Automotive landscape 2025 - In the coming 15 years the global automotive industry will undergo the greatest transformation it has experienced in its history

• A dramatic shift of production and sales to the Asian markets will take place and, as a result, 300.000 jobs in Europe will be at risk
• Small and low cost cars will gain more and more importance
• Electric vehicles will account for about 10% of new vehicle sales by 2025, hybrids will reach a 40% share
• The connectivity of cars will be a key factor in 2025 and beyond
• New business models will rise
• Successful organizations will undergo structural changes and open up to partnerships

Five megatrends, geopolitical change, changing demographics, sustainability, the evolution of mobility as well as changing technology, will cause a huge leap forward in the development of the automotive industry within the next 15 years. This will lead to ten key findings, published in the "Automotive landscape 2025" study conducted by Roland Berger Strategy Consultants. Almost all the 39 Roland Berger offices around the world were involved. The consultants spoke to more than 60 leading experts from the automotive industry and other related organizations worldwide. Roland Berger conducted the interviews in partnership with Amrop, a leading executive search company.

"The industry's center of gravity will shift", says Wolfgang Bernhart, Partner at Roland Berger Strategy Consultants and co-author of the study: "Core technologies will change, new forms of organizational setup will emerge, employees will have to meet new requirements and new business models will develop."

Shift to Asia

A dramatic shift to the Asian markets will take place. Both production locations and sales will be affected, with a significant share of the customer base coming from Asia, requiring specific products suited to their needs. "Because of this development about 300.000 jobs in Europe are at risk" adds automotive expert Bernhart. The shift to Asia will be intensified by a significant shortage of skilled labor in Europe and the US. Both economies will be forced to tap into additional resource pools of employees with diversity background.

Small and low cost cars

The demand in Asia supports low-cost cars as an important entry point as well as A/B segment cars in general. The small car segment will grow in mature markets, too, where values are changing. With growing population sizes and increasing prosperity, overall car ownership levels will rise in the period to 2025. Growth in North America and Europe will not be as high as the global average rate of 1% per year, but the desire for individual mobility in the BRIC markets will continue to grow, accounting for 83% of future market growth. In China alone, car ownership are predicted grow by 36% annually.

At the same time cars will continue to lose their appeal for younger generations. "Starting in developed countries, there will be a radical change in values: For younger people cars will no longer be as much a status symbol as in the past”, states Philipp Grosse Kleimann, Partner at Roland Berger Strategy Consultants and co-author of the study. "In major urban areas, car ownership will become unnecessary, leading to an increasing trend of demotorization." Mobility eco-systems will provide cars and other mobility sources on demand.

Electric vehicles and connectivity

The cars in question will predominantly be electric, and one in two will have a fully or partially electrified powertrain. Electric vehicles will account for about 10% of new vehicle sales by 2025, hybrids will reach 40% share and internal combustion engines will still account for 50%. “The growing overall share of electric drivetrains will reshape the current mobility value chain for OEMs and suppliers, but also for utilities and third parties”, states Wolfgang Bernhart, Partner at Roland Berger.

According to the study many vehicles will be permanently online, sending and receiving information via the Internet. Connectivity will be the key. Well before 2025, cars – or the customers' mobile devices – will be accessing the Web directly for online (navigation) services. "What younger generations will be looking for in a car is a seamless integration with other means of mobility together and a hassle-free connectivity with their mobile devices" says automotive expert Grosse Kleimann. "As a result of this trend the automotive industry will converge with other industries and a cross-industry perspective will be mandatory for management."

New business models

With all these changes taking place in usage patterns and technology, new business models and value chain partners will emerge, challenging the status quo – especially where they come from sectors other than the automotive industry. "Automotive companies will engage in multiple partnerships as a way of accessing technology and customers and securing economies of scale", says Roland Berger Principal, Marcus Hoffmann, the third co-author of the study. These new business models will not just be about selling cars but about integrating software and hardware.

Changing organizations

Automotive companies will move away from centralized organizations in the pursuit of size and access to fresh sources of engineers and other specialists. Instead, they will begin to operate glo/cally, combining global reach with adaptation to local needs and regulations. Consolidation will continue among suppliers while new Original Equipment Manufacturers (OEMs) are likely to emerge from both inside and outside the industry.

Three scenarios identified

As a result Roland Berger identified three scenarios based on the expected megatrends: Each scenario depicts the world in 2025 in an extreme way.

1. The High-tech scenario foresees a wide array of car features allowing drivers to stay connected to their network while driving, use the internet and personalize the Man-Machine-Interface.
2. The Budget scenario describes a world in which the purchasing power of customers is strongly reduced due to taxes and inflation combined with low income growth. Cars are less affordable and the money spent on cars is in competition with other spending.
3. The Sustainability scenario describes a world in which consumer behavior is strongly influenced by regulations, legislation and tax, but at the same time by rating recommendations.

Whichever scenario will come true: the key is for companies to remain open and flexible. "Companies have to face now the opportunities and challenges to make the journey ahead a rewarding one", states Bernhart.