How to manage connected car platform cost savings
The automotive industry is experiencing intense pressure to manage cash flow combined with increased expectations on the connected car from the drivers and passengers. How can automakers invest in their connected car platform as a service? How can they continue to advance connected car programs and differentiate themselves from competitors? Rethinking the business approach to connect cars may save the day!
A pressured industry needs to accelerate forward
In current times, COVID-19 drastically impacts society and almost every industry in the world. Cities are locked down with retail shops closed, people are unable to go to work, and international supply chains are struggling to deliver. This has created a financial crisis in the world today.
Similar to the retail industry, the automotive industry has been struck extremely hard with closed dealerships and plummeting sales volumes around the world. During the first quarter, automotive manufacturers witnessed a decline in the number of sold cars (some brands as much as 40-90% of sales in April), and market research (IHS Markit) estimates global vehicle sales to drop 22% during the full 2020. Most vehicle manufacturers are still positive that the market will recover. But with a sharp market decline overall, will people be ready to spend? Will the market recover fully?
As a response, the automotive industry has a focused strategy of stringent cash management and cutting costs. Naturally, automakers continue with its core business to build and sell vehicles, but they are also pushing forward on future business opportunities. Here are some reflections and recommendations on what automakers can think about moving forward.
An interconnected transport ecosystem will win
The transport industry is faced with increasing demands on connectivity and cooperation. With the current era of sustainable transport, a collaborative approach is needed. Instead of car brands working independently of each other, increased collaboration and partnership in the interdependent transport ecosystem (including automakers, traffic infrastructure, pedestrians, smart cities, etc.) is necessary to comply with the expectations of the driver and passengers. There is technology already available to secure automation (digitalization, AI, 5G rollout ), improve utilization, and optimize electrification. Automakers realize that the investments in the connected vehicle platforms cannot stand still since this is where the magic starts. It is not enough to differentiate yourself on the market with a cool car design or a powerful, sustainable engine. An interconnected ecosystem combined with connected vehicle services can improve the drivers' and riders' experience.
Avoid a substantial CAPEX investment – pay as you grow
Capital expenditure (CAPEX) is substantial for the automotive industry and, during pressing times, a delicate matter. Business models, where the initial risks are shared, are welcome options for an industry trying to move forward with connected vehicle services, despite cash flow issues.
Building a connected vehicle solution that fits future growth may involve significant CAPEX investments. A service business model offers more cost-effective support for growth and flexibility. No matter where the automaker is with its connected vehicle service program, the possibility to start small with few services and securely grow the business is beneficial. It is possible to start locally and expand to global reach and/ or launch the service globally all at once. Dynamic scaling and a flexible service model supports the journey to profitable growth.
Predictability is key to stable cash flow
Connected vehicle services cannot exist without a central software platform. Automakers who decide on an inhouse solution will face complex platform updates and require extensive support. If we take a closer look under the hood, there is increasing complexity in managing software versions, upgrading software components, or identifying connectivity problems. These issues lead to unpredictable costs.
Software lifecycle management, scaling, and ensuring interoperability with third-party applications all require dedicated teams with particular expertise, which can be costly to maintain. Based on Ericsson's experience from years of software development, the yearly life cycle management cost is often as high as 40% of the initial investment in the software solution. (The costs are related 20% for ticket handling and 20% for improvement actions).
A connected vehicle platform contains many different own- or third-party software components, each one providing updates and patches at irregular and inconsistent times. Managing these updates are rather unpredictable, but it must be done to avoid disruptions. This unpredictability can be rendered obsolete if the connected vehicle platform is purchased as a service.
Hit the road running with established global service operations
The more successful the connected vehicle program, the more complicated it gets. The operations and maintenance organization of a global automaker needs to be available 24/7, managing the bit-pipe of the connected vehicle platform. Now that connectivity and connected services are becoming the decisive reason for brand choice, operations are becoming more and more critical. Services cannot be down because an expert is located in another time zone. The global operations team needs to be staffed in shifts to manage the different traffic peaks in Asia, Europe, and the Americas. It is an ever-growing challenge to keep the right resources ready to service the global market.
The business model as-a-service includes the software functions in the connected vehicle platform, the expertise needed, 24/7 operations and maintenance, and lifecycle management of the full solution. This comprehensive package is included in the predictable service fee connected to a Service Level Agreement guaranteeing the level of support agreed. In this way, an automaker can hit the road running with the existing operations organization.
No service interruptions enhance a positive customer experience
Apple has set the standard for user experience. Customers are looking for nothing less than the extraordinary and lean towards products that make it easy to use or consume. This is true for vehicles too. In other words, the onboarding for connected car services needs to be easy and convenient without any disruption of services. Many factors impact the end-user experience, and the application and services must function as smoothly and as seamlessly as possible. The way the driver and passengers feel about the car and experience is what will make them choose the brand. What is going to make the difference is the services experienced in the vehicle.
Managing with smart connected car solutions
Although we are in challenging times around the world, automakers can wisely make choices to accelerate its path to connected vehicles and services without the substantial initial investment.
For the last couple of years, Ericsson has helped automakers deliver connected services through the most comprehensive connected car platform on the market today. We are connecting 4.5 million vehicles and counting, across more than 130 countries.
While the pandemic has impacted the automotive industry, consumers will be back at dealerships seeking highly connected cars. Automotive front runners ready to capture more market share will focus on what they do best, designing car experiences that consumers desire. Let Ericsson help you manage car platform cost savings and provide drivers with premium connected car services.Find out more