Next in auto: Automotive industry trends

4Cs: Configuration, Capabilities, Cloud and Culture

Capabilities

New ways to play may require a whole new set of capabilities

Increasingly, auto OEMs may need to keep their focus on two lanes: their traditional business, and on entering new businesses. However, the capabilities and skilled talent needed for one may not be sufficient for the other.

As CASE technologies grow, so, too, have the number of new entrants in the mobility ecosystem. The question for auto OEMs is whether they can keep pace with the opportunities and find ways to become players in the newly hatched sub-sector of digital mobility services. Can they quickly participate in the new ways to play with existing capabilities, or will they need to acquire those capabilities — either through in-house upskilling or, more likely, through partnerships with or acquisition of tech players in areas such as cloud platform, digital service providers, customer experience technology and smart mobility technology?

The $6.5 trillion question. There’s much at stake for OEMs that can make their legacy businesses more profitable to help build out new businesses. PwC expects that legacy and new business opportunities opening to the auto industry will total about $6.5 trillion by 2030, up from about $3 trillion currently. This growth is premised upon a fundamental reshaping of the industry as it moves away from a world heavily dominated by ICE vehicles and enters one dominated by CASE technologies.

We expect the traditional automotive products and services (ICE powertrains, financing and insurance, etc.) market to continue to be highly relevant and expect it will account for $2.5 trillion of the total industry value pool of $6.5 trillion by 2030. Other emerging value pools stand to grow much more quickly. For example, we expect new products and services (i.e., advanced driver assistance systems L2-L5 technology, battery-powered electric vehicles and charging services and infrastructure) to experience a 23% compound annual growth rate (CAGR) through 2030, representing a $2.5 trillion value pool. Likewise, we expect digital services (V2X connectivity, e-commerce, usage-based insurance, etc.) to grow by 22% over the same period to $1.3 trillion. New business models (automated vehicles, smart mobility and commercial fleet services) will grow at an 18% CAGR, we believe, to $285 billion over the same period.

Beyond digital capabilities. OEMs can transform themselves from the inside to drive growth and profitability. For example, according to PwC analysis, companies can reduce operating costs by 5% to 40% through smart factory transformations (i.e., Industry 4.0 technology enablement, value at scale). Additionally, connected supply chains can yield reductions of up to 30% in material costs via adopting source-to-pay technologies and processes and can improve customer service and cut down on inventory stuck in warehouses by as much as 40%.

How tax leadership can help

While auto OEMs and their suppliers develop their new CASE-predicated businesses, they will likely enlist tax leaders to help guide C-suite decisions surrounding that transformation. For instance, CIOs, charged with advancing adoption of Industry 4.0 technologies, developing carbon emissions ledgers and supply-chain control towers, will likely need to work closely with their tax counterparts to actualize such initiatives. To some extent, tax leadership has played an underwhelming role in the digital transformation conversation. In fact, in a January survey, just 30% of CIOs said their company’s tax leaders were part of the planning process for digital initiatives.

We expect the tax-tech connection will likely become much tighter for the auto industry in order to help capture maximum value from the value pools we see expanding in the next decade within the industry. Making prudent decisions surrounding digital investments through a tax lens may become more and more important — whether they impact large-scale transformations, enterprise resource planning (ERP) and cloud modernization, or even environmental, social and governance (ESG) reporting or emerging tech pilots. Tax considerations can also include research and development (R&D) credits, incentives and intellectual property management.

Culture

Create agile and innovative cultures to drive the transformation

As OEMs design new operating models and work with (or acquire) new technology entrants and skilled talent, the corporate culture may inevitably need to change as well. In fact, a larger culture shift is likely needed to carry out a transformation that means aligning and supporting new operating models, new business strategies and a redefined workforce.

One of the biggest changes is a greater need for digital and data science and analytics skills, as well as skills to oversee new automation technology. A modernized talent strategy and upskilling can achieve only so much.

Companies may increasingly need to change their culture significantly to prepare their employees for new skills and ways of working — and, perhaps just as important, to attract talent that already possesses such skills.

As OEMs carve out new businesses within their organizations, they should consider using the “skunkworks” or “venture capital startup” models that are well-funded, to encourage small teams and reward innovation. Bosch, for instance, formed a “Bosch Digital” unit to grow their Industry 4.0 business and to forge relationships with automotive and industrial manufacturers. Another example is Ford’s plans to separate the EV- and ICE-vehicle businesses (mentioned earlier). Such moves can alter the company culture by demonstrating a willingness to create pockets of innovation and, to a degree, independence from large, legacy organizations. This can lead to improved recruitment, as new talent discovers it’s possible to work like a nimble employee in a startup while within a traditional corporate culture. In fact, some OEMs are actively pursuing technology talent from Silicon Valley via innovation and technology scouting units.

ESG acceleration: a historic shift in corporate strategy… and culture. The momentous societal push for cleaner transportation through the electrification of transportation — the largest source of greenhouse gas emissions in the US at about 30% of the nation’s total — figures prominently in our EV adoption forecasts. But achieving ESG excellence will likely require going much further than building a new business around EVs. A purpose-driven commitment to cleaner production of cleaner vehicles marks a profound transformation for the industry. It may also mean OEMs taking enterprise-wide inventory of the sources of their emissions via the establishment of a carbon ledger that builds in verifiable emissions — not only Scope 1 but, perhaps more important, also Scopes 2 and 3. Additionally, lowering emissions can lead to OEMs becoming more discriminating about their suppliers’ emissions as well, and monitoring their verifiable carbon footprint — especially stemming from high-emission raw material inputs including steel and aluminum, petrochemicals and glass, as well as finished products such as electronics components.

Aspiring to succeed on these fronts is not just a business strategy. It’s mostly about evolving the culture and motivating existing workers — and enlisting new ones — who are on board and engaged with ESG initiatives affecting the global automotive ecosystem. It’s building a culture throughout the business that searches — and is rewarded — for innovations that drive sustainability in business, as well as in rallying behind good governance and diversity and inclusiveness in the workforce.