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DIGITAL TRANSFORMATION IN AUTOMOTIVE INDUSTRY

The emergence of new services through digital innovations is increasingly threatening existing business models. Technological trends such as self-driving cars, connectivity, and car sharing in the automotive industry will open up numerous opportunities for new business models. These technologies also create opportunities for innovative new entrants who are in the process of fundamentally transforming the automotive industry.

Digital transformation can be found in almost every industry in the central strategies of companies. The automotive industry is also facing a fundamental upheaval and must go digital. Compared to other sectors, however, the automotive industry is still in its infancy. In particular, the increasing competition from new competitors shows that more customers rely on innovative approaches. In addition, the vehicle continues to lose relevance in everyday life, so that mobility plays a central role in the entire industry.

The automotive industry is in the midst of transformative change led by innovations in cloud technology. In a world where users expect a seamless shopping experience, want mobility options, and want their cars to be as personalized as their smartphones, we can expect the pace of change in the automotive industry to accelerate. The enduring trends of sustainability, safety, convenience, and personalization are relatively unified, but technology drives these trends and changes.

Challenges of the automotive industry in the digital transformation

The automotive industry has always been regarded as Germany's flagship industry. But with digitization, the local automobile manufacturers must also perceive the customers' new requirements. However, a study by the ITC industry association Bitkom clarifies that the automotive industry is increasingly skeptical about digitization.

One in ten now assumes that digitization is a risk for their own company. Nevertheless, 88 percent see great opportunities arising from a successful digital transformation.

Despite these fundamentally positive expectations, it is evident that automobile manufacturers should invest more in relevant digital technologies. Accordingly, only some investments are made in critical technologies such as artificial intelligence.

This trend is surprising since AI, a critical technology, will have a decisive impact on assistance systems and autonomous vehicles.

  • Changing customer requirements
    In particular, people's mobility requirements have changed noticeably in recent years. Accordingly, the manufacturers must push new business areas to continue addressing customers' interests. The vehicle's status is also becoming less and less relevant for young customer groups. Generation Y people, particularly those living in big cities, are increasingly doing without their vehicles. On the other hand, mobility, which is perceived using car sharing or ride-hailing, is more important. In addition to poor traffic conditions, increasing environmental awareness contributes to this trend.
    The vehicle as a status symbol has become increasingly irrelevant for young people. To counter this trend, the automotive groups must rely on attractive services. A change towards a serviceoriented society is also taking place in other areas.
    Instead of selling the vehicle as a classic consumer product, automobile manufacturers can rely on car-sharing services to make the vehicles produced available to a broad user base. To complete this change, the established manufacturers must enter into cooperation. Digital transformation is at the core of this change, which is only possible with comprehensive digitization.
  • Digitization in the automotive industry enables new business models.
    However, the automotive industry change continues after the implementation of new services. In particular, new technologies such as the Internet of Things or the blockchain enable implementation of new business models. Accordingly, the major automobile manufacturers in Germany are already planning new services that enable intelligent route planning based on live data. Car-to-car communication will also play an essential role in the future and enable even faster data transmission in real-time.
    It shows that commuters, in particular, can benefit from these new opportunities and that there is a corresponding willingness to pay for new services. But even more important is the possible cooperation with service providers from other sectors. Cross-sales result in numerous potentials for expanding your business opportunities. Cooperation with entertainment providers such as Netflix could make traveling more pleasant. The vehicles of the future should also be geared towards comfort and practicality.
    However, to achieve this goal, the OEMs have to give up their previous role – the manufacturer of a product suitable for the mass market. Instead, the focus is on the software in the vehicle. This software also enables differentiation from the competition and is an opportunity to create new business models. The connected car, for example, now shows how the user can communicate with the vehicle via their mobile device. A famous example of value-added services is last-mile navigation.
    This extends the navigation of the permanently installed navigation device to the smartphone and also navigates the user to the desired destination on foot. In addition, more and more manufacturers are relying on autonomous parking mechanisms that can be controlled using a smartphone. In the long term, artificial intelligence in autonomous driving will open up new possibilities. The automobile as a property is becoming obsolete due to this development. Instead, users order vehicles on demand and are driven by an intelligent robot.
  • The transformation to an IT company
    The focus of the digital transformation is the change from hardware to the software manufacturer. Due to increasing electrification, the competitive advantages of combustion engines are becoming less relevant. The potential for optimization in modern e-motors is also negligible, so differentiation is made via the functionalities and services provided. This is where your know-how comes into play because sound knowledge of modern IT technologies is the basis for medium to long-term change.
    In addition, the speed of implementation plays a crucial role in success. A unique challenge also arises from emotional customer loyalty. Vehicle purchases are often characterized by emotional motives, resulting in a strong bond between the buyer and the chosen brand. Accordingly, manufacturers must transfer this bond to the new digital products. Finally, a successful digital transformation also requires consideration of the customer experience.
    To accomplish this development, the OEMs have to adjust their organization and processes at an early stage. Modern process models, such as the Digital Transformation Cycle, help transfer existing products and services to the digital world.
    Because the life cycle of digital transformation is comparable to an innovation journey that strives for continuous excellence to react agilely to possible global economic changes, increasing competition, new regulations, technological disruptions, and above all, new customer expectations. This approach allows us to derive digital visions that focus on the customer. Ultimately, automobile manufacturers must anticipate customer requirements and align their business models with these requirements. Here, technology acts as an enabler. The customer experience with the product remains the focus.

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How cloud technology is shaping the automotive industry

Cloud computing is one of the critical technological forces transforming the automotive industry. Flexibility and speed are the main benefits of moving to the cloud. It creates efficiency, delivers meaningful insights, and allows for the development of new, agile business models across the whole value chain. Additionally, non-cloud businesses can reinvent themselves through the cloud.

Cloud technology is helping automotive customers to lead this change with their expertise in four key areas:

  • New technologies
    Emerging technologies such as Artificial Intelligence (AI) / Machine Learning (ML) and HighPerformance Computing (HPC) enable new applications and services for the automotive industry that allow for more complex autonomous driving (ADAS) use cases.
    Automakers can use cloud computing to apply the latest advances in artificial intelligence (AI) to produce cars that are safer, more accessible, and greener.
  • Data
    Data is the basis for all future mobility businesses. It is transforming the industry by accelerating the development of autonomous functions for safety, enabling a higher level of personalization and leading to optimized energy use for sustainability. An automaker that can collect, share and share data across all customer touchpoints can develop actionable insights and new product features. The possibilities are endless. Leveraging data to deliver prescriptive services in vehicle health prediction, driver behavior, demand response, and fuel advice will lead to remarkable user experience transformation and innovative services in the coming years.
  • Industrial IoT
    A truly connected enterprise is the ultimate goal of an automotive company that has matured in its digital transformation. Using data lakes, companies can gain valuable insight into what is happening with vehicles on the road. These insights can then be shared with the manufacturing and engineering teams to increase operational efficiencies, improve quality, and accelerate innovation. These technological advances also impact smart factories, enabling industrial automation to use ML at the edge to analyze images and videos and detect quality issues on fastmoving assembly lines. Automakers using the cloud to process data efficiently will be able to
  • Culture
    Many automakers are on their way to transforming their corporate culture from traditional metal factories to software-driven technology companies. Using data and the cloud opens the way for platforms and partnerships in the industry, allowing them to focus on where they can differentiate themselves in the market. This requires expertise and knowledge of what constitutes an innovative corporate culture. In their quest to foster a culture of digital innovation, automakers have many lessons to share with the cloud companies driving digital transformation in the automotive industry. Automakers should partner with customer-centric companies that focus on recruiting and retaining top talent.
    In a world where agile development, rapid deployment, and unlimited scaling are the new normal, the cloud can help automakers succeed in their digital transformation.

Business benefits of digitization in the automotive industry

The automotive sector has changed rapidly over the past two decades. The industry has seen continuous manufacturing, efficiency, and design improvements, but digitization is critical. Recent advances have resulted in rapid and disruptive innovations that have accelerated efficiency and improved user experience - key areas to increase the return on investment.

The advantages of digitization are numerous and varied. For example, repair and maintenance can increase the accuracy of estimates, while automobile manufacturing can take advantage of better efficiencies.

  • Artificial intelligence in car repair and maintenance technologies
    In years past, manuals have been relied upon to provide everyone with the same guidelines and instructions. However, it would be unrealistic to suggest that manual vehicle instructions can be appropriate for any vehicle. This is because the conditions for different vehicles can vary depending on how you drive them. The ongoing trend for sensors in vehicles is becoming more popular with the help of AI, as sensors draw the owner's attention to the parts of the system that need servicing.
    With predictive maintenance, the driver is informed of a potential fault in the vehicle before it occurs. This prediction works via AI-enabled sensors that make intelligent decisions based on the information obtained. This can significantly benefit commercial vehicles in the transportation sector, as the risk of a breakdown in the middle of the highway causing delays for other motorists can be avoided.
    In vehicle repair, mechanics use AI-powered tools to create diagnostic reports while servicing the vehicle. With the accurate information gleaned from the data collected by sensors and AIassisted tools, mechanics are better able to spot faults and make recommendations. This process is cost-effective and time-saving, increasing vehicle efficiency, lifespan, and customer satisfaction.
  • Digitization in production
    Digitized companies improve connectivity through more communication. This enables manufacturers to improve the entire production continuously. According to Capgemini, automakers expect that by the end of 2022, 24 percent of manufacturing assets will be smart factories. The study also shows that intelligent factories could bring productivity gains of US$160 billion annually to the global industry by 2023.
    Digitizing manufacturing plants can reduce machine downtime by 20-35 percent and maintenance costs by 15-25 percent. Installing sensors in manufacturing plants can offer several benefits to automakers. An example is the ability to predict future usage and diagnose defects. This allows for effective maintenance of production facilities, resulting in a reduction in unplanned downtime.
    Technology using sensors can improve the precision and quality of the stamping process in manufacturers. Any car component can only be helpful if it is made of high-quality materials. Too little material can cause the component to crack, while too much can compromise stability. It is, therefore, imperative that an adequate amount of material is fed into the press. Sensors can automatically modify the amount by detecting the pressure placed on the blanks and adjusting the pressure by lowering or raising the dies. This can improve sustainability by reducing the number of scrap parts.
    In addition, the use of AI-driven technology will be expanded in automotive plants. The systems can organize and control work processes and find problems in components that go into cars. The enhanced accuracy boosts output while cutting expenses. In addition, creating designs digitally not only allows manufacturers to make changes before final construction but also offers greater security through the use of virtual reality.
  • Digital Platforms: Bridge to Revenue Growth
    The COVID-19 pandemic disadvantaged consumers because buying a car often included going to the dealership for negotiations and test drives. The automotive industry had been slow to adopt digital best practices until then, but the pandemic left little choice but to switch to digital solutions. During this time, customer contact changed radically and experienced a clear shift towards digitization.
    The automotive industry is crucial to the economy. While other sectors (e.g., finance, education, leisure, and tourism) are converting their processes to digital solutions, the automotive industry is following suit. The industry has already experienced digital growth, but now all players in this space must be aware of the benefits of going digital. Investing in digital transformation can save costs, increase efficiency, achieve higher product quality, and achieve a better return on investment. After the pandemic, going digital has become crucial for businesses to stay competitive.

Digital transformation trends in the automotive industry

We all experience the impact of digitalization, as it is already gradually taking place in transport. The world is filled with digital maps, which contain information about roads and their load, traffic jams and accidents, surface quality, etc.

Environment: As environmental awareness becomes more essential and environmental policies are implemented to address climate change, people want to use eco-friendly cars. Car manufacturers are trying to build more sustainable vehicles.

Connectivity: The companies in the industry have started to design and produce new cars with connectivity features. Motorists want to change their driving experience and expect:

  • A connection to apps and social media (e.g., music apps)
  • Customized media content and navigation
  • Digital assistance while driving
  • Being able to pay parking fees via the vehicle's dashboard

Autonomous Driving: Self-driving technology will be a reality and widespread soon. Data from cameras and sensors is analyzed by advanced algorithms, enabling people to drive safely. However, privacy and cybersecurity can be significant challenges in this area.

In addition to Tesla, many companies are investing in autonomous vehicles, including Apple, Audi, Bosch, and Huawei. According to McKinsey, autonomous cars will account for 15 percent of all passenger cars sold worldwide by 2030.

Other trends: In addition, the digital transformation in the automotive industry increases process awareness through digital twins, process and task mining, and applications of the IoT in manufacturing. Other trends include increased back-office automation through robotic process automation (RPA) and improved analytics through automated machine learning.

Digitization at German automobile manufacturers

In the meantime, German automobile manufacturers have recognized the relevance of digital transformation and identified digitization as one of the significant megatrends. However, other trends, such as ongoing urbanization, require new models, such as shared mobility or transportation on demand.

The platform concept plays a central role in these two areas in particular. However, from the point of view of the German manufacturers, connectivity and autonomy, in particular, should have a lasting influence on the entire industry. With the help of autonomous driving, around 90 percent of traffic accidents could be avoided, and the tense situation on the road eased again - after all, people spend an average of 38,000 hours of their lives in traffic jams.

IT companies such as Uber and Alphabet are already researching autonomous driving. Accordingly, established manufacturers must refrain from allowing themselves to be demoted to hardware suppliers who merely adopt the competition's technology.

However, it is already certain today that self-driving systems require attractive technical features such as 360-degree laser cameras, high-performance computing units, artificial intelligence, and machine-learning map material. To anticipate this development, manufacturers have committed themselves to become mobility service providers. This change is already visible among some German manufacturers.

However, a fundamental prerequisite for the success of digital change is a change in the underlying corporate culture.

Clear hierarchies characterize the traditional German automotive industry. Accordingly, oldfashioned software development processes based on the waterfall method are also used. However, for a successful transformation, agile methods must be used. If this fundamental change can be completed, the only obstacle to a successful digital transformation is ultimately one's innovative strength.

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Conclusion

The automotive industry has long been regarded as Germany's flagship industry. And even today, the industry is regarded as a job engine. The automotive industry is also facing a decisive change driven by digitization. The manufacturers have to say goodbye to the car as a core product and instead focus on digital business models. These must reach the buyers and continue to bind them to the brands.

Mobility is also playing an increasing role. Megatrends such as autonomous driving will become increasingly relevant soon. However, the basis for successful change is the cultural change in the company.

Once this has been mastered, the focus can be placed on the key technologies. Above all, artificial intelligence, the Internet of Things, or Blockchain technology contributes to developing new business models.

Further development is an increase in crewless vehicles, including public ones. The world is actively testing uncrewed metro trains, buses, and aerial drones.

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