The transportation industry is growing. We unpick the latest market reports and discover which areas are tipped for the most impressive results in the coming years, and discover why connected vehicles and 5G in China are key.
A recent report about the future of connected vehicles from Capgemini has urged western vehicle OEMs to change their approach to China. The Connected Vehicle Trend Radar says China should no longer be seen as simply another market, but also as the most dynamic source of innovative ideas and technologies. In practice, this means establishing a stronger presence in China, which will become the biggest market for connected vehicles from 2023 onwards.
“I’ve been covering China for 10 years and the market has accelerated astonishingly quickly since 2009,” says Dr Rainer Mehl, managing director of manufacturing, automotive and life sciences at Capgemini Invent. “China has the world’s biggest car market with 28 million sales a year, but it’s also got the most mobile customers with the highest technological affinity.
“If you want to see what innovation will look like in Europe in five to 10 years, it’s better to go to Shanghai than Silicon Valley.”
Dr. Rainer Mehl, managing director of manufacturing automotive and life sciences, Capgemini Invent
The Trend Radar says there were 119.4 million connected vehicles (CVs) in the world in 2018, when the global market was worth US$18.7 billion. But it is growing fast with a compound annual growth rate (CAGR) of 11% for revenue and 24.2% for quantity. In 2023, sales of 352.9 million connected cars worldwide will be worth US$31.5 billion, according to Statista’s Connected Car Outlook.
The emergence of China as the dominant market will be gradual. In 2018, the highest number of sales was 31.1% in the US, but China will soon be exhibiting the fastest growth, predicts Statista. Chinese market share of global revenue generated by connected cars is going to shift by around six percentage points from 17.6 % to 23.5% between 2018 and 2023. As China gets richer, more and more people will own cars ‘reflecting tremendous growth potential’.
Meanwhile, in Europe, the quantity of CVs sold will grow in line with the global market – 24.3% versus 24.2% globally, but in the US it will slow to 19.6% by 2023.
The report’s authors recommend investing in China now because “leadership in this market will mean global leadership”. They advise making China the ‘epicentre’ of the connected services revolution. In practice, such a strategy means concentrating research and development in China and learning about customer preferences. “It requires a different viewpoint. Rather than seeing it as just a place to sell cars, companies need to reflect on what lessons they can learn from China that can be transferred to other markets,” says Dr Mehl.
Open to change
Behind Capgemini’s enthusiasm for China lies the awareness that the market is more willing to embrace connected cars than elsewhere. The Trend Radar quotes Kantar’s 2018 research showing 79% of Chinese respondents plan to buy one, compared to 53% in Europe and 52% in the US. The same research reveals that even more Chinese customers are “keen to embrace autonomous driving”, with 75% saying they will accept it, compared with 24% in the US and 36% in Europe. China has a very high proportion of young people, especially millennials, open to new technology. The authors say these digital natives will make up a large share of the market for CVs.
The rapid growth of the market in China means OEMs should consider the wishes of Chinese consumers ahead of all others. They need to use the market as a test and launch environment for digital apps. There are also lessons to take back from China’s inventiveness. “There are many examples of advanced functionality in China,” says Dr Mehl. “WeChat allows instant payments and everyone uses mobile payment apps rather than cards. Ride hailer Didi Chuxin offers a service where you can book a driver to take you home in your own car within five minutes. Such services are almost unknown in the west. My connected BMW app also has much richer content in China than Germany. The wishes of China’s digital natives are driving the advances.”
The high level of functionality in China’s connected technologies carries important lessons for western transportation providers who sometimes fail to give customers what they want. “Our perception is too many services lack the ease of use of many apps.
“The key question should be: is this relevant to my customers? And China is the best place to find out,”
- Dr Rainer Mehl, Capgemini Invent
The vital technologies need improvements to optimize the potential of connected and autonomous vehicles (CAVs), especially artificial intelligence, (AI), blockchain and 5G. And there has been progress. According to a Capgemini study, 33% of OEMs have AI-based use cases in place for driver experience and 53% for mobility services. An early initiative is the Mercedes-Benz User Experience (MBUX), an infotainment system that drivers initiate by saying, “Hey Mercedes”. Capgemini says a lot of the AI use cases are in the context of fleet management, including optimizing dispatch, scheduling predictive maintenance and counting passengers automatically. But transportation providers need to do more to develop the potential of AI. They should evaluate the full range of potential use cases at the earliest opportunity and build the infrastructure required to use and monetize the data collected from smart sensors.
The chain gang
Blockchain has emerged as another vital technology keep the massive amounts of connected data safe from hackers. Blockchain allows decentralized storage and each transaction is transparent to every participant. The automotive industry recognizes the importance of blockchain and 36 companies, including BMW, GM and Renault, recently formed the Mobility Open Blockchain Initiative (MOBI) to develop shared standards. Important use cases for blockchain include the eWallet for automatic payments and Car CV, which stores documentation securely. Other possibilities include creating a mobility ecosystem, storing behavioral data to inform personalized insurance offers and protecting vehicles from cyberattacks. Despite its efforts so far, the industry needs to take blockchain more seriously, the authors argue. Greater investment for smart contracts and payments will increase customer confidence.
Connectivity between vehicles depends on real-time transfers of data, and 5G increasingly looks like it will be the most effective technology. The authors believe 5G is ‘revolutionary’ because it provides broadband access with low latencies, high reliability, as well as high speeds for downloading and uploading of up to 10GBit/s, which is up to 100 times faster than 4G. “5G enables a whole range of connected vehicle services that customers will value and pay for, and is probably the single biggest technology enabler for connected vehicles trends,” the authors say.
Once again, China is likely to be at the heart of future developments. Planned investments aim to achieve national coverage of 5G by 2023 and there is a determination there to lead on standards. Although China is currently behind Europe and the US, it will lead adoption in the future. As well as availability, another indication of rising demand is the number of 5G connections between devices. Once again, China will take the lead. It is expected to have 430 million 5G connections by the end of 2025, compared with 190 million in the US and 203 million in Europe, the report says.
Advancing in Europe
In Europe, the 5G Automotive Association (5GAA) comprising of Audi, BMW, Daimler and others, was set up to advance the cause of 5G. There are initiatives in most major markets, such as Huawei and Audi’s Smart City Wuxi, which uses real-time traffic management information based on cellular vehicle-to-everything (C-V2X). Ford is integrating C-V2X into vehicles in the US from 2022, with a commitment to eventually putting 5G into all its vehicles. In Seoul, a “5G for automotive” trial demonstrated 4K video streaming successfully and showed 4G could not achieve the same results.
Capgemini’s Trend Radar argues to succeed in the high growth markets of the US and China, companies need to act now to “understand 5G better, launch pilots, and readjust their connectivity strategy and roadmaps”. The authors advise assessing key connectivity requirements, building 5G use cases and pilots, identifying a 5G implementation model and ensuring the connectivity strategy is flexible.
2023
The year by which China is aiming to achieve national coverage of 5G$64.9bn
The predicted value of the global ITS market by 2023 (in US dollars), up from US$46.2bn in 2018 (MarketsandMarkets)$31.5bn
The predicted size of the global connected vehicle market in US dollars by 2023 (up from $18.7bn in 2018) (Statista)$717.2bn
The predicted size of the global smart cities market by 2023 (in US dollars), up from $308 billion in 2018 (MarketsandMarkets)
Technology companies have seen the potential for disruption in the sector, and Capgemini has identified 250 entering the connected services market. This represents 22% of all automotive start-ups. OEMs are increasingly investing in them, though much less than Intel or Softbank. Safety and security accounts for the largest share, followed by data platforms, hardware and software, telematics, and remote services.
The arrival of so many dynamic new entrants represents both a threat and an opportunity for traditional players. The best strategy, the authors advise, is to build strategic partnerships. It often makes sense to team up to cut costs and share expertise. The MOBI initiative is a good example of this strategy, as is the recent alliance between Volkswagen and Ford to collaborate on autonomous vehicles, mobility services and electric vehicles.“We’re seeing more ‘coopetition’, such as Daimler and BMW joining forces to develop AVs and share components for electric vehicles. Until three years ago, this collaboration would have been impossible,” says Dr Mehl. “They were fierce competitors, but all the technologies require major investments and payback is still unclear for autonomous vehicles. For economic reasons it makes sense to work together. There’s also an awareness of the threat from data monopolists entering the connected market.”
Succeed with open data
A final piece of advice in the Capgemini report is to provide an open platform for third parties. Owners of platforms will act as gatekeepers deciding which services to integrate. “A fundamental belief at Capgemini is that companies are stronger when they have open platforms. It means opening the platform up to the wider ecosystem, for example gas stations fueling cars, or having intelligent payment systems,” says Dr Mehl.
The market for intelligent transportation systems (ITS) presents lucrative growth opportunities worldwide. According to MarketsandMarkets, it was valued at US$46.2bn in 2018 and expected to reach US$64.9bn by 2023, at a CAGR of 7.1%. Apurva Agarwal, associate director for semiconductors and electronics at MarketsandMarkets, said rising congestion worldwide was a major driver of the growth of ITS, which offers real-time traffic statistics. For example, figures from the US Auto Insurance Center show the average driver spends 42 hours a year stuck in traffic jams, which costs them around US$960 each. ITS is already helping to reduce congestion in some parts of the world. In South Korea, ITS systems have increased average vehicle speeds by 20% and decreased delay times on some critical roadways by 39%. Similarly, in Singapore, the congestion management system has increased traffic flows by 90%.
Other transport sectors are wrestling with similar issues and embracing ITS. The global railway industry is investing in Internet of Things (IoT) technologies over the next 15 years. Currently, the rail industry spends US$2bn on smart rail projects and connected trail technologies, but these sums are likely to increase fast. The American Society of Civil Engineers’ 2013 report card said the US needs to invest an extra US$3.6tn by 2020 to upgrade the nation’s infrastructure. Investments in smart technologies will help to deal with the challenges.
ITS for smarter cities
The smart cities market is expected to grow from US$308 billion in 2018 to US$717.2 billion by 2023, at a Compound Annual Growth Rate (CAGR) of 18.4%, according to research by MarketsandMarkets. Smart transportation is the largest part of this new and growing sector.
An important part of this growth potential is in Intelligent Transportation Systems (ITS). Many of these systems have been around for decades, but they continue to evolve with advanced tools for traffic counting, parking guidance, passenger information, data analytics, fare collection, smart ticketing and telematics, all set for significant growth.
These solutions are having an impact on the quality and accessibility of information for delivering an enhanced mobility experience. While the impacts of these technologies are already extensive, there is a potential for a much stronger impact during the next five years. A major module of the smart cities initiative is creating and developing an efficient urban mobility and mass transport system to provide alternative travel modes. The value chain of the smart transportation market mainly comprises hardware, software, integrated solutions and service enablers responsible for delivering the smart transportation solutions.
With technological advancements, smart transportation vendors are now offering integrated solutions that combine the software capabilities with hardware at a low cost. The main benefits offered by smart transportation are a decrease in infrastructural damages, advanced traffic control, parking management of automobiles, route optimized solutions, Geographic Information System (GIS) tracking solutions, passenger information solutions and others. Additionally, smart transportation technologies offer big benefits such as cost saving in transport and optimized solutions for commuters.
Extra eyes on the road
Research carried out by the Global Market Insights expect the market value of Internet Protocol (IP) cameras to explode to more than US$25bn by 2025. Currently at US$8bn, the increasing adoption of pan-tilt-zoom (PTZ) cameras for 360° visibility and security of large facilities is augmenting the IP camera market growth. These solutions are being widely adopted by traffic managers, allowing operators to monitor the roads by capturing the footage from multiple angles or directions, enhancing the management of the highway. Major advantages such as ease in installation, high-quality and tamper-resistant image production, and wide coverage area are propelling the demand for PTZ solutions in the IP camera market. Manufacturers are engaged in providing infrared technology in PTZ cameras for enhancing the image quality in different light conditions. For instance, in March 2019, Axis Communications AB, announced the launch of AXIS Q6215-LE PTZ Network Camera with built-in IR illumination to help meet demand.
