Impact of IoT on Automotive Product lifecycle & change in business model
For the last few years, if anyone types these 3 words “Automotive Trending Topics” on any search engines, clearly these 4 distinct and univocal topics will come up every single time. These are Autonomous vehicle, Electric Vehicle, Shared Mobility and Connected Vehicle. The focus today will to be to discuss in depth on the topic of Connected Vehicles. So what exactly is Connected Vehicle? In simple terms, it refers to the communication of one car with other cars / with the traffic management infrastructure / with the vehicle occupants / with the outside world. The car of the future will become a “third place” between home and workplace, combining features of both. This is where IoT (Internet of Things) steps in, which is a collection of interrelated computing devises which have the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. Thus, connected vehicle will soon be an integral part of IoT by being one amongst those connected devices.
The present computing devices such as Mobile phone, Laptop, Tablets and other gadgets, have a typical product lifecycle (PLC) average of 1-2 years. Due to the enormous pace at which the technology is advancing both on the hardware and the software sides, the product becomes obsolete within 2 years, which typically defines the PLC. Now with the similar pressure to digitize the car and thereby adding new features to connected vehicles, the average car lifecycle (5-8 years) will also adapt to the technology lifecycle (1-2 years), thus marking a significant drop.
So now, what will be the impact of such a change of PLC on the automotive landscape? It will have multitude of impacts at various level, for the different stakeholders as well as the environment. Let us analyse them one by one.
From a consumer’s perspective, the change might result in renting, leasing rather than go for a purchase (Since with a shorter PLC, it makes more sense to just use it for a year and so and move to the next model with more features rather than owning and selling – as typically there is a significant depreciation of an average car for first 1-2 years which will even go higher when the technology shifts very fast).
From Dealership model of selling cars, the shift might result in renting model companies, where these companies will be owners of the vehicle and will be renting out (Short term lease model). Such business model will require strong hand holding from the Original Equipment Manufacturers (OEMs), as the vehicle owned by these renting dealerships need to be capitalized between them and the OEMs.
From the OEM’s perspective, the focus will be on absorbing the obsolete vehicles from the market to make more space for the new vehicles.
From an environment perspective, it is beneficial as the OEMs are taking in the old vehicles and will try to reuse the components as much as possible thus creating a huge opportunity for recycling.
Now it is only a matter of time that connected car will be a significant part of IoT. When that happens, it will be really interesting to see whether the car owners will need to find new ways to finance their vehicles (New financial instruments) or the industry will adopt to a different business model as mentioned above. Only time will tell.
(The article is written by Rudra Raj Hazra. He is automotive professional, a market analyst & commenter.)