Five Factors Accelerating the IoV Industry Transformation, The Historic Opportunity Has Emerged
Nowadays, an increasing number of auto enterprises and consumers are expressing their urgent need for vehicle connectivity. Recently, the next-generation Mercedes-Benz A-Class has made its global debut. As the first Benz model equipped with intelligent system MBUX, it is obviously intended to cater to the tastes of young consumers as well as the ever-changing market.
At the beginning of 2018, KPMG released the China Leading Auto Tech 50 report, mentioning some trends in the future development of automobile, which are similar to the four ACES trend construction proposed by China, i.e., Automated, Connected, Electric and Shared (ACES) vehicles. These four trends represent the direction for the future auto industry, but are characterized by different development focuses and paces: Electrification is already in progress, intelligentization and sharing are the trends, while connectivity is thriving with more possibilities and opportunities.
Internet technologies and solutions are not yet mature. The seamless interaction of HMI, the integration of smartphones and HMI, as well as the IoV-based onboard service features are far from being fully developed. The value created by the interconnection features has not been fully explored, and the market and consumers have insufficient recognition of the value of the IoV service. How to form a closed loop of the value chain to, on the one hand, satisfy user needs, offer valuable services, and allow the user to accept products and pay for them willingly, and on the other hand, achieve stable business connection and effective data acquisition, has become the biggest challenge for the IoV.
To achieve the above goals, five key factors are essential:
1. Broad market space for increment
2. Strong OEM demands
3. Addressing users’ rigid demands
4. Integrated IoV suppliers
5. High-speed communication network
Factor 1: Broad market space for increment
According to statistical analysis by China Association of Automobile Manufacturers (CAAM), from Jan. to Oct. 2018, passenger vehicles witnessed a total sales of 8,091,100 units, among which 7,208,000 were produced by the top ten automakers, accounting for 89.08%.
China is a fast-growing auto market where all players have been sharing the cake of market growth, be it a self-owned brand or a joint venture brand. However, among these sales champions, there’s still a lot of room for improvement in vehicle connectivity.
The sales performance of Volkswagen Lavida has been pretty good in recent years – it has been topping the sales rank since 2013, but even for the latest 2018 Lavida, the intelligent drive navigation package (containing 8-inch color touchscreen / real-time traffic navigation / online map update / natural voice control / CarLife, CarPlay & MirrorLink to mirror phone to car display / USB Ports / Bluetooth features) is still listed as an option.
The same is true with Excelle GT / XT. Although it was officially announced this year that all users equipped with connectivity applications would be provided with the lifetime free service of enjoying 24G “OnStar connectivity application data traffic” per year, which fully covers connectivity Apps except Wi-Fi hotspot sharing, and allows the user to bid farewell to "anxiety about traffic" and fully enjoy the fun of cloud-based interconnection, it should be noted that it is only applicable to models equipped with connectivity Apps. The 2019 18T Interconnect Flagship edition doesn’t offer the new-generation eConnect intelligent interconnection system as a standard configuration, but continues the configurations of the 2017 and 2018 editions.
Similar situation is also very common among other vehicle models, which means that there is still a large space for increment in the proportion of connectivity features as standard among the large number of new vehicles sold each year. In the case that the navigation and the center console screen are also optional, the application of a mobile phone to replace the connectivity features still exists. At present, a vehicle is generally connected via hardware terminals with 2/3/4G communication modules, such as OBD, IVI and T-Box that are more often factory-installed.
Behind the sales figures hides the vast space for growth in the IoV. On Dec. 29, 2017, the Ministry of Industry and Information Technology (MIIT) and the Standardization Administration of the People's Republic of China (SAC) jointly issued the National Guidelines for Developing the Standards System of the Telematics Industry (Intelligent and Connected Vehicles). By 2020, an ICV standard system that can support driver assistant and lower levels of autonomous driving should have been initially established. Given that vehicle connectivity has been elevated to the national level, it is evident how much emphasis is placed on it. The vehicle connectivity rate is expected to rise substantially in the next few years, evidenced by the IHS statistics that by 2020, the number of connected vehicles will reach 523 million, accounting for 47%. By then, the connected car manufacturers will usher in huge market opportunities.
Factor 2: Strong OEM demands
The prerequisite for the IoV is that the vehicle needs to be equipped with a terminal for network connection. In the past, OEMs did not have a strong desire to offer these terminals as standard features, while consumers were not willing to pay for them either. In the context of vehicle connectivity, a multitude of OEMs have one after another chanted the slogan of getting new cars connected, and made early experimental attempts.
Note: sourced from the KPMG report
SAIC Roewe RX5, BAIC Senova Zhidao and Dongfeng Aeolus are the representatives of early adopters of vehicle connectivity. Features like a 10.4-inch high-definition capacitive touchscreen, high-speed communication connection (4G communication network, bi-directional Wi-Fi communication), AliOS-based Banma Zhixing solution, OTA update and voice interaction are offered as standard on the full-line RX5 models, but the 4G connected entertainment driving system is offered as standard only on a small lineup of vehicles.
The full-line BAIC Senova Zhidao models are equipped with 4G in-vehicle network, GPS navigation, CarLife mobile phone interconnection, conversational AI-empowered IVI system, a 12.3-inch large center console screen, etc., and the Intelligence MAX, one of its main features, is implemented through an AI-empowered intelligent IVI system jointly created by BAIC, PATEO and Baidu.
The new generation Dongfeng Aeolus AX7 is equipped with the first AI-empowered IVI system in the industry named WindLink 3.0, jointly created by Dongfeng, PATEO and Baidu DuerOS, offering the standard features of intelligent interconnection with iOS and Android phones as well as the 10.25-inch ultra-clear 720p fully-laminated capacitive touchscreen. The LCD instrument cluster is available in two sizes, 12.3-inch and 7-inch. The start, AC, doors and windows of the vehicle can all be controlled remotely; the vehicle location and trajectory information can be viewed on the App; and part of the in-cabin features can be controlled by voice, allowing the personalization service (login to personal account via voiceprint recognition).
When compared with Roewe RX5, BAIC Senova and Dongfeng Aeolus are more cost-effective when it comes to LCD instrument cluster and center console screen, with a higher proportion of 4G configuration, making it more convenient for the user to experience the interconnection features. The successful attempts by these leading OEMs are obviously inspirational and motivational for other OEMs. The new models launched by BAIC, SAIC and DFM are just the representatives. At the same time, more and more autonomous OEMs have indicated that they will gradually provide IoV features as standard on new vehicle models in the several years to come, so as to start sharing the new cake of growth in the IoV.
Factor 3: Addressing users’ rigid demands
Behind the huge sales of products equipped with IoV features, there is the power of the young consumer group, who are more willing to accept new things. At the same time, the actual functional performance is also improving, intensifying the user's desire to use. The KPMG report also shows that the post-90s have gradually become the major vehicle buyers who hope that the level of convenience and service of a vehicle can reach that of a smart mobile device.
It’s learnt from actual research that vehicle owners have been frequently using the voice navigation feature during the driving process, while also having expectations for OTA system update; interaction using the car center console is gradually entering the in-cabin user interaction system, and playing a certain role.
Note: sourced from the KPMG report
This phenomenon is quite different from the previous situation where nobody showed any interest in the car center console and navigation, the reason for which is that the technology of the whole IoV industry chain is getting mature, the automotive grade LCD display has been proven, the AI-empowered voice interaction has witnessed significant progress in the context of deep learning, map update is accelerating, and the diversity of in-vehicle systems is increasing. The various factors have contributed to the enhancement of the experience with the IVI mounted on center console, navigation and voice interaction. Users begin to accept the use of in-cabin navigation to replace the mobile phone navigation, which marks that the IoV is helping the owner bit by bit to address their inelastic demands.
Factor 4: Integrated IoV suppliers
The IoV is not a new industry – it has been there imperceptibly for more than a decade. In the wave of vehicle development known as CASE (Connected, Autonomous, Shared, Electric), the IoV sets out anew in the hope of working hard to bring about a turnaround. So, how to fight this battle? The IoV is one of the most thriving and yet most complex auto ecosystems, therefore each party involved should embrace open cooperation and interdependence, and avoid exploring the whole value chain independently.
The entire industry chain involves auto OEMs, network operators, software vendors, content providers, Internet service providers (ISPs), after-sales service providers, and even technology giants. In the process of exploring the IoV operation models, OEMs also need to make adjustments and changes to their organizational structure, development process and innovations in technology.
Note: sourced from the KPMG report
The IoV supplier system is huge and complex. OEMs, as a system integrator, work with hundreds of suppliers for a single vehicle model, so they desperately hope that the IoV terminal equipment suppliers, platform managers, big data services and voice interactions could be integrated, and provided by a unified supplier. Therefore, suppliers offering integrated IoV services are increasingly favored by OEMs, among which, those with years of IoV experience – e.g., PATEO – are equipped with stronger industry expertise and experience, have greater advantages over startups, and are able to provide onboard OS, voice interaction, big data & platform management services, thus becoming the most sought-after in the industry.
Factor 5: High-speed communication network
The most common application of the IoV in the cabin are navigation and audio services, as well as the new interaction methods, such as voice interaction and interactive LCD displays, in the context of intelligentization. The superior experience of these features can only be ensured when network connection is smooth enough. Although the peak speed of 4G network can reach up to 20Mbps, in areas where the network is congested and where the base station coverage is insufficient, a continuous network connection will not be easily got, leading to the dilemma that in-cabin IoV features like navigation and infotainment have no obvious advantage when compared with the mobile phone under 4G communications. The user therefore stops after scratching the surface, making it hard to form the word-of-mouth effect. As a result, the IoV in the 4G context is still more in the stage of user education, with imperfect features and poor experience.
On Apr. 22, 2018, Wen Ku, Director of the Telecom Development Department at the Ministry of Industry and Information Technology (MIIT) revealed the “Timetable” for China's 5G development, in which it said that 5G terminals with demonstrative application capabilities would be launched as early as the second half of next year, and large-scale commercial use was expected to start in 2020. China plans to deploy SA (Standalone) 5G networks in the mid-band spectrum to effectively support vertical industry applications, such as the industrial Internet, while achieving great coverage.
According to industry insiders, 5G which features large bandwidth, low latency and high capacity is designed for industrial Internet applications and services. In the 5G era, the IoV will also usher in a real development climax. The aforementioned features, such as navigation, voice interaction and real-time monitoring which rely on network to offer online service, will slip the leash, and more diversified applications will emerge.
Huawei is an important promoter of 5G development, as well as a core supplier of communication modules. Recently, Huawei and Shanghai PATEO signed a memorandum of cooperation on basis of Huawei's OceanConnect platform, signifying the first openly signed cooperation agreement of Huawei with an IoV enterprise after its establishment of strategic partnerships with multiple automakers, and also another win-win partnership of PATEO with a technology ecosystem giant after its in-depth technical cooperation with Baidu.
After the IoV solves the basic issues in stable high-speed communication, more abundant applications for auto insurance, finance, Cooperative Vehicle-Infrastructure Systems (CVIS), etc., will shoot up like mushrooms. At the same time, the revenue model of the IoV is also quietly changing – in addition to the traditional hardware sales, operation service fee and traffic distribution, everyone will carry out innovative explorations. In the future, the development of various services through automotive data is likely to disrupt the traditional profit model of automobile.
From a combination of the above insights, we find that five major factors are affecting and changing the IoV industry:
1. Release of the incremental market: The current IoV penetration rate is relatively low. According to the Intelligent Vehicle Innovation & Development Strategy drafted by the National Development and Reform Commission (NDRC) based on the research it organized, by 2020, intelligent vehicles will account for 50% of new cars sold in China; by 2025, almost 100% of new vehicles will be equipped with IoV features as standard, leading to a market compound annual growth rate (CAGR) of over 15%.
2. Strong OEM demands: By 2020, SAIC GM will make 100% of its vehicle models gain cloud connectivity, and at the same time start to promote the development of V2X technology. GAC New Energy Automobile Co. Ltd. (“GAC NE”) plans to introduce at least two new intelligent connected pure electric products every year. OEMs represented by the above-mentioned SAIC, BAIC, GAC and Changan have successively released their automotive connectivity planning for the future to accelerate the process of new vehicle connectivity.
3. Addressing users’ inelastic demands: With the emergence of AI technology and the improvement of the industry chain, the IoV features are getting stronger. In the cockpit, it is able to solve more problems and provide high-quality personalized services for the vehicle owner. Now, more and more owners are accustomed to using functional services like onboard navigation, voice interaction and OTA update, behind which, such suppliers as Huawei, Baidu, and PATEO are embracing the strengthening of their rights of discourse in the industry chain.
4. Suppliers are increasingly integrated: OEMs need suppliers that can provide integrated hardware and software services to reduce the distance between the product and the user, and quickly respond to the fast-changing market demand and user feedback. OEMs such as DFM, BAIC, SAIC, and AIWAYS would choose to cooperate with Tie 1 suppliers who are able to integrate upstream and downstream resources, e.g., Banma, PATEO and NavInfo.
5. High-speed communication network is available: China Mobile planned to open 5G product testing to industry customers at the end of 2018, implement user-friendly test in Oct. 2019, and officially put it to commercial use in 2020. China Unicom announced at the 5G & Network Transformation Conference held during Mobile World Congress (MWC) 2018 that it would get down to the large-scale demonstrative application and pre-commercial service of 5G business in 2019, while planning to officially put it to commercial use in 2020. So, the implementation and commercialization of higher-speed in-vehicle communication networks is close at hand.
For the whole industry, the emergence of new technologies and new demands requires both the advanced concepts and the manufacturing industry that is rigorous and compliant – the fastest implementation can only be guaranteed by combining the two. On the other hand, it is also necessary for government agencies, the organizations performing guidance and part of the regulation functions, to provide support for enterprises, e.g., creating a favorable environment for the development of the enterprises, so as to promote their rapid growth, and make them continue to be competitive in the wave of new technologies.