US and Europe account for the majority of global demand; China is growing faster
Safety regulations and customer experience driving exponential growth globally
Seoul, Hong Kong, New Delhi, Beijing, London, Buenos Aires, San Diego
June 26th, 2019
Revenues from connected cars globally are projected to grow five-fold, reaching over US$24 billion by 2025, the latest research by Counterpoint’s Smart Automotive Service shows.
For this study, a connected car is defined as a passenger car, having an embedded SIM card for internet connection, with proprietary Telematics Control Unit (TCU) hardware managing data exchanges. The study further categorizes potential OEM revenues by services offered and the originally installed hardware equipment. Connected services include advanced navigation, infotainment (music, social media, news, etc.) subscribed by the driver, as well as emergency assistance and diagnostics alerts as value added, and in some cases, mandated services.
Commenting on the analysis, Aman Madhok, Senior Analyst for Smart Automotive at Counterpoint Research said, “Deep technology applications, specifically, smartphones and notepads, in daily life has created expectations for seamless ‘on-the-go’ technology accessibility in cars, especially among emerging millennial car buyers. Connected cars are gaining preference and going mainstream, with the rising awareness of their enhanced overall comfort, safety, and convenience while driving.”
The Counterpoint Research study reveals that more than 286 million connected passenger cars will be added globally during the 2019-2025 period. US and Europe together accounted for the most connected car shipments in 2018. However, during the forecast period, China is expected to account for more than 35% of connected car shipments. Madhok adds, “Cost sensitiveness of car buyers in China, coupled with a lower share of premium cars, had initially stunted connected car penetration in the country. However, with more and more connected features being offered now by OEMs in mainstream car models, we will expect significant growth.”
OEMs find connected services an important area for generating additional revenues and shoring up profit margins. In partnership with telecom operators, OEMs offer car owners optional connectivity plans ranging from daily, monthly, and annual subscriptions. For example, in the US, AT&T offers monthly plans between US$10 to US$20 on its network for backhaul. The Average Revenue Per User (ARPU), for connected services is the highest for developed countries, where data plans are expensive, e.g., US$180 annually in the US in 2018. For emerging economies like China, the ARPU is considerably lower.”
Exhibit 1: Global Connected Car Shipments (%)
Vinay Piparsania, Consulting Director for Smart Automotive at Counterpoint Research, added, “With more and more countries adopting their own versions of Europe’s eCall, automotive OEMs are taking the opportunity to install original and proprietary embedded telematics systems, opening up significant revenue opportunities to offer connected and subscription-based services globally. By incorporating innovative smart connected features, OEMs are looking to differentiate their models.”
Exhibit 2: Global Connected Car Revenues (%)
Cautioning on the challenges for automakers, Vinay added “Digital features in cars today are expensive and complex. OEMs need to step up their game to provide in-car experiences which are as seamless and intuitive as smartphones. This explains why OEMs are collaborating and even investing in software companies. While OEMs continue to prefer embedded onboard infotainment to diversify their revenues, it is clear that the smartphone’s dominance on personal connectivity is overwhelming. There continues to be considerable debate over how connectivity will develop within the vehicle, i.e., the choice between built-in connectivity or brought-in mobile systems. OEMs failing to innovate, and bring costs down through scale, will lose the race, leaving behind significant revenue on the table.”
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