Consultant

David is a technology strategist with special interests in connected automated vehicles and cybersecurity. David has more than 9 years’ experience in vehicle technology development with a PhD in vehicle electronics.

Sashank VedururuConsultant

Sashank has 6 years’ experience in the automotive industry. He worked with different global players in the industry to help them realize their business aspirations and identify suitable opportunities to grow robustly.

Bavly ObaidSenior Business Analyst

Bavly has 6 years’ automotive industry experience. He has advised major OEMs and tier suppliers, helping them identify market opportunities and align business and technology strategy to future demands.

RSC Global Mobility Team

There are several key implications for OEMs to consider for connected vehicles:

• Forecasts show that all new vehicles sold in major automotive markets will have some level of connectivity by 2030

• Vehicle technology, infrastructure systems and third-party organisations are all equally important for the growth of the connected vehicle ecosystem

• Connected services can create value through

additional revenue streams, operating cost reduction and improvements to safety & security

• The connected services market has strong growth potential over the next 10 years, driven by development of technology and increased consumer demand

• Connected services add value across the value chain, for OEMs there is an opportunity for new downstream revenue and upstream cost reduction

We see the three most critical areas for OEMs as:

As most OEMs look set to introduce mass market connected vehicles over the next couple of years, the new challenge will be to maximise earnings potential through connected services to generate additional revenue and recover development costs. This will require a full connected vehicle value chain analysis, review of business models and development of total lifecycle revenue from connected vehicles.

OEMs will need to assess whether they should develop connected services capability in-house or

access these through acquisition or partnership with a third-party provider. This balance will shift over time and, in the long term, become critical to profitability.

As COVID-19 changes global demand and financial stability OEMs will be forced to re-evaluate many of their current programmes. In the case of connected vehicles, the potential upstream and downstream revenue generation could have a positive impact on the business case for these programmes.

Transforming product development processes

Developing & marketing additional services

Evaluation of total lifecycle revenue

Upstream cost reduction

To utilise the large amounts of connected data OEMs need to consider:• Process changes• Organisational changes

Potential benefits could include;• Reduced development time• Improved customer

satisfaction• Improved safety• Reduced warranty bill

Downstream revenue generation

OEMs can sell additional services to customers through connected vehicles

A clear market strategy is important for success:• How much are customers

willing to pay?• How do consumer preferences

vary by region?

Competitive product & pricing

For OEMs there will be an increase in downstream revenue generation

This makes the vehicle sale only part of the revenue generation and could lead to more aggressive pricing strategies

OEMs face a challenge to quantify lifecycle revenue for business case


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