Increasing need for real-time cloud computing and fast cloud-car communication is creating a market for 5G-enabled connected cars. Counterpoint estimates that one out of every four connected cars sold in 2025 will have embedded 5G connectivity. China will account for a majority of such cars sold in the next five years.
The Chinese government support for 5G is the key factor responsible for making the country the preferred place for automakers to launch 5G connected cars. China’s top-down approach and the ability to bridge public-private divide through state-owned enterprises is speeding up 5G deployment. Clear road map and investment from the government is creating an environment for 5G that has not been seen anywhere else in the world. For instance, China plans to issue US$535.6 billion (RMB3.75 trillon) special purpose bonds in 2020 to promote development of strategic infrastructure, including 5G network. Furthermore, 5G R&D is being promoted for the last many years.
Initiatives Taken by Chinese Government During Last Decade
Push from state-owned telecom operators
The three big telecom operators in China – China Mobile, China Unicom and China Telecom – are expected to invest around $184 billion in 5G network by 2025. All the three operators support cooperation in the ecosystem.
In 2016, China Mobile along with its 11 partners launched 5G Joint Innovation Centre to promote industry collaboration.
In 2018, China Mobile partnered with Baidu for the Apollo open source software platform for autonomous driving.
In 2017, China Unicom, ZTE, Datang, FAW and Ford entered a collaboration for pre-crash warning for pedestrians.
In 2019, China Unicom and Chery signed an agreement to expand their partnership for 5G, connected and autonomous vehicles.
In the 2017 Mobile World Congress, China Mobile, SAIC Motor and Huawei demonstrated the world’s first 5G-based remote driving.
In 2019, China Mobile and China Unicom agreed to mutualise their 5G network deployment till 2026 to ensure faster deployment and save $47 billion during 2019-2026.
In 2020, Volvo partnered China Unicom to explore V2X and other use cases requiring 5G network.
More than 480,000 5G stations have already been set up in China this year, well on track to reach the 2020 target of 500,000 5G stations.
Definitive industry announcements
Years of efforts on research, deployment and testing of 5G use cases have finally led to building of industry confidence in China.
In 2019, Geely announced to offer 5G connected V2X-enabled vehicles in China starting 2021.
In 2020, GM announced to equip all new Cadillac models and most Buick and Chevrolet cars in China with 5G by 2022.
In 2020, Huawei partnered with 18 automakers to build a 5G-enabled automotive ecosystem for faster deployment of such vehicles in the country.
Half of all cars shipped in 2020 will be connected.
US and China together accounted for two-thirds of all connected car shipments in Q2 2020.
San Diego, Buenos Aires, London, New Delhi, Hong Kong, Beijing, Seoul – November 11, 2020
The global connected car market is expected to double in the next five years with more than 270 million of such cars to be shipped during 2020-2025, according to the latest research from Counterpoint’s Smart Automotive service. The data only represents the global passenger car shipments with embedded connectivity and does not include connectivity via smartphone.
Commenting on the findings, Senior Analyst Aman Madhok said, “The market declined by 18% YoY in Q2 2020 with connected car shipments reaching close to seven million units during the period. The penetration of connectivity in cars continues to increase, and 2020 will see half of all cars sold worldwide having embedded connectivity in them.
Discussing the impact of COVID-19 on the market, Madhok added, “The shipments declined by 5% when compared to Q1 2020 due to the subdued passenger car sales following the COVID-19 pandemic, even though rebounding car sales in China helped in market recovery to some extent.”
Commenting on the findings from the connectivity perspective, Research Associate Fahad Siddique said, “Automakers continue to adopt the latest technology, with 4G LTE-based connected cars accounting for almost 88% of all shipments in Q2 2020. 5G connected cars will enter mass production next year. By 2025, one out of every five connected cars will have 5G embedded connectivity. China and the US will together account for the majority of 5G connected cars sold in the next five years.”
Discussing the key trends, Research Director Peter Richardson said, “While the E-call regulation has been driving connected car shipments in Europe, increasing cockpit digitization coupled with customer preference for connected services is driving the growth in the US and China. Both the countries together accounted for close to two-thirds of connected car shipments in Q2 2020. Automakers too are promoting connected services to attract buyers and earn additional revenue through subscriptions.”
Talking about how mainstream brands are now adopting connectivity, Peter added, “A few years back, luxury cars like Mercedes Benz and BMW accounted for most of the embedded-connectivity cars sold, along with some mainstream brands like GM. But now more mainstream brands, like Volkswagen and Toyota, have started to take connectivity seriously, giving a huge push to connected car shipments.”
The global automotive industry is entering into a new decade in which we expect a series of unprecedented challenges, but also opportunities – and it starts with 2020.
More Turbulence Ahead
If 2019 was a year of considerable disruption and turbulence in the auto industry, 2020 will likely see even more. A cooling economy in China aggravated by the prolonged US-China trade war, a struggling automotive market in India, and a looming Brexit, coupled with tough emission standards in Europe, continue to adversely affect global automotive demand. The lower economic activity and consumer confidence mean continued depressed vehicle sales. Leading automakers, including BMW and GM, have announced guidance for lower profits and sales in 2020.
Global automotive demand is flat-lining; quite different from the typical “peaks and troughs” cycles seen before. There are also profound structural changes visible. The sacred order of the automotive ecosystem is under threat with disruptive forces – such as vehicle connectivity – encouraging new technology entrants to rethink the way we move around. Lifestyle and mobility preferences are changing as frequently as the apps on smartphones.
Will car companies, with their engineering legacy and coveted brands, be able to deal with new ways of addressing mobility based on sharing and on-demand access? These questions need to be urgently answered by auto OEMs to avoid missing out on these secular shifts.
Exhibit 1: Global Vehicle Sales, Million Units
Megatrends defining 2020
Connectivity, autonomy, shared mobility, and electrification of vehicles (CASE) remain the defining megatrends in 2020, with all automakers focusing on either accelerating or consolidating their advances in these fields.
Let’s have a deeper look at each trend and its likely implications for 2020:
The growing digitalization of the cockpit makes the connectivity of vehicles among the top trends in 2020. Telematic applications have radically transformed the automotive industry and will continue to impact it in ways no other technology has done before. This year, connected cars are expected to evolve even further, providing enhanced personalization options to users that are similar to what they have come to expect from their smartphones. Advances in IoT, telematics and smart applications together have greatly improved the connectivity, communications and responses, offering seamless infotainment, safety, security and vehicle management to drivers, passengers and commuters. Embedded connectivity is now offered as standard OE fitment across premium and mid-premium category cars.
As connected services potentially offer multiple subscription revenue streams for automakers, Counterpoint expects embedded connectivity to remain a key focus area in 2020. While automakers in the US and Europe currently dominate the sales of embedded connected cars, China’s automakers are accelerating their efforts on connectivity too. Interior dashboards upgraded with integration of computer vision and augmented reality (AR) tools, will be another key focus, offering additional layers of safety, personalization and driving experience to connected vehicle subscribers.
Even though the progress of AV has not met industry expectations, automakers made huge strides towards AVs in 2019. Enhanced ADAS basic autonomy (Level 1 and Level 2) safety features like autonomous emergency braking (AEB) are now becoming standard features in most markets on mid-range to premium vehicles in 2020, on account of regulatory pressures (e.g.: Euro NCAP and NHTSA) and the growing consumer preference for these features.
Clearly, claims to achieve full autonomy by 2020 are too bold with automakers missing their development targets in 2019. GM Cruise failed to launch its autonomous vehicle in 2019, and has not specified any new deadline. Ford, having announced it would skip straight to Level 4, has retracted and is focused on achieving Level 3. Waymo’s robo-taxi service launched in Phoenix, Arizona in 2019, is always subject to having a stand-by driver, ready to take control in emergencies.
With safety concerns and significant investments hampering the progress towards fully autonomous vehicles, automakers are looking more and more at collaborating their efforts towards AV development, sharing costs and risks, by building alliances. AV related partnerships and JVs accounted for more than US$9 Billion during Q1-Q3 2019.
Mobility as a service (MaaS) is expected to continue gaining popularity in 2020. Profitability, however, remains a key concern for the service providers. Shared mobility continued to grow in 2019 driven by growing trend of sharing economy, convenience and cost benefits versus owning a vehicle. Based on the findings from Counterpoint Research’s 2019 survey in India, two out of three frequent users of shared mobility services consider ride-hailing more economical than owning a car. Uber and Lyft launched their IPOs in 2019 citing aggressive expansion plans.
While shared mobility will continue to grow in 2020, competition is expected to become tough with shared mobility providers having plans for overseas expansion. Losses can lead to market consolidation going forward. In 2019, Grab delayed its IPO until it gets profitable. BMW shutdown services of ReachNow car sharing Seattle and Portland. Other small service providers such as Juno and Coup shutdown their regional/city level operations due to losses.
In 2020, most carmakers will be focusing on electrification. Expect to hear a lot more from OEMs and adjacent players about technologies, batteries, charging infrastructure, products and policies that are being developed to meet tightening fleet average CO2 figures at one end, and to encourage EV adoption at the other. The decline of diesel in Europe has forced OEMs to move faster in their efforts on electrified vehicles to meet the tougher emission targets. For some OEMs this direction also presents the unattractive trade-off between avoiding fines and selling electric vehicles at below cost price.
The COVID-19 outbreak continues to develop fast. There are signs of successful containment in some areas in China, while fears grow accelerating infection rates in other countries – Japan notably. How the situation develops over the coming days, weeks and even months remains uncertain, creating a risky business environment. With effective Government interventions initiated, the situation is expected to be bought under control within March, allowing the Government to cautiously lift the clampdowns progressively from April. However, if the epidemic continues into Q2, possibly even into Q3, it will considerably impact the overall global automotive demand.
The global automotive industry recovery in 2020 largely depends upon a recovery in the Chinese economy. Stringent emission and safety standards, coupled with growing digitalization in vehicles will make EVs, connected cars and AVs the key focus areas for automakers in 2020 and beyond. Automakers will need to evolve fast to keep pace with innovation in these areas.
Partnerships, alliances and joint ventures with various stakeholders in the ecosystem will be the strategic option adopted by automakers in 2020 looking to save money while keeping pace with the fast-evolving automotive landscape.
The outbreak of coronavirus is causing ad hoc interruptions in the supply chain, with each OEM, plant, and model expected to have different levels of exposure, requiring different countermeasures. The long-term impact of coronavirus on the industry remains uncertain. However, its prolonged spread will have an adverse impact on global automotive sales.
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