How to prioritize innovation in the great automotive value shift

In this episode, EY Global Advanced Manufacturing and Mobility analysts Gaurav Batra and Anuj Chandna discuss the great value shift taking shape in automotive sector.

Key takeaways:

Companies need to reframe strategies to align with the evolving mobility landscape and create agile organizations that can adapt swiftly.
Industry players must adopt creative workforce strategies to attract and retain skilled professionals. Approaches, such as strengthening employer brand, collaborating with academic institutions and offering scholarships, are key to building a resilient workforce of the future.
Businesses must refine their portfolios in response to the value shift, with a focus on customer needs and the transformation of their operating models to be agile and responsive.

For your convenience, full text transcript of this podcast is also available.

Announcer

Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.
Here with us for this episode of the Advanced Manufacturing and Mobility Business Minute are Gaurav Batra, EY Global Automotive Insights Lead, and Anuj Chandna, EY Global Automotive Analyst.
Today’s topic is on the EY organization’s newly released report titled Reframe your strategy: The great automotive value shift | EY - Global.
Gaurav, Anuj, thanks for joining us today.

Gaurav Batra

Thank you for having us.

Moderator

Gaurav, let’s start with you. What is the great value shift you see taking shape in the automotive sector?

Batra

I think most industry observers have seen the indications of a value shift wave forming over the last several years. With this ongoing transition toward electrified powertrains, coupled with technological advances in areas, such as connected, artificial intelligence (AI), Internet of Things (IoT), and the shift that we are seeing in consumer wants and needs, all these factors are essentially shaking the long-held assumptions about the sources of value, which traditionally have been rooted in the manufacture and sale of internal combustion engine (ICE) vehicles and related components.
So, while everyone sees this wave of change coming, its implications are not well-understood, nor is it clear what companies will need to do to address this monumental change. We see questions, like where are these value pools forming? Do we have the technical capabilities and talent to play in these new arenas of value? And finally, how to reshape your business to not only survive, but to position yourself to thrive in the coming era of what we call the “the great value shift?”
So, to better understand the evolving market shift, the EY organization conducted a comprehensive industry analysis of the emerging opportunities across the evolving automotive value chain.

Moderator

Gaurav, what does the EY market study tell us about the opportunities that this great value shift is creating in the automotive and mobility sectors?

Batra

Our study suggests that value is shifting to adjacent new opportunities and away from what has been traditional value drivers for over a century. We identified a total of 40 value pools that we have grouped into three categories - these are traditional, transitional and growth. Traditional being those current set value pools that sustain the industry, while transitional category represents the first wave of value shift or essentially the adjacent opportunities and would typically include areas, such as hybrid vehicle manufacturing, alternative car ownership models and others. In the short run, these provide good revenue potential for both industry incumbents or the new entrants.
Now, beyond these transitional adjacent opportunities, the third category is what we call growth. This is the category that we believe is where the true next wave of value generation will come along and shape the new economics of mobility. The growth category would include, among other things, the areas around the battery electric space, around the software-defined vehicles and the emerging circular business models.

Moderator

Interesting, let’s go a little deeper into the category you describe as the growth. Where do you see the next wave of value generation coming for the mobility sector here? And what do you think is driving that value creation?

Batra

As I described, we see the growth category as where the bulk of future revenue opportunities will exist and where new economic models for mobility players will be built. When we drilled down during our analysis of the growth category, we had initially identified 10 distinct value pools, but when we considered the adjacencies and synergies of these value pools, we arrived at, in fact, three value mega pools in the growth space.
By mega, we mean that these pools represent the most significant revenue potential of all the value pools we identified.
These mega value pools include electric vehicle (EV) batteries and charging, software-defined vehicle technologies and circular business models. Collectively, we believe that, by 2030, these three mega value pools will represent revenue opportunities of more than US$600 billion.

Moderator

Anuj, so these mega pools that Gaurav just discussed or identified, what do they represent and what opportunities do you see emerging from these mega value pools?

Anuj Chandna

As Gaurav described, we have identified three mega value pools. Let’s start with EV batteries and charging, which is the largest one. It goes without saying that batteries and charging are foundational for a successful transition to EVs, and we believe they could provide a lasting competitive advantage. So, our EV batteries and charging value pool is made up of EV battery production and active materials and components. In that category, we also include EV public charging solutions and energy storage systems. We forecast the combined value of this group of adjacent opportunities to reach over US$400 billion by 2030, which means a growth at a compound annual growth rate (CAGR) of 15% during 2023 to 2030.
The second mega value pool is software-defined vehicle technologies. As vehicles continue to shift from hardware to software-defined vehicle (SDV) architectures, our analysis indicates that this trend will not only unlock new revenues opportunities in technology and data-based services, but this will also drive cost efficiencies and enhance faster software delivery. This mega pool comprises SDV-enabling technologies, advanced driver assistance systems (ADAS) and autonomous vehicle (AV) components, data monetization, and software-based repair and maintenance. The combined value of this group of adjacent opportunities is expected to reach around US$170 billion by 2030.
Looking at the third mega pool, which is around circular business models — decarbonization and waste management directives are forcing industry players to upgrade from traditional “take-make-waste” business models to the ones that are closed-loop. This trend is driving industry players to rethink their product and process design toward increasingly more circular business models. Our analysis indicates that this trend is taking hold and promises a greener automotive industry, with value for this mega pool expected to reach around US$90 billion by 2030.

Moderator

So, Anuj, you just described these three emerging mega value pools and these great opportunities. What should mobility players be doing now that will set them up to be able to tap into these opportunities?

Chandna

So, our analysis suggests that understanding the great value shift is only the start — and translating it into lasting competitive advantage calls for a complete strategic rethink — this is where we believe the real value lies. Players must focus on building a culture of innovation, and redefining strategy and customer experience. They should also work toward unlocking the value of data and nurturing future workforce skills.
Let’s look at building a culture of innovation, from additive manufacturing technologies and ADAS systems to advanced materials for improved vehicle performance, innovation is the essential catalyst for breaking through. In our report, we call it being “Innovation Obsessive.” Obsessing on innovation to create value that, from our side, we believe will be a key determining factor between those that thrive and those that become irrelevant.

Moderator

Anuj, you said that innovation, you’re calling it as an essential catalyst to future success, so how do you go about translating that into a new strategy?

Chandna

To make the most of this value shift, industry players will have to look at the constructs of this shift — so the devil, or the real value, lies in the details of customization. They have to work to reimagine their strategy to be future-fit within the evolving future mobility ecosystem and work toward building an agile organization that can adapt quickly. For example, with the increased convergence of mobility and energy industries, auto players could collaborate with utility companies to develop energy storage systems, vehicle-to-home and vehicle-to-grid charging solutions to provide smart energy solutions for customers.
Secondly, the industry players should assess if there is a need to redefine their product and service portfolios. They should consider ways to rebalance and streamline their ICE-EV portfolio, reducing complexities and freeing up capital for new businesses, such as ADAS and AV components, SDVs, and recycling technologies.
Finally, one needs to consider the role they could play in revolutionizing the customer experience. As they update their business portfolios to meet the value shift, a laser-focused understanding of the customer and reimagining their operating models to be agile are important.

Moderator

What about data? What does your analysis say about strategies that mobility players can undertake to unlock the value of data in the mega pools?

Chandna

As I mentioned, revolutionizing the customer experience is one of the key elements of building new strategy, and we believe data is going to be a key lever for that. Customer centricity can be enhanced exponentially with data. To fully harness data’s potential, clear data management and streamlined processes, as well as user-centric designs and modular architectures, are necessary.
The challenge is that data is becoming increasingly dynamic as AI, machine learning and quantum computing technologies continually learn and evolve. And these are driving next-generation analytics and reducing overall costs, while also generating new monetization opportunities. The potential opportunities are many and exist across the entire product lifecycle. For example, in R&D, advanced data and generative AI (GenAI) can be used to transform R&D operations with faster design cycles and simulations or enhance the customer experience by anticipating customer’s preferred features and wants.
However, there’s a catch here — harnessing the potential revenue opportunities around data does have challenges too. Challenges include data privacy, cybersecurity and again AI. For example, despite consumer interest in accessing connected car features, consumers can be quite unwilling to share their data. Adding to the mix are privacy regulations during data collection and processing, as well as the responsible and ethical implementation of AI, and there are significant challenges that need to be overcome.
Despite these challenges, the enormous potential in leveraging data is a very promising space and that, we believe, could offer significant first mover advantage as well.

Moderator

Gaurav, Anuj indicated that the nurturing of future workforce skills was an important element of reimagining your mobility strategy. What about workforce skills, why is this so important?

Batra

All the elements of a reimagined strategy depend on having the right skilled workforce either through upskilling or reskilling, or hiring from other industries, with the key one being technology talent. Now, innovation becomes indispensable in the areas of software, chemicals, electronics engineering, battery, robotics and AI — all of which represent today's manufacturing ecosystem. The existing staff will need to master disruptive technologies, and the organization will have to acquire the talent if it is going to survive and thrive.
Attracting and keeping talent is challenging in today’s highly competitive environment. So, industry players will have to be innovative in workforce strategies. Strategies that include strengthening their employer brand and partnering with universities on research, as well as offering experiential learning opportunities or auto technology scholarships could be looked at. These are just some of the approaches that will build a future-proof workforce.

Moderator

Gaurav, we just shared a lot of information and insights about these mega value pools and the strategies for capitalizing on the shifting of value across mobility ecosystem. Where can the audience go to learn more these changes?

Batra

Yes, as mentioned at the beginning of the podcast, we recently published a full report — and the study is titled Reframe your strategy: The great automotive value shift — that can be viewed at and read on ey.com or you can feel free to reach out to me at my email, which is gaurav.batra3@in.ey.com.

Moderator

Gaurav, Anuj, thanks for sharing these great insights into the great automotive value shift.

Batra

Thank you for having us today.

Announcer

Thanks for listening to today’s EY Advanced Manufacturing and Mobility Business Minute podcast. We hope you found it engaging and informative. To listen to other Business Minute podcasts, you can find them at ey.com/ammpodcasts.

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Presenters

Gaurav Batra

EY Global Automotive Insights Lead, Industrials and Energy

Anuj Chandna

EY Global Advanced Manufacturing & Mobility Analyst

Podcast

Episode 34

Duration

14m 46s

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How to prioritize innovation in the great automotive value shift

Key takeaways:

Announcer

Gaurav Batra

Moderator

Batra

Moderator

Batra

Moderator

Batra

Moderator

Anuj Chandna

Moderator

Chandna

Moderator

Chandna

Moderator

Chandna

Moderator

Batra

Moderator

Batra

Moderator

Batra

Announcer

Presenters

Gaurav Batra

Anuj Chandna

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