September 2017

The 2017 Strategy& Digital Auto Report

Fast and furious: Why making money in
the “roboconomy” is getting harder

www.strategyand.pwc.com
The 2017 Strategy& Digital Auto Report: Insights for an industry in turmoil
Key facts and main contents
• Sixth annual Digital Auto
Report, developed by
Strategy&
• Global study, with a focus
on the U.S., the E.U., China
• Quantitative market
Key facts forecasts based on detailed
research
• Interviews with key industry
executives at OEMs and
suppliers, leading
academics, and industry
analysts
The 2017 PwC’s Strategy& Digital Auto Report
Main contents
Digitization of the car: When can we expect the true
ramp-up of connected, autonomous, and electric
vehicles? What does it mean for the business?
Impact from mobility: What are the latest dynamics in
the fast-growing new mobility market? What is the
market potential? Who will win or make money?
Industry profit shifts: A perspective on the large-scale
changes impacting the industry participants, including
OEMs, suppliers, new alliances, new players
OEM success factors: What does it take to reshape
the business to weather the upcoming changes? Who
will be successful?
2
2017 has confirmed that technology drives a sustained shift in automotive:
autonomous/electric/connected and mobility services as #1 priority

Revolution of the automotive industry

Revolutionary phase:
Disruptive change

Digital • Cars becoming autonomous, electric, and Primary

products connected focus
and • Large-scale emergence of mobility and digital of this
services services report

• Omnichannel, digital commerce, and personalization

Digital
• Customer insight/data analytics, predictive services
customer
• Marketplaces
experience
• Always-on service relationship

• IT transformation
Digital • ID, cybersecurity, payments
enterprise • Industry 4.0 — horizontal and vertical integration
between suppliers and partners

The 2017 PwC’s Strategy& Digital Auto Report 3

Yes, mobility is a $2.2 trillion opportunity, but it will halve today’s players’
share of profits

• Yes, the future of mobility is a US$2.2 trillion opportunity — but ...

– The digital auto revolution toward a shared/autonomous scenario is sparking intense competition, a margin squeeze, and high
capital expenditure
– Competition, technology, and scale will drive down the average cost-per-kilometer for using shared transport to <50% of
today’s levels
– That will reduce by 10% the amount that consumers spend on mobility by 2030
– In the growing shared/autonomous/fleet-based segment of the market, OEMs, suppliers, and dealers in the U.S. and E.U. will
see their share of industry profits cut in half from 85% in today’s owner/driver/retail model
– Automotive markets in the U.S. and E.U. will contract as a result, forcing consolidation of OEMs and suppliers

• All this will be propelled by unstoppable trends

– By 2030, up to 37% of kilometers traveled will be done by shared and autonomous (and sometimes pooled) vehicles
– Households buying premium vehicles in mature transport markets will spend ~$3,800 per annum on shared mobility
– The full shared mobility market — shared fleets, vehicle pooling — will be worth about the same as today’s global e-commerce
market
– In 2030, shared mobility will be hypercompetitive and regional/local, involving OEMs, digital tech firms, city councils, utilities,
transport authorities, logistics, and e-commerce fleets

The 2017 PwC’s Strategy& Digital Auto Report 4

Playing in this space requires a reconfiguration of OEMs’ strategies

• OEMs need to fix their strategies and align with shareholders

– Shared mobility is barely profitable today, and full autonomy will come by 2027 at the earliest
– Large amounts of high-risk capital are required to fund growth of autonomous fleets and customer acquisition
– OEM boards need to choose between:
• (1) leaving the field to emerging “carriers” — fleet operators, mobility platform players — and becoming “thin
specialists/design shops” and
• (2) making a big commitment to penetrating the mobility market, finding new investors, and running a new
diversification strategy
– Whichever is chosen, OEMs will face a talent squeeze as software and Internet firms expand research and development by 15%
year-on-year

The 2017 PwC’s Strategy& Digital Auto Report 5

Agenda
01 Autonomous & electric & connected: By when?
02 Scale and impact of mobility … and growth of the roboconomy
03 Industry profits reshaped by the roboconomy
04 Imperatives for the OEM — organizing for success in services
05 Outlook: Flying cars and tunnels on the horizon

The 2017 PwC's Strategy& Digital Auto Report 6

01
Autonomous & electric & connected:
By when?

The 2017 PwC's Strategy& Digital Auto Report 7

Electric to grow strongly beginning in 2025, autonomous level 4/5 to become
mainstream after 2028, niches such as robotaxis to proliferate sooner

New car sales — global forecast

New car sales: Autonomous New car sales: Electric New car sales: Connected
(U.S./E.U./China; in millions) (U.S./E.U./China; in millions) (U.S./E.U./China; in millions)
100 100 100
82 82 82
75 75 75
80 68 80 4 80
63 5 0 12 68 68
4 63 63
60 ~0 5 13 60 34 60
28 31

40 49 33 40 59 40 75 82
52 11 61 65
29 56
20 20 44 20
23 30
14 7 8 14
0 1 0 1 2 2 0
2017 2020 2025 2030
2017 2020 2025 2030 2017 2020 2025 2030

Level 5 Level 3 Level 1 Combustion Electric Connected Not connected

Level 4 Level 2 Level 0 Hybrid

• Tech will allow level 4/5 adoption from 2028 on
• Pull from launch of robotaxi models from 2025 on
Note: Totals may not equal sums shown due to rounding.
Source: PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
• Strong legislative push from 2020 on
• Price tipping point and sufficient charging
infrastructure ~2025
• Potential prohibitions for combustion engines
from 2030 on
• Legal and customer pull for connected cars means
100% of new cars in U.S./E.U./China will be
“connected” beginning ~2022
8
We forecast a population of ~470 million connected cars in the U.S., the E.U.,
and China by 2025, and ~80 million level 4/5 autonomous cars by 2030

Installed vehicle base and key assumptions

(in millions; autonomous = levels 4 and 5)

2017 2020 2025 2030

Autonomous Electric Connected Autonomous Electric Connected Autonomous Electric Connected Autonomous Electric Connected

U.S. - 0.5 31.3 - 2.2 67.3 2.1 11.3 116.3 20.8 45.0 146.0

E.U. - 0.8 32.6 - 1.5 71.3 2.7 9.5 123.5 27.1 45.4 147.7

China - 1.2 27.8 - 4.0 99.2 2.4 20.5 230.9 33.1 73.7 299.0

Total - 2.5 91.7 - 7.6 237.7 7.3 41.2 470.7 81.0 164.0 592.7

Move to shared/autonomous after policy and technology breakthroughs

Growth of overall distance driven and relative share of vehicle-based mobility (China in particular)

Increased vehicle utilization and turnover due to sharing/pooling

Declining vehicle base due to sharing/pooling

Temporarily increasing overall new car sales

Note: Totals may not equal sums shown due to rounding.

Source: PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 9
Deep-dive autonomous driving: Mainstream ramp-up of level 5
autonomous driving is expected no earlier than 2027–28

Forecast time line for level 5 autonomous driving based on main elements
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Autonomous driving
• Vehicle technology Battery electric vehicle price tipping point
– E-mobility
– Level 5 technology
• Infrastructure technology Pilot projects L5

– Operating models
– Level 5 infrastructure technology
– 5G technology
• Legal (laws and regulations)
– Laws and regulations
• Mobility services
– Robotaxis
– E-hailing/car sharing

Pilot applications/exceptions Ramp-up/adaptation to national laws Series application/laws and regulations mandatory
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 10
L5 autonomous driving will be difficult to achieve with current tech,
confirming need for infrastructure and significant tech innovation

Key algorithmic means to achieve L5 autonomous driving • Next-generation AI

All other algorithms — general
(e.g., country roads, natural purpose
disasters/very low visibility) intelligence/increased
context awareness
Inner-city driving
• In-car AI training
and/or
Predetermined city routes
• Sufficient tolerance
• Convolutional neuralConvolutional
networks (CNN) level for accident
Predetermined highway
routes • Long short-term memory neural
neural networks (LSTM) frequency
• Reinforcement learningnetworks • Driving limitations
Predetermined closed • Pooling of results of mapping and neural network training
campus or suburban outside designated
• Societal acceptance of technology risks/opportunities areas (effectively L4)
Driving modes

Highway cruising
Rules engine
Traffic jam

Visible, consistent road V2X (DSRC, 5G) Central traffic

infrastructure High-resolution maps communications with information None of the preceding
sufficient participants
Infrastructure availability
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 11
Deep-dive electrification: Between 2025 and 2030, the cost of battery
electric vehicles will fall below the cost of combustion engines

Mobility costs for reference vehicles

ICE = Internal combustion engine
MHEV = Mild hybrid electric vehicle
TCO/mobility cost in €/100km Usability
PHEV = Plug-in hybrid electric vehicle
BEV = Battery electric vehicle 2017 2030 Range (km) Refuel time (min) Access to ZEZ*
FCEV = Fuel cell electric vehicle
Fuel cost Other (tax, maintenance, insurance, and bonus) Assuming full tank Full reload Zero local emission
Content and low noise
Depreciation

10.4 33.4 12.1 55.9 7.7 34.8 12.1 54.5 700 5

Diesel/ ICE/MHEV ✘
gasoline

PHEV 9.0 35.4 7.9 52.2 7.2 35.8 11.9 54.8 700 5 o
Electrical
energy 400
BEV 6.8 39.5 3.5 49.9 6.5 35.4 8.9 50.7 30–360** ✔

9.0 41.2 5.3 55.5 8.7 36.9 10.7 56.2 600 5

Hydrogen FCEV ✔

700
Synfuel ICE/MHEV 23.8 33.4 12.1 69.3 17.5 34.8 12.1 64.4 5 o
*ZEZ: zero-emission zone
Note: Totals may not equal sums shown due to rounding. Bonus of €5,000 (BEV/FCEV) and €3,000 (PHEV) included for 2017 **Largely depending on charging power
Source: Strategy& analysis
. Good performance Medium performance Weak performance 12
The 2017 PwC’s Strategy& Digital Auto Report
02
Scale and impact of mobility … and growth
of the roboconomy

The 2017 PwC's Strategy& Digital Auto Report 13

Mobility choices for consumers continue to expand and multiply fast

Overview of mobility landscape

Active mobility Passive mobility
Non- Car sharing Ride hailing Ride Public trans-
Personal car Rental
motorized Station-based Free-floating Corporate P2P Taxi Private hire P2P sharing portation
Description Using own Possession and Renting a car for Short-term ride; One-way rides; Company Sharing of Official taxi Licensed Offering rides Person offering Local network of
muscular strength usage of car a day or longer; vehicles picked vehicles picked up carpools personal cars brokered to limousines or according to seats in his car to buses, rail, etc.
to move picked up and up and returned and parked in accessible to with others customer vans customer others on a
returned at fixed to specified area of operations employees of one demand personal trip
stations parking spots or more
companies
Driver n/a Vehicle Renting or Registered Registered Employees of Peers (private Licensed taxi Licensed driver Usually self- Private person Professional
possessor authorized customers customers companies persons) driver employed employees
person unlicensed
drivers
Owner Private person Private person or Rental company Car-sharing Car-sharing Car-sharing Private person Taxi company Private hire Private persons Private person Cities,
company company company company company (usually driver) municipalities
Customer n/a n/a Website/app or Website/app car- Website/app car- Administrator Website/app Website/app Website/app Website/app Website/app Shops, website,
interface rental stations sharing company sharing company service provider service provider private hire service provider service provider apps, ticket
company machines
Examples Walking or Private car or Hertz, Sixt Flinkster, TeilAuto DriveNow, AlphaCity Croove Mytaxi Blacklane, Uber, Lyft, Ola BlaBlaCar, MiFaZ MVG, BVG,
bicycling company car Car2go myDriver Metro

On-demand pooling
(multiple persons per ride)
UberPool BlaBlaCar Hailed shared
taxi or call-a-bus
services

Supporting services
Integrated mobility Parking E-mobility
Examples FromAtoB, Mobility Map, Moovel, Citymapper ParkNow, Parkmobile, EasyPark, PayByPhone Chargepartner, ChargeNow, PlugSurfing

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 14
In the future, key areas of mobility services (fleet, operations, regulation,
infrastructure) will be local; global plays are unlikely to remain

Mobility services will be mostly regional/local Attempts at global plays will face challenges
Element Max. scale/level Example
• Website Global Apps from Car2go, 1. Strong regulatory moves on national and/or city level
Customer • App DriveNow, Lyft,
interface Uber 2. Various regulatory restrictions (e.g., for ride hailing)
3. Continued innovation of mobility services from multiple
• Legal standards National P2P ride-hailing
• Safety standards restrictions in players (e.g., car sharing, ride sharing)
Regulation
• Competition laws Germany 4. Strong competition among regional players for expansion
to get customer access and gain market share
• Vehicle cleaning/ Local Acquisition/hiring
Fleet maintenance of drivers 5. Multiple types of players: public transportation, utilities,
operations • Drivers logistics, municipalities, OEMs, digital tech players, etc.

• Cars Super- Large fleet owners 6. Traffic reduction initiatives in cities and municipalities
Fleet • Vans regional such as rentals,
ownership OEMs, captives 7. Development of on-demand public transport services
8. Development of new mobility modes such as high-speed
• Parking Local Parking allowance tunnels or “air solutions”
Mobility • Charging for car sharing
infrastructure 9. Convergence of mobility services due to spreading of
autonomous driving
• Municipalities Local Streets, smart
• Administrations infrastructure 10. Battle of industries for the downstream value-add
Infrastructure

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 15
Consequently, we expect a complex local competitive setup in each city,
eventually converging in the autonomous future and driving down margins

Long-term development of mobility services

Short to medium term Future

Rentals Personal car Personal car
(e.g., car-sharing fleets) (self-driven) (autonomous)
Cities Car sharing
(e.g., on-demand public transport) • Station-based
• Free-floating
OEMs • Corporate
(e.g., mobility services) • Peer-2-peer Shared autonomous
Utilities Ride hailing 1. Individual
(e.g., own EV fleets) • Taxi 2. Pooled
Tech players • Private hire vehicles
(e.g., forcing autonomous driving) • Peer-2-peer

Captives Ride sharing

(e.g., corporate car sharing) Public transportation Public transportation
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 16
Shared autonomous will account for 25–37% of total person km driven in
2030; personally owned autonomous highest in Europe

Distribution of mobility types

(in % of total person km ”road” driven)
Main driver: urban
pooled/shared level 4
or 5 robotaxis

100%
90% 26% 25%
80% 37%

70% 11%
15%
60% 9% 10%
10%
50% 9%
40%
30% 55%
49% 44%
20%
10%
0%
2017 18 19 20 21 22 23 24 25 26 27 28 29 30 2017 18 19 20 21 22 23 24 25 26 27 28 29 30 2017 18 19 20 21 22 23 24 25 26 27 28 29 30

Personally owned driver-driven Shared driver-driven Personally owned autonomous Shared autonomous

Source: PwC Autofacts; Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 17
Hence, the vehicle base may decline by 25% in the E.U./U.S. and flatten out
in China until 2030; new car sales will accelerate to create robotaxi fleets

Global mobility development

Vehicle-based passenger travel Vehicle base New car registrations

12
(in km trillions)
11.7
600 556
(in millions)
560 50
(in millions)
45.9
Comments
10.2 531
9.5 9.7 3.0 39.0
10 500 40 36.0 36.6 10.6 • Increase in distance driven due to rising
416
8 1.6 400 19 population and growth of shared mobility
29 30 11.4
11
+ 6
1.1
300
2.9
services
20 • Decline of vehicle population due to
4 200 356
6.1 20.9 higher utilization of shared and
2 100 10
autonomous vehicles
0 0 0
• Car ownership is still important, so
2017 2020 2025 2030 2017 2020 2025 2030 2017 2020 2025 2030
10 350 40 personally owned autonomous vehicles
8.6 306 35.6 35.7
300 276 31.6 represent a large proportion
8 27.5
3.2 250 231 17 16 30 11.1 • Driven distances in China will pass indivi-
6 5.5 185 8 dual levels of E.U. and U.S. around 2025
200 6.8
3.9 0.9 20 • Decline of vehicle population will happen
4 3.1 0.7 150 2.6
235 later, as distance driven and motorization
100 10
2 3.8 15.3 rate increase strongly
50
0 0 0 • Due to strong increase in shared mobility,
2017 2020 2025 2030 2017 2020 2025 2030 2017 2020 2025 2030 vehicle sales may drop during the
Personally owned driver-driven Shared driver-driven Personally owned autonomous Shared autonomous transformation, before higher turnover
Note: Totals may not equal sums shown due to rounding. rates push sales
Source: PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 18
The value of shared mobility (“MaaS”) will reach ~US$1,500 billion in the
U.S./E.U./China in 2030, growing at combined 24% p.a. from 2017 to 2030

Estimated MaaS market size development, U.S. CAGR

(in US$ billions) 2017–30
458 Comments
292
+19%
47 • Global vehicle-based passenger travel as
key underlying driver
2017 2025 2030 • Total (shared/traditional) price per
Estimated MaaS market size development, E.U. distance traveled derivation based on
(in US$ billions) historical household spending
467 • Price for shared mobility significantly
214 +25% decreasing due to
25 – reduced vehicle-related costs
(efficiency, maintenance)
2017 2025 2030
– autonomous driving
Estimated MaaS market size development, China – intensification of sharing/pooling
(in US$ billions) 564

97 +32%
15

2017 2025 2030

Source: Expert interviews; PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 19
Some OEMs may choose a broad diversification into mobility, while others
may choose to refocus toward “thin specialist/design shop”

Potential value chain integration plays

Build and run Build cars Design cars Retail cars Finance cars Operate local/ Create and Retail mobility
infrastructure (where B2C still regional fleets operate digital and digital car
(e.g., charge, relevant) services services
park, V2X)

Today’s OEMs

Fully integrated OEM + mobility provider (comparable to “aircraft + national airlines/carriers + operations”)
Potential
OEM Specialist (“ARM of cars”)
ways
to play
OEM + wholesale operations (comparable to “aircraft OEM + fleet operations”)

Mobility service provider

Retail/logistics/transport
Specialist or general-
purpose marketplaces
What Utilities/energy companies
other
players Cities Ride hailing Cities Ride-hailing firms
may do Specialized
lease/finance Local startups
companies
Source: Strategy& analysis
Partial-own value chain Full-own value chain 20
The 2017 PwC’s Strategy& Digital Auto Report
Key question: Should OEMs go asset heavy or asset light in mobility?

Value chain depths — asset heavy vs. asset light

Asset heavy Asset light Comments

Car2go, DriveNow, ChargeNow, Mytaxi, ParkNow, Uber, Alibaba, • Two types of mobility business models:
Tesla, Hertz, Amazon, DB Airbnb, Facebook broker (asset light) vs. infrastructure
Offering End-to-end delivery of owned Brokering of on-demand provider (asset heavy), each with
scope product/service service/user-generated content potential competitive advantages
(network synergies vs. entry barriers)
USP Availability, consistency, trust Choice, simplicity, price • Shareholders will demand a clear
investment story that benchmarks
Control Customer insights and access;
Product; service delivery against digital best practices
points supplier selection
• Key question: Fleet financing — own
Disruption Loss of customer access to OTT Direct buyer–supplier interaction; exposure vs. partners vs. P2P?
risk providers special interest portals
Business Commission-based brokering (OTT),
Service fees, product sales
model marketplaces
Invest in R&D/asset buildup, Invest in network/inventory growth,
Investment
optimize working capital optimize user acquisition cost
approach
à EBIT margins 5–15% à EBIT margins 15–30%

Source: Expert interviews; PwC Autofacts; Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 21
03
Industry profits reshaped by the
roboconomy

The 2017 PwC's Strategy& Digital Auto Report 22

 The roboconomy creates opportunity on three levels to earn money for
OEMs by addressing major categories of typical household spend

Roboconomy digital services opportunities

2017 Western premium household expenditures Digital services opportunity categories
(in US$) (Gross addressable expenditure per household in US$)
Vehicle purchase, new 2017 2030
Others Vehicle purchase, used
Vehicle lease, finance, • Add digital services directly associated with use of the car,
$6,830 $3,603 insurance, maintenance Augmenting
$2,996 incl. functionality as a service to increase loyalty, sell more
$3,963 Gas the car ca. ca. cars, achieve higher customer lifetime value
Public and other through $6,600 $5,400 • Comparables: Connected TV/fridge, smartphone
$2,832 transportation • Becoming mainstream, quickly commoditizing
services
$1,532 Entertainment • Often substituting legacy value pools
(excl. restaurants,
2017 average Western $5,245 hotels)
• Provide mobility (e.g., hailing, sharing, parking)
“premium” household Cross-
annual expenditures:
• Comparables: Digital category services — Netflix
$30,424 US$80,644 modal ca. ca. (entertain), Amazon (shop), WhatsApp (message)
mobility $14,900 $13,400 • New type of business, displacing or rebundling legacy
services mobility spend
$14,391 • Accessible to new entrants and OEMs
Food, apparel
• Move beyond individual categories and become a hub for
Housing, personal $3,618 Fifth-screen services and commerce (fifth screen)
$5,211 ca. ca.
insurance, pensions ecosystem • Comparables: Amazon, Apple, Facebook
$23,300 $29,700
Healthcare Furnishing and housekeeping supplies services • New digitally enabled entertainment/commerce/comfort
• Puts new categories in reach of new entrants

Note: Totals may not equal sums shown due to rounding.

Source: Destatis; DIW; Eurostat; Trading Economics; U.S. Bureau of Labor Statistics; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 23
Cross-modal mobility services/MaaS represents the single biggest
opportunity for auto OEMs — both top and bottom lines

OEM digital service opportunity, 2030

Western premium household; in US$

Augmenting the car Cross-modal Fifth-screen ecosystem

through services mobility services services

$29,700
2030 addressable household $13,400
$5,400
spend (gross)

~10% of spend occurring during

5–8% of new car value ~ 30% of spend shifted to shared
mobility through digital
in digital services mobility
channel

$3,800 $3,000
Relevant household spend
$300
(gross)

$110–190
3-5% $30–90
$30–60 1-3%
Value retained by OEMs 10-20%

(gross margin)
Source: AAA; eMarketer; expert interviews; Euromonitor; PwC Autofacts; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 24
The resulting digital mobility services sector is a $2.2 trillion industry in 2030
— dwarfing today’s smartphone market, matching e-commerce market

Digital mobility services industry

Scale comparison — digital economy vs. roboconomy
(in US$ billions)
Comments
158x 77x 5x 1x • The 2030 roboconomy is projected to be
~2,300 close to the size of today’s e-commerce
~2,200 market
• Roboconomy outgrows today’s
smartphone market by a factor of 5, app
store/on-demand media revenues by a
factor of 75+

• Participants (including OEMs) need to

create a new digital services business,
437 which is in total 5x larger than current
smartphone market
65 14 29

Today’s 2030 Today’s Today’s Today’s Today’s e-

roboconomy roboconomy Spotify, Netflix, Apple App smartphone commerce
Apple Music Store GMV market market

Source: Bloomberg; company publications; eMarketer; IDC; Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 25
In a pure shared autonomous mobility scenario, households spend 20% less
on mobility and profits shift drastically toward front-end and fleet players

Industry distribution of household mobility spend in shared autonomous scenario

Distribution of Western premium household spend, 2030 (in US$)

Today 2030 scenario Pure-play shared scenario Comments

14,920
270 13,410 • In pure-play shared autonomous
4,260 1,470 11,520 scenario, significant price decline
2,930 overcompensates growth in household
3,560
2,830
1,790
person-km
Industry 1,420 • In pure-play shared autonomous
value 3,960 3,860 3,670 scenario, profit share of traditional
added 2,490 2,360 manufacturing/retail of cars declines from
2,100
1,110 1,000 770 85% to <50%
• 2030 scenario assumes ~35% of total
1,085 1,090
1,000 person km conducted in shared mobility
5
260 170 520
• Realized total profits are assumed to
Profit 170 180
1073 70 60
remain stable as a result of downward
340 310 830 290 570 pressure from decreasing revenue, set off
220 170 140
90 100 80 by new value from service value-add and
reduced costs of development/production
MaaS Gas OEM
Other (used vehicles, public transport) Lease, finance, insurance, maintenance Suppliers
Source: Euromonitor; Eurostat; Frost & Sullivan; Gartner; HBR; HIS; National Automobile Dealers Association; NHTSA; OEM reports; Oxford Economics; PwC Autofacts;
Technavio; Thomson Reuters; Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 26
The long-term control point in digital services will be AI-powered hubs
connecting customers with personalized services

Strategic control nodes in the roboconomy?

Comments
• Likely future control point for the
roboconomy: “Artificial intelligence brain”
steering personalized and predictive use
of digital services across multiple
domains (e.g., mobility, home, health),
supported by data insight
• Multiple global contenders to occupy
control point — can OEMs play here?

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 27
04
Imperatives for the OEM — organizing for
success in services

The 2017 PwC's Strategy& Digital Auto Report 28

OEMs need to provide tightly coupled hardware and services to fulfill
customer expectations and play successfully in the roboconomy

Customer perspective on mobility and services

Comments
• Mobility experience = hardware +
software + services in a seamless,
integrated, intuitive environment
• Monetization primarily through integrated
experience value (not through individual
services)
• Requires symbiosis between device (car)
and services

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 29
Digital services will involve the buildup of hundreds and thousands of
partners globally, including physical journeys and money flows

Ecosystem environment in the digital services cloud

Outlook
• Exponential complexity for
OEMs
Hundreds of types of • Today no OEM ready for
physical touch points future opportunities at scale

Thousands of services in
each market

Dozens of monetization
business models

Tens of thousands of
partners

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 30
Therefore, digital services are a radical departure from designing and
selling cars — leading to tensions in OEMs planning to do both

Characteristics of traditional vs. digital services business

Vehicle Digital services
business business Outlook
Dealers/workshops, few end • Digital services business is
Customers End customers (direct interaction)
customers in B2B fundamentally different from
vehicle business
Frequency of interaction Monthly to yearly (sales, service, Real time to weekly (sales, activation, • Need for a dedicated end-to-
with customers maintenance, accident) usage, billing, etc.)
end operating model
Only via dealers, modification with Direct from end customer, instant
Customer feedback
new release/face-lift reaction and modification

Infrequent; defects in product; solved Frequent; bugs in services, access, etc.;

Customer problems
at the dealer solved in customer operations center

Channel mix Dominant: dealer/service partner Dominant: digital

Single category, 10 to 20 variants, Many categories,

Portfolio
numerous options need to be simple

Low frequency (2 or 3 per year) High frequency (<monthly)

Portfolio changes
Long lead times (3 to 5 years) Short lead times (months)
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report 31
The implied change for OEMs requires (1) a different way of doing R&D, (2)
the buildup of a services business, (3) external innovation, and (4) talent

Capability implications for OEMs

Key requirements to support aspirations Capability implications

Incubate new mobility business(es)

Build ability to run
Rearchitect internal
end-to-end services
Create digital services innovation/ innovation/R&D
business
delivery/scale-up capability

Significantly expand strategic

partnerships Accelerate external
Access relevant talent
innovation
Build direct-to-consumer
relationship

Source: Strategy& analysis

The 2017 PwC’s Strategy& Digital Auto Report 32
Example R&D: Continue to outspend most other industries globally

OEMs’ R&D spending

Top 20 global R&D spenders
2016 rank 2015 rank Company Geography Industry R&D spend (in US$ billion) Remarks
1 1 Volkswagen Germany Automotive 13.2
2 2 Samsung South Korea Computing and electronics 12.7
• Increasing importance of innovative
3 7 Amazon U.S. Software and Internet 12.5
technologies drives increasing R&D
4 6 Alphabet U.S. Software and Internet 12.3
spending
5 3 Intel U.S. Computing and electronics 12.1
• Top OEMs have been among largest
6 4 Microsoft U.S. Software and Internet 12
7 5 Roche Switzerland Healthcare 10
R&D spenders consistently for many
8 9 Novartis Switzerland Healthcare 9.5
years
9 10 Johnson & Johnson U.S. Healthcare 9
10 8 Toyota Japan Automotive 8.8
11 18 Apple U.S. Computing and electronics 8.1
12 11 Pfizer U.S. Healthcare 7.7
13 13 General Motors U.S. Automotive 7.5
14 14 Merck U.S. Healthcare 6.7
15 15 Ford U.S. Automotive 6.7
16 12 Daimler Germany Automotive 6.6
17 17 Cisco U.S. Computing and electronics 6.2
18 20 AstraZeneca Britain Healthcare 6
19 32 Bristol-Myers Squibb U.S. Healthcare 5.9
20 22 Oracle U.S. Software and Internet 5.8
Source: Bloomberg data; Capital IQ data; Strategy& 2016 Global Innovation 1000 study OEM
The 2017 PwC’s Strategy& Digital Auto Report 33
This model is challenged: There will be a run on critical skills as software
and Internet industries heavily increase R&D investments

War for talent — strong R&D among tech firms

Change in R&D spending by industry
2015–2016 Remarks
20%
• Significant increase in R&D spend in
15.4 software and Internet businesses —
15%
many of them cited among most
10% innovative companies and active in
automotive
5% 3.6 • As a result, large share of young R&D
0.7 talent joining new tech firms
0% • Auto companies reducing R&D spend
-1.8 -2.0
-5% -2.8 -3.3 -4.0

-10%
-11.5 -12.2
-15%
Software Healthcare Con- Computing Other Industrials Aerospace Auto Chemicals Telecom
and sumer and and and energy
Internet electronics defense

Source: Strategy& 2016 Global Innovation 1000 study

The 2017 PwC’s Strategy& Digital Auto Report 34
Digital companies organize R&D quite differently — faster, cheaper

“Scale-up by design” by digital players

Business model focus on digital principles ... ... and creation of agile organizational structures

Amazon Small and autonomous teams with startup Spotify model

spirit/atmosphere
Tribe
Uber Interdisciplinary teams with clear product
Principles
PO PO PO PO
instead of functional focus TL
• Split of applications in
Lyft microservices which leverage
Fast go-live with minimum viable products —
standardized platforms
“Think it, build it, ship it, tweak it”
Chapter • Systematic use of a cloud
Google
architecture to ensure
End-to-end responsibility of teams — from
scalability by design
planning to development to operations
Didi • Strong in-house capabilities
Chapter
(product owner, technical
Extreme customer focus, internal as well as owner) and small, agile, and
Apple external
integrated teams with clear
responsibility for their own
Deliberate, fast decision making — different releases
Ola for reversible and irreversible decisions Squad Squad Squad Squad

Tribe (e.g., back-end infrastructure) Chapter (e.g., developers)

Note: TL = tribe leader, PO = product owner; guild works across tribes
Source: Strategy& analysis Squad (e.g., radio experience) Guild (e.g., testing)
The 2017 PwC’s Strategy& Digital Auto Report 35
Rather than doing only R&D, scaling up new businesses becomes key
Lessons learned from scaling of innovations
Ideation and sourcing
• Best startups = “no lemons”
• Internal ideas “with real potential”
• Selection criteria — “no CEO pet
projects”
• Talent “innovator employer brand”
• Team commitment — “no return
ticket”
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Typical
“stall”
Acceleration
• Focused working environment, no
distraction by corporates
• Linking of founders with internal
organization
• Right level of supervision —
investor, not corporate, mind-set
• No overfunding in early phases —
“$50,000 instead of $2 million”
• Support for follow-up funding —
also externally, particularly
round A
Scale up
• Aligned incentive structure for
founder/team and corporate
• Willingness for high payout
• Balance independence and synergy
potential for parent company
• No restriction of the startup even in
case of cannibalization
• Minimization of consolidation
requirements
• Deliberate choice of exit strategy
and time
36
05
Outlook: Flying cars and tunnels on the
horizon

The 2017 PwC's Strategy& Digital Auto Report 37

The future may yet be very different as mobility takes new forms
Potential alternative future mobility options
Tunnels/tubes
The Boring Company
• Vision to shift traffic underground either by
moving vehicles as fast as 200km/h on electric
slides or by supporting Hyperloop (pneumatic
high-speed tube) development
• Founded in 2016 by Elon Musk
• Objective to improve tunnel boring technology
to increase speed of tunneling and reduce cost
by >10 times
• Boring machine, tunnel, and car elevator
tested at SpaceX headquarters in Hawthorne,
California
• Interest from multiple cities in U.S. announced
(e.g., Los Angeles, Chicago)
Source: Strategy& analysis
The 2017 PwC’s Strategy& Digital Auto Report
Drones
Volocopter
• Want to provide all people with the opportunity
to fly and improve urban mobility
• Founded in Germany in 2010, and prototyped
VC1 as global first manned flight with an
electric helicopter in October 2011
• Objective to develop an electric, five-seat
flying taxi
• Funding partners include Daimler or Federal
Ministry of Economics
• Test flight of first autonomous flying taxi in
Dubai in 2017
Flying cars
PAL-V
• Drive to offer people the most flexible form of
mobility and the highest sense of freedom
imaginable
• Strive to offer the best of both worlds — “fly-
driving”
• Started in 2001, with the first flight of the proof-
of-concept prototype in 2012
• Delivery of PAL-V Liberty as the first serial
production flying car starting end of 2018
• Requires driver and pilot licenses
38
Get in touch!

Core team: 2017 Digital Car Report Further contributors

Richard Viereckl Steffen Hoppe Felix Kuhnert Dr. Jörn Neuhausen

Senior Partner, PwC Strategy& Germany Principal, PwC Strategy& Germany Partner, PwC Germany Principal, PwC Strategy& Germany
Lead EMEA Auto Consulting Industry Mobility and Industry Trends Global Auto Consulting Industry Lead E-mobility

Alex Koster Anne Pohlmann Marcus Gloger Christoph Stürmer

Partner, PwC Strategy& Switzerland, Lead Author
Lead EMEA Digital Automotive
Partner, PwC Strategy& Germany Global Lead Analyst, PwC Germany
Manager, PwC Strategy& Switzerland
Autonomous Driving Autofacts
Mobility and Industry Trends
Industry Insights and Trends

Dietmar Ahlemann Thilo Bühnen Hartmut Güthner Michael Kofler

Partner, PwC Germany Senior Associate, PwC Strategy& Switzerland Principal, PwC Strategy& Germany Consultant, PwC Germany
Mobility and Digital Operating Model Mobility and Industry Trends Autonomous Driving Autofacts
Industry Insights and Trends

Jonas Seyfferth
Principal, PwC Strategy& Germany
Mobility and New Business Models

The 2017 PwC’s Strategy& Digital Auto Report 39

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PwC Strategy& digital automotive capabilities
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The 2017 PwC’s Strategy& Digital Auto Report
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The 2017 PwC's Strategy& Digital Auto Report 41