Vehicle Connectivity and the Creation of "Auto 2.0

Summary

The era of connected vehicles is upon us. Connectivity is now about so much more than ‘state of the art’ infotainment systems and OTA updates, delivering a constantly evolving user experience. Connectivity underpins the creation of “Auto 2.0” and the most disruptive influence on the automotive industry in over 100 years. Monetizing data has been the sole territory of technology companies, but with tens of millions of cars sold each year globally, OEMs are keen to create in- car service-related revenue streams and a new, direct, and customized engagement model with their users. This has massive implications for service distribution as well as financing and insurance markets. Key ‘make vs. buy’ decisions the OEMs make now regarding whether to develop the tools in-house or partner with tech firms could be the difference between some OEMs being major mobility players in the future vs. a simple contract manufacturer to the Waymos, Amazons or Apples of the world. This panel will explore these matters as well as innovation in the areas of IoT, V2X, and V2G, as well as touching on related privacy concerns. A new age for the auto industry or just a new vertical for large-cap tech?

Moderator: Claire Jones, Chief Commercial Officer, what3words

Panelist: Rupert Mitchell, Chief Strategy Officer, WM Motor

Panelist: Jason Chang, International Lawyer, DLA Piper

July 27th, 2020

What are consumers expecting from the User Experience in connected autos?

RUPERT: There is no homogenous consumer of automotive around the world. The McKinsey 2020 Car Survey released some staggering numbers; 61% of Chinese car consumers said that they would be prepared to switch brands based on connectivity features alone compared with just 18% in Germany. So it is certainly not one size fits all.

What consumers are looking for in China, and we expect elsewhere in the world, is for the cabin environment of the car, to be a natural extension of their connected life on their smartphones. Your car needs to be immediately talking to your messaging and calendar functions as well as social media and podcast consumption, for instance, without the need for clunky interfaces and reassessing Bluetooth connectivity. It needs to be seamless, the car sees you, with a camera behind the steering wheel, and automatically continues your smartphone experience.

Implications for consumers?

JASON: Before cars become fully autonomous, there are going to be many consumer safety issues involved with connected autos initially. Safety is the number one priority from a legal aspect that regulators all around the world, will be concerned about.

RUPERT: The key here is to have popular consumer apps integrated into the operating system that are entirely touch-free as a base requirement for upholding consumer safety. In China, voice recognition standards are over 98%, across multiple Chinese dialects, with voice algorithms improving consistently. WM Motor has 35,000 cars on the road, today in China, each generates a terabyte of data, every 24 hours, through 670 sensors around the car, so we are constantly able to understand and improve the system.

Core differences in approach, China vs. other parts of the world?

JASON: The markets in terms of the development of connectivity autos are very different when comparing the US and China. There is a significant difference in the consumer platform for the technology that you are going to be using in a connected auto in the US vs. China. It’s mostly a software difference, as Chinese and American consumers have minimal overlap for app usage.

Expectations for consumers across markets?

RUPERT: There is a greater requirement, particularly among the millennial and Gen-Z consumers in China, for the vehicle experience to be much more connected and much more plugged into their app sphere. For instance, German consumers are happy to buy a 100,000 EUR car and suction their iPhone to the windscreen!

JASON: There is a lot more consideration of app integration and how this will impact the safety of the consumer when rolling out an automotive version when comparing the US and China.

Who has the responsibility for ensuring car connectivity is safe, tech companies, or car companies?

JASON: Connectivity autos are generally designed within the confines of country borders; each market will have a different regulatory spin when it comes to safety, data, and liability. Car companies are going to be held to a high level of responsibility and care.

RUPERT: This is exactly right; we work on the assumption that we own this liability as OEM’s. There has to be zero ambiguity as to who is in charge, either it the driver or the machine; the danger with level 3 autonomy is that this is more nuanced as so presents a legal conundrum.

Connectivity and the impact on profitability

RUPERT: On average, the auto industry globally has generated about $2000 of profit per car sold, with most cars driving for 100,000 miles in a lifetime, so this averages at 2 cents a mile. If you are a traveling salesman in the US, you reclaim your mileage at about 50-55 cents per mile.

So what’s the breakdown between the 2 cents and 50-55, part of this is fuel and after-sales service, however, with the advent of electrification and connectivity, charging infrastructure becomes more in the domain of the car manufacturer, and after-sales is significantly reduced with fewer parts and a greater understanding of this interplay.

Furthermore, in terms of insurance, we now understand more accurately how every one of our cars is being used, so we know who the good and bad drivers are and which secure and insecure areas they frequent. This is the most exciting thing about vehicle connectivity; the vast potential to impact car company profitability by an order of magnitude higher.

Appetite for sharing data in the industry?

JASON: In the US, the onus has been on the companies and consumers to want to share this data, an example of this would be Waze, where drivers notify others of crucial things to be aware of on the roads. In China, they are much further along in looking at how this data can be shared.

RUPERT: In principle, there should be no issues with doing this, but in China, we are still awaiting the regulations to allow for the vehicle to vehicle and vehicle to infrastructure connectivity. Data sharing will be a market to market phenomenon, in China, the capacity for data sharing comes much earlier, and there is a much greater comfort around that.

Market divergence?

RUPERT: One of the significant challenges of connected autos is the issues around portability of these products across country borders, as you move from say Hong Kong to China, the car has to adapt to an entirely new app sphere quickly. Additionally, when crossing country borders, this then impacts where data can be stored and used; therefore, connected autos present a mass of User Experience, regulatory, and security issues when moving across jurisdictions.

Importance of cybersecurity in connected autos?

JASON: Hysteria surrounds the ability of hackers to take control of connected autos; this is a crucial risk driving regulation in the space. As of now, no clear standard of firewall or encryption exists for connected autos, although this decentralized approach may be ironically the most effective defense from hackers.

RUPERT: Huge amounts of resources are being devoted to making operating systems as impenetrable as possible and limiting the amount of external control of the car, as one mistake or accident will likely cause the downfall of your brand.

How should international companies reinvent and reduce the innovation cycle to stay relevant?

RUPERT: Traditionally, the product life-cycle within the automotive industry was measured across multiple years, sketchpad to delivery usually took 4-5 years. What you see with electrification and connectivity, is you have a much more simplified vehicle platform, and your product is not a finished good upon leaving the factory, because of ongoing connectivity and software evolution. The product life-cycle, therefore, is now closer to 18 months with refinements of core and sub-products happening far quicker.

JASON: This is especially important for companies to invest heavily in making in-house coding a priority while making over the air updates possible through both Wi-Fi and satellite data services. Furthermore, rolling out software updates across jurisdictions presents a key challenge.

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