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Deloitte Study: Ecosystem around E-Mobility Promises Billion-Dollar Profits

The market for automotive mobility will double in Europe and the USA by 2035. However, the study only gives companies profit opportunities if they know how to leverage the changing industry dynamics for themselves.

More and more drivers do not want to own their own vehicle and instead use sharing or subscription models. | Photo: Share now/unsplash
More and more drivers do not want to own their own vehicle and instead use sharing or subscription models. | Photo: Share now/unsplash
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The future of automotive mobility will be shaped by a variety of tectonic forces that are changing consumer sentiment and behavior. One in three consumers in the U.S. and nearly half in the Europe5 region (the combined region that includes the following countries: France, Germany, Italy, Spain, and the United Kingdom) would choose an electric vehicle as their next car. Half of the consumers in the U.S. and 61 percent in the Europe5 region indicated they would select the electric brand based on whether the company has a well-developed plan for battery recycling.

Young drivers in particular prefer subscription models

More than half of respondents in the U.S. and Europe5 are concerned about the residual value risk associated with owning a traditional fossil-fuel-powered vehicle. Younger drivers in particular doubt they need to own a car. Almost 40 percent of U.S. consumers and half of consumers in the Europe5 region aged 18 to 34 have already experienced sharing offers.

A third of consumers in both regions aged 18 to 34 would switch to a subscription model out of a desire for maximum convenience, transparency, and flexibility. Additionally, half of survey participants expressed interest in a monthly payment that covers all vehicle-related costs, including insurance and maintenance.

Disruption in the Automobile Market

The players in the field of automotive mobility, including corporate and independent financing companies, rental companies, and fleet management firms, are likely on the brink of a generational shift in the next 10 to 15 years. The pressure to achieve operational and production efficiency is enormous.

The traditional business model, rooted in the sale of vehicles to end consumers, is being challenged by several converging forces. These include inflation-weary consumers concerned about their financial capabilities, the transition to more durable electric vehicles that allow for longer ownership periods, and the resurgence of shared transportation in growing urban centers. As a result, both established companies and new market entrants are urgently seeking new ways to monetize the mobility experience.

“Among the significant macro trends shaping the future of the automotive mobility sector, there will likely be a particularly strong focus on securing the right technological competence and developing an efficient architecture to monetize data effectively,” explains Jeff Paul, Managing Director and Head of US Automotive Captive Finance, Deloitte Services LP. “The evolution of automotive mobility is also likely to require a new level of coordination and alignment among industry players. Strategic partnerships and M&A integrations will be crucial in leveraging emerging profit sources.”

Simulation Shows Winners of the New Mobility

As new mobility services take shape in a rapidly evolving ecosystem, which profit pool to pursue can be critical. To illustrate the potential, Deloitte has developed a substitute mobility provider as the basis for the profit pool simulation tool and tested it for the American market.

With Vehicle-on-Demand (VOD) and Mobility-on-Demand (MOD) services, annual growth rates of 8 to 10 percent are expected in the USA as consumer mobility demands and urbanization trends change. In-life services are projected to grow by 12 percent annually in the USA as usage-based products in this sector continue to be introduced. For example, insurance in the future presents a significant opportunity for mobility providers, with a relative profit contribution of up to 13 percent in both the USA and Europe.

Switch to Electric Vehicles Changes Value Chain

Supported by the general transition to electric vehicles in both markets, it is expected that battery management for electric vehicles will grow by 12 percent annually in both the USA and the Europe5 region. Although the overall profit contribution of infrastructure-related services remains relatively low in the USA and Europe5, these offerings complement the entire value chain by creating a holistic mobility offering around charging, parking, and related comfort services.

Recycling will also play a significant role in the future of automotive mobility in the USA and Europe by 2035, potentially growing to a market worth $2 billion in the United States alone, according to Deloitte.

“In the next 10 years, we are likely to see a historic pace of change in the field of automotive mobility. Long-standing and stable companies of today will either undergo radical changes or become obsolete, as new mobility structures and associated profit pools shape the core business models of tomorrow,” clarifies Sebastian Pfeifle, Partner, Global Automotive Mobility Lead, Deloitte Germany. “The ability to manage vehicles over multiple life cycles will determine success or even survival in the market, as it is the key to unlocking and securing future profit sources. Those who clearly position themselves along the value chain and support this with the necessary capabilities will be able to grow.”

Profits with Optional Features

Automotive manufacturers are increasingly relying on subscription features to boost their profits. Especially for electric vehicles, manufacturers like BMW or Mercedes take advantage of the opportunity to unlock features only by subscription. For example, Mercedes offers an “acceleration boost” for an annual fee. The Munich-based automaker BMW recently faced a lot of criticism for a seat heater that can be unlocked by subscription. And the Swedish-Chinese electric vehicle manufacturer Polestar offers a performance upgrade for a one-time fee of around 1,200 euros.

“For automakers, the greater profit lies in generating monthly revenue from this customer, as electric cars are not as profitable from the outset,” explains Alex Oyler, Director for North America at consulting firm SBD Automotive.

With the help of “over-the-air” updates, manufacturers can continuously offer new features and integrate them into the vehicle software for a fee. While consumers still need to get used to this idea, the auto industry will have little choice in the future, according to the Deloitte study. The consulting firm estimates that 50 to 60 percent of future profits could be at stake if auto companies continue as they have been.

What Does That Mean?

Everything is in flux. E-mobility will have both victims and winners. More and more new manufacturers are entering the market, and it feels as though many established automakers are unable to keep up with this pace. The vehicle market is also facing huge challenges. Buyer behavior is changing. Increasingly, more drivers see no sense in buying a vehicle and are turning to subscription or sharing solutions.

Translated automatically from German.
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