THE NEW REALITIES OF PREMIUM MOBILITY - MCKINSEY CENTER FOR FUTURE MOBILITY - MCKINSEY & COMPANY
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McKinsey Center for Future Mobility The new realities of premium mobility
McKinsey Center for Future Mobility
The new realities
of premium
mobility
Authors
Jan-Christoph Köstring
Timo Möller
Simon Middleton
Andreas Tschiesner
Asutosh PadhiExecutive summary
The premium automobile segment inspires consumers and OEMs
alike. For car buyers, the precision design, engineering, and
sophistication of premium brands have engendered perennial
interest and enduring loyalty. For automakers, this dynamic
has made the premium segment immensely profitable.
After years of strong sales and steady 3. The new differentiating factors in
growth, the premium car segment is premium: from Nürburgring lap
cruising into a bumpy stretch of road. time to design and connectivity.
New McKinsey research has identified The rise of electric powertrains
five overarching trends that will upend will turn auto performance, once
the auto industry in the coming years a distinguishing factor for premium
and force OEMs to respond with brands, into a commodity. Going
decisive action. forward, superior connectivity and
interior design will become decisive
1. Divergence across the triad:
factors for premium consumers.
China, Europe, and the United
States. Premium automakers 4. Brand remains king—but evolves.
historically have developed models The concept of a monolithic
for a global market. However, our brand will face challenges from
research reveals that consumers in the non-OEM companies behind
the segment’s primary markets— the proliferation of mobility
China, Europe, and the United services, which are beginning
States—vary widely on what they to compete directly with OEMs
value most in a premium vehicle. on brand. In addition, OEMs that
add more products, services, and
2. Premium customers driving
partnerships will be challenged
digital disruption. Far more than
to maintain their brand amid
other segments, the premium
increasing complexity.
ownership journey is increasingly
digital, and consumers are engaging 5. Driving disruptive force: regulation.
with brands through a range of In markets around the world,
digital channels. The influence of governments are establishing more
digital has also helped to fuel the stringent emissions standards. At the
appetite of premium consumers for same time, the rise of autonomous
shared mobility solutions. vehicles is forcing elected officials
and policy makers to implement
regulations that balance consumer
adoption with public safety.
2 The new realities of premium mobilityCollectively, these trends are forcing — Be agile. Flexibility and agility — Become a premium mobility
premium OEMs to evaluate every facet in design, engineering, and provider. As mentioned earlier,
of their approach to auto design and manufacturing are critical to reduce OEMs can generate significant
manufacturing. Incumbent OEMs are the time to market and adapt to additional value from mobility by
well placed to unlock new opportunities changing consumer preferences. focusing on service-based business
and bring innovation to their strategies. Given the different pace of models that provide access to a pool
In this shifting environment, we believe advancements in car manufacturing of vehicles. Key will be to leverage
several areas hold the key: and technology, traditional the desirability of their products
manufacturers in the premium space as well as to provide a premium
— Know and embrace your customer.
must embrace agile principles to experience to keep the third party
With market growth for premium
synchronize the widely disparate mobility providers such as UBER at
cars slowing down and partially
development times of vehicles and a distance and/or make the demand
stagnating, premium OEMs have to
connectivity services. for the products sod distinctive that
find new opportunities in smaller
the success of premium mobility
pockets of growth to continue their — Strengthen and differentiate
providers will depend on offering
success story. This, however, means the brand. The future role of
the OEMs’ products. Beyond
that they will need to innovate their brands for premium OEMs cannot
the sheer offer aspect, OEMs
offers along 3 dimensions: (1) they be overemphasized. With sheer
should also leverage their ability
will need to find new ways to address product differentiation becoming
to generate distinctive insights
granular customer needs and create more and more difficult with the
about customer behaviors through
demand without always adding advent of electromobility and
advanced analytics that can inform
massive product complexity with brands becoming more and more
the development of high-potential
the new, costly product derivates. stretched through mobility offers,
services and how to monetize
(2) They will need to widen their premium OEMs need to overinvest
them. To do so, OEMs will have to
spectrum from being a sheer car into their brands and translate their
embrace a larger and more complex
manufacturer to being an end-to- brand essence into all elements
ecosystem that involves technology
end premium mobility provider that of their offer. As our research has
partners and other third parties.
is able to address widely differing shown, customers are willing to
customer needs. And (3) they will “fight” for their brands even when Premium OEMs need to rethink their
need to rethink their relationship using third party mobility providers approach to develop the right products
to the customers, from primarily such as UBER. Yet, this preference and services for the right customers in
focusing on one-time transactions for the brand needs to be constantly the right places. The most successful
towards becoming a relevant partner nurtured across all customer automakers will commit to the belief
in a true lifetime relationship with segments, including the increasing that the sale of these products and
continuous interactions beyond segment of non-car owners, so services is just the beginning of a long
servicing the car. Only if the premium OEMs need to double down on and valuable relationship with their
OEMs will be able to this, they will developing a clear “brand design customers, supported and sustained
tap new opportunities for growth language” that includes signature by software-enabled customization
and profitability. And to do so, they elements that can be found across and a superior “end-to-end”
will need to step-change their all mobility offers. Finally, with the customer experience.
understanding of the customers and increasing number of offers and
complete a mindset shift from driving the multitude of available channels,
their business from an engineering- OEMs need to implement a rigid
lens towards challenging the way brand monitoring and management
of doing business through a true to keep the brand promise across
customer-lens. offers and channels.
The new realities of premium mobility 3Introduction
It’s no secret why consumers have been drawn
to premium cars for decades. These globally
recognized brands project sophistication
and style. With precision engineering, sleek
design, and well-appointed interiors, their
vehicles offer a sublime experience.
40%
Such features have made premium We believe incumbent premium
automobiles not only coveted by drivers OEMs are well placed to unlock new
but also immensely profitable for OEMs: opportunities and bring innovation to
in 2017, this segment made up 13 percent their differentiation strategies. They
of vehicle sales but 40 percent of profits. also have an unlikely friend in regulatory
Year after year, premium OEMs have bodies. Specifically, the pressure of
of profits belong to premium, with only waged a battle for dominance in the evolving regulations, particularly on
13 percent of vehicle sales. familiar realms of performance and emissions and autonomous driving
styling in an effort to delight buyers. functionality, actually serves as
a catalyst for premium OEMs. The
The backdrop is a tightening market
need to respond rapidly will help move
environment. Prospects for the premium
premium automakers towards new
segment are reassuring in the near
levels of differentiation in products
term—global growth is forecast to
and services, enabling them to create
be around 2 percent a year through
additional value.
2021 before increasing significantly
until 2030. However, changing market As OEMs seek to redefine the features
dynamics are beginning to be felt. of their premium offers in this shifting
New McKinsey research sheds light environment, we believe four areas
on the seismic shifts afoot. Divergent hold the key: know and embrace your
consumer preferences across the United customer, be agile, strengthen and
States, China, and Europe are eroding differentiate the brand, and become
OEMs’ once-unquestioned position as a premium mobility provider. Across
tastemakers. The incursion of electric these areas, a granular strategy will
powertrains threatens to commoditize help OEMs understand what is required
the performance benchmarks that and relevant at the regional level and
have long defined premium cars. The keep pace with changing consumers.
integration of digital technology and
In discussing the five trends that will
connectivity into car design, combined
upend the premium automotive market
with their ubiquity beyond the four
and recommended pragmatic actions,
wheels, has made tech-enabled features
we rely on our experience, analyses, and
as coveted—if not more so—than
industry expertise. This knowledge was
traditional car performance. Indeed,
augmented with insights derived from
interior design now regularly rivals
a survey of more than 2,000 consumers
exterior features among top consumer
and interviews with more than
preferences. Collectively, these trends
200 experts and executives in the
will force premium OEMs to reevaluate
premium automotive segment across
every facet of their approach to auto
China, Europe, and the United States.
design and manufacturing.
4 The new realities of premium mobilityPart I.
Five trends shaping a new
reality in the premium and
high-end automotive world
12%
From 2009 to 2017, our analysis found profit. Indeed, the strength of premium
the premium vehicle segment1 grew at a brands, their higher-end finishes, and
compound annual growth rate (CAGR) integration of technology enable OEMs
of 9 percent in volume and 12 percent in to charge more for these models and
revenues. This strong expansion resulted command higher loyalty from consumers.
from a confluence of factors, including a However, rapid changes in the automotive
growth in revenue CAGR 2009-2017. proliferation of premium vehicle offers, industry—caused by changing customer
increasing consumer wealth in key preferences, enabled by technology,
regions, and a flourishing set of available facilitated by design, and mandated
features to appeal to consumer segments by governments—are redefining the
with varying taste and financial resources. definition of “premium.” (See sidebar,
More than 85 percent of the premium “The evolving definition of ‘premium.’”)
vehicles delivered worldwide in 2017 were
manufactured in just three places: China,
Europe, and the United States. (Exhibit 1).
The premium segment itself is extremely
lucrative for OEMs, representing
13 percent of volume but 40 percent of
1
Our analysis covered the top 21 OEMs by revenue.
The evolving definition of “premium”
In the automotive industry, the to change when premium OEMs This current market is now set to
“premium” designation is subject started to invest in building their be bolstered by a new definition of
to multiple interpretations—not brands and extending their portfolios premium characterized by the five
least because the very concept has (second horizon)—sometimes even key trends discussed in this report.
evolved. The premium segment sits down to the compact class. This era Indeed, the fourth horizon will go even
between mass-market vehicles was followed by the current phase, further to release customers from
(commoditized, entry-level, value- in which almost every major OEM simply spending more for premium
driven cars) and luxury vehicles has launched a premium brand to offers to paying for experience
(the top end of performance and carve out a profitable niche in the and customization.
craftsmanship). Examining the premium market (third horizon). At
In this report, “premium” is defined
premium market at a more granular the same time, “high priced” has
as the segment of the automotive
level, however, highlights the nuance been replaced with the idea of “price
industry centered on convenience,
of the designation. Well into the premium,” reflecting the idea of
comfort, performance, and
1970s, “premium” in automotive was actual value in which customers are
experience beyond what is offered
synonymous with high-priced cars prepared to pay for certain offers
by the mass-market segment and for
(first horizon). This definition began from strong brands.
which customers are willing to pay.
The new realities of premium mobility 5Exhibit 1
Premium and value segments vary significantly across
regions, but premium remains critical to OEM profits
2017 Entry Value Premium
OEM profits, Auto profitability,
USD billions Percent
13%
1.7
China1 19.4 10
19.9
0.5
of total sales volume belongs to Europe 15.0 6
premium segment. 12.8
1.3
India 0 4
40%
0.1
2.4
Japan and 5.8 9
Korea 2.9
of total OEM profits belongs to
premium segment. 0.1
Latin -1.2 -1
America 0.2
0
North 29.7 7
America
13.2
0
Russia -0.3 -1
0
0.5
Rest of 2.2 4
world2 4.0
Total 6.0 71.0 53.0 7
1
China includes China joint ventures, local players, and imports into China
2
Rest of world includes Australia, New Zealand, Southeast Asia, Middle East, and Africa
Source: McKinsey automotive profit tool
6 The new realities of premium mobilityPremium automotive brands have Exhibit 2
traditionally used technology and high-
Five trends are shaping the premium auto segment
end craftsmanship to differentiate their
products from mass-market vehicles.
Based upon our analyses and industry
expertise as well as on insights from 1 Not one segment—divergence across China vs. US
vs. Europe
leading automotive premium market
experts, we have identified five distinct
trends disrupting the premium segment
(Exhibit 2). Of course, digital technology
underpins these trends; extensive
2 Premium customers are leading
the disruptive movement
McKinsey research has established
that four industry-wide developments—
3
autonomous driving, connectivity, Connectivity and design are the new Nürburgring
electrification, and shared mobility— lap time benchmark
will mutually reinforce each other and
revolutionize the mobility sector for
premium and mass-market consumers
alike.2 However, this disruption isn’t the
only catalyst for change, as regional
4 Brand as last line of defense
differences and regulations contribute
to shaping the future of the segment.
Together, these five trends, which are
being felt to varying degrees now, 5 Regulation is the number one disruptor
are compelling OEMs to differentiate
their premium offers in new ways.
suggests that the premium market in companies in Chinese EV OEMs,
Survival is at stake, as surveys suggest
China will experience annual growth of relaxing purchasing restrictions, and
new capabilities could cause even
around 4 percent from 2017 to 2023, increasing driving privileges as well as
consumers who are brand loyalists to
while the European and US markets are subsidies for EV customers. EV vehicles
switch their allegiance.
forecast to hold steady. This trajectory see higher adoption among premium
would put China’s premium market on consumers compared with mass-market
1. Divergence across par with that of the United States in consumers because the premium price
the triad: China, Europe, and terms of sales volume by 2023. point is sufficient to accommodate EV
the United States technology into autos.
A major driver of the growth forecast
While Chinese, European (primarily for China’s premium segment is the These efforts have also translated to
German), and US OEMs will continue proliferation of Chinese start-ups investor interest in the EV segment.
to dominate the market in the coming focused on electric vehicle (EV) and From 2015 to 2018, investors directed
decade, we are likely to see a shift in the autonomous vehicle (AV) technology. more than $6.8 billion to Chinese
global balance. As of 2017, the United The country is putting in place OEMs, a CAGR of 262 percent. The
States was the clear volume leader monetary and nonmonetary policies combined total investment in Europe
(delivering 1.4 million premium vehicles), to sustain EV sales. These regulatory and the United States during this
followed by China (1.0 million) and Europe changes primarily involve liberalizing period was just $2.7 billion. As a result,
(0.9 million). However, our analysis the participation guidelines for foreign European and US OEMs are feeling
2
For more, see “Artificial intelligence as auto companies’ new engine of value,” January 2018, on McKinsey.com.
The new realities of premium mobility 7significant pressure to keep pace so experience of ownership. China is The premium ownership journey is
that Chinese manufacturers don’t use the only region of the three in which increasingly digital
the low cost of their local production to brand and connectivity currently The vehicle ownership process starts
corner the future EV market. make the top five; in Europe and the with prepurchase consideration
United States, consumers are more and extends to all services offered
While many elements of the premium
concerned with interior and exterior throughout the lifetime of ownership
autos are universal, we can expect
design. However, as we discuss later, until the next vehicle purchase.
differences across the segment’s
these preferences will continue to For premium customers, digital
primary markets—China, Europe,
evolve differently in each region— technologies are becoming integral
and the United States—to shape
effectively redirecting the focus of components of every stage of this
the impact of all of the segment’s
OEMs with premium brands. journey—particularly at the outset.
trends, from consumer preferences
McKinsey has found that 73 percent
to brand power to regulation. Indeed,
these three markets vary widely 2. Premium customers of premium customers start their
driving digital disruption buying journey online, compared
when it comes what consumers find
with 62 percent of mass-market
most important in a premium vehicle Our analysis found that premium
customers. Several factors may be at
(Exhibit 3). According to McKinsey’s customers are at the vanguard
play, including a higher rate of internet
2018 “Future of Automotive” consumer of the digital buying journey and
access among wealthier consumers.
survey, for US consumers driving shared mobility solutions. At rates
Furthermore, the more expensive the
performance is the most important higher than their mass-market
car, the more extensive the buying
feature, while consumers in China counterparts, premium customers
decision—meaning premium customers
and Europe put powertrain at the top are adopting digital technologies
are likely to spend more time learning
of the list—both features that have in their purchasing journey and
about their options; indeed, premium
traditionally defined the premium in their set of mobility options to
customers in the same survey rated
vehicle segment, along with overall complement ownership.
online price aggregators as the most
Exhibit 3
Premium consumers have largely different preferences across major markets
Top five most important features for consumers across three main markets¹
Europe
1 Powertrain
2 Interior design and
functionality
3 Driving performance
4 Exterior design
5 Overall experience
of ownership
United States China
1 Driving performance 1 Powertrain
2 Overall experience 2 Driving performance
of ownership
3 Brand
3 Interior design
and functionality 4 Connectivity
4 Powertrain 5 Overall experience
of ownership
5 Exterior design
1
Full list of features: powertrain (electric driving range, charging rate, engine technology), driving performance (performance, driving feel, driving technology),
functionalities (vehicle connectivity, AI, autonomous driving), styling (exterior styling, interior styling, interior functionality, and space), service (overall experience of
ownership), brand image, and reputation
Source: McKinsey “Future of Automotive” consumer survey 2018
8 The new realities of premium mobility73%
important digital application of the and purchase phases but also to
vehicle ownership process. And as the build loyalty throughout the lifetime
premium segment continues to expand of the customer beyond a single
the options available, consumers will product interaction.
continue to research the complexities
As with the product features described
and trade-offs of various vehicles,
in the first trend, the preferences of
brands, and options. of premium customers start their
premium customers as they relate to
buying journey online, compared with
Premium and mass-market consumers digital technologies vary by region
62 percent of mass-market customers.
are about equally likely to actually as well (Exhibit 4). For example, while
buy the car online (52 and 55 percent, 82 percent of premium consumers in
respectively). However, during the China reported starting their buying
lifetime of the vehicle premium journey online, that share drops to
consumers are coming to expect more 73 percent in the United States and
digital services, such as maintenance 54 percent in Germany (which our
alerts and offers from the vehicle’s analysis uses as a proxy for Europe).
onboard system information as well as In addition, 70 percent of premium
software providing product selection customers in Germany and 60 percent
advice and driving recommendations. in China report a willingness to purchase
Premium customers’ receptivity their next vehicle online, but that
to and familiarity with digital number drops to 36 percent for US
technology provides OEMs with premium customers. These regional
the opportunity to offer customers differences have significant implications
enhanced experiences not only for OEMs aiming to maintain or increase
during the consideration, evaluation, their market share in these regions.
Exhibit 4
More than 70 percent of premium consumers start researching vehicle information online,
and more than 50 percent are ready to purchase online
Share of respondents who answered Yes, percent Premium
Mass market
When buying your current car, or for an upcoming Would you like to buy your next car online?
purchase, did you start researching information online?
82 82
73 73
70 70
62 62 63
60 60
54 52 55
36 33
Global China United Germany Global China United Germany
States States
Source: McKinsey “Future of Automotive” consumer survey 2018
The new realities of premium automotive market 920%
Premium consumers’ appetite for whether the alternative mobility
shared mobility solutions is growing solution involves being driven by
Shared mobility is gaining steam someone else, as with chauffeuring
across the globe; to date, at least platforms, or driving themselves, as
€25 billion has been invested globally with pay-per-minute car sharing and
in ride-sharing start-ups, including subscription-based ownership.
of vehicles purchased in 2025 will be chauffeuring platforms, pay-per-minute
Along with the enthusiasm of premium
used for car sharing. car sharing, and subscription-based
customers for these mobility services,
memberships. 3 In our global survey,
however, comes an attachment to
premium auto experts and executives
their privately owned vehicles. More
predicted approximately 20 percent
than two-thirds of premium customers
of vehicles purchased in 2025 will be
indicate a willingness to make car
used for car sharing, with the greatest
sharing part of their mobility mix,
demand from dynamic subscriptions
but only 5 percent would “trade in
and fully automated taxi dispatchers.
[their] car and use an on-demand car-
This shift is clearly being fueled by sharing service as [their] main mode
customer affinity for new mobility of transportation.”5 This is good news
options—but this preference varies for OEMs, as it provides assurance
by customer segment. Our consumer not only that premium consumers will
survey found that premium car owners continue to buy private vehicles but also
are more likely than their mass-market that participation in alternative mobility
counterparts to supplement private- offers will also continue to be viable.
vehicle use with mobility solutions Still, third-party competition is stiff in
(Exhibit 5). 4 This pattern holds true some segments and regions.
3
Mark Chediak, “There’s never been more money pouring into mobility startups,” Bloomberg, February 2,
2018. https://www.bloomberg.com/news/articles/2018-02-02/there-s-never-beenmore-money-
pouring-into-mobility-startups.
4
60 percent of survey respondents were car owners, and of this group 76 percent owned premium
automobiles.
5
McKinsey “Future of Automotive” consumer survey 2018.
Exhibit 5
Premium consumers are more likely to use mobility solutions than mass-market owners, yet
90 percent will not substitute their vehicle
Share of owners who see mobility services Share of premium consumers preferences for mobility services vs.
as valuable or very valuable ownership
Percent
38% 38%
Premium Not use a car-sharing service at all 26
car owners
prefer being prefer driving Own car and use car-sharing services,
depending on circumstances 55
driven themselves
24% 26%
Use a car-sharing service as main mode of trans-
Mass market portation and own a car for specific requirements 13
car-owners
prefer being prefer driving Trade in owned car and use a car-sharing service
driven themselves as main mode of transportation 5
Premium-car owners are more willing to use chauffeuring and car-sharing platforms than mass-market car owners.
However, only 5% of customers would trade in their owned vehicle for a mobility service
Source: Press, company website, McKinsey “Future of Automotive” executive and expert survey 2018, McKinsey Consumer Survey 2017, McKinsey “Future of
Automotive” consumer survey 2018
10 The new realities of premium mobility3. The new differentiating particularly in China.6 And while 0-60 mph time of current battery
factors in premium: from design has arguably always been a electric vehicles on the market is
Nürburgring lap time to consideration, interior functionality 4.3 seconds compared with 6 seconds
design and connectivity is expected to have greater influence for cars with internal combustion
on purchasing decisions for engines. There are variations by region,
Throughout the early 2000s, many
premium customers than their mass- but in general, premium EV customers
in the industry assessed premium
market counterparts. The relative are most concerned with driving range
and sports cars by their ability to
importance of these features is further and battery-charging rate as the most
set record-breaking lap times at the
strengthened by the fact that technical important aspects of the powertrain
famous Nürburgring motorsports
performance—once a hallmark of (Exhibit 6).
complex in Germany. This challenging
premium—is being commoditized
circuit became the proving ground Coming in third for premium customers
as EV technology unlocks levels of
for countless performance cars; is performance, which includes
performance previously seen only at the
increasingly, the de facto claim for acceleration and suggests that while
highest levels of premium vehicles.
a new premium car was that it had battery-related aspects are important,
set a record. To do so often meant Thanks to electrification, performance customers still value responsiveness.
optimizing car performance for the will become a commodity As EVs proliferate—accounting for
track while compromising real-world Of course, vehicle performance is not 20 to 30 percent of all new vehicles
performance, making this benchmark lost on premium customers. But the in 2030—performance features once
inherently flawed. classic differentiator—the powertrain— considered premium, such as superior
is losing its edge. Planned launches acceleration, will become standard.
Now, we see that connectivity and
of models with hybrid and electric Specifically, as battery costs fall
design are becoming the critical
vehicle (xEV) powertrains is set to (the industry has seen a 73 percent
differentiators for premium customers
increase dramatically, from 35 percent cost reduction since 2010), EVs
in choosing premium vehicles. The
in 2019 to more than 60 percent in capable of 0-60 mph acceleration in
former is so important that customers
2021,7 effectively leveling the playing less than four seconds will become
are willing to switch premium brands
field on acceleration: the standard abundantly available.
to get the connectivity they desire—
6
McKinsey “Future of mobility” consumer survey 2015 and 2017.
7
IHS Markit.
Exhibit 6
With the advent of electric power, the focus will shift from performance to battery features
Premium vehicle performance Which features do you value most in an electric vehicle?
0-62 mph, seconds Share of consumers, percent
ICE premium EV premium Driving range 21
9.0
Slowest Charging rate 19
7.5
Performance 17
Increasing performance
6.0
Slowest Environmental friendliness 11
4.5 Fastest Range of power choices 9
Access to low emission zones
3.0 8
Fastest and parking
1.5 Noise level 8
Customer experience and
0 7
purchasing process
Source: McKinsey “Future of Automotive” executive and expert survey 2018, McKinsey “Future of Automotive” consumer survey 2018
The new realities of premium mobility 11Superior connectivity will be the outside world, and even tell jokes. market consumers across regions
a decisive factor Against this backdrop, and as the (Exhibit 7). In general, customers in
Customers are used to full, often ways in which vehicles are connected China are more willing than those in
remote, control over their personal to the internet has grown rapidly in Germany and the United States to
environments at home and are coming the past two years, the percentage of switch based solely on connectivity
to expect the same from their car. consumers willing to change car brands capabilities—no surprise given that
Digital “personal assistants” such as for better connectivity has doubled. 8 Chinese consumers already place
Alexa and Siri keep grocery lists, send Premium consumers are more likely to connectivity as a top-five requirement
messages, set meetings, navigate switch allegiance compared with mass- for a premium vehicle.
8
McKinsey “Future of Automotive” consumer survey 2018.
Exhibit 7
Connectivity offer, especially for navigation purposes, will determine vehicle choice for
premium consumers
Average daily time spent on social media¹ Connected devices per household¹
Hours:minutes
2012 2017 2012 2017
×1.5 ×2
1:30 2:15 1.9 3.7
Customers expect their digital ecosystems to be online, all the time
Willingness to switch to another car manufacturer² Top connectivity features
Share of consumer respondents, percent Share of premium and luxury consumer respondents
Premium Mass market Vehicle communication with smart roads and traffic
1
services
China 58 46 Vehicle communication with other vehicles
2
(for example, to predict traffic)
Full integration with current and older
United 3
41 34 smartphones
States
Full integration with “personal” assistants
4
(for example, Siri or Alexa)
Germany 24 23 Full integration with media subscription services
5
(for example, Spotify)
Car connectivity is a key differentiator for OEMs, as Communication with roads, traffic services, and other
premium consumers indicate better connectivity would vehicles is considered most important feature, while
be a switching factor, particularly in China integration with mobile phone is an absolute necessity
1
Strategy analytics, Global Web Index
2
If it were the only one offering a car with full connectivity; McKinsey “Future of mobility” consumer survey 2015 and 2017
3
McKinsey “Automotive Revolution—perspective towards 2030”
Source: McKinsey “Future of Automotive” executive and expert survey 2018, McKinsey “Future of Automotive” consumer survey 2018, strategy analytics,
Global Web Index
12 The new realities of premium mobility1/3
Specifically, premium consumers The value that premium customers
ranked connected navigation—including place on connectivity services has
real-time traffic, weather, and road significant implications for OEMs. We
conditions—as the connectivity estimate that connectivity services will
feature most critical to their next car be an important revenue generator in
purchase (Exhibit 8). One-third of premium as they may represent 5 to
of premium consumers said premium consumers said they wouldn’t 10 percent of OEM revenue in 2030,
they wouldn’t buy a car without buy a car without such connectivity; up from 1 percent in 2016.9 Indeed, the
connected navigation. a similar proportion said the same recurring revenues from data-enabled
about automated collision prevention at connectivity services will grow as
intersections. Autopilot capabilities and today’s basic services such as real-time
automated guidance to available parking maps, onboard diagnostics, and keyless
spots will be a differentiating factor for entry evolve into more sophisticated
one in five premium consumers. capabilities such as live road conditions
reports, predictive service booking, and
targeted advertisements.
9
McKinsey “Automotive revolution—Perspectives towards 2030,” January 2016.
Exhibit 8
Premium consumers rate connected navigation as the most critical vehicle technology for
future vehicle purchases
Importance of vehicle technology features for next car purchase, premium consumers Useful, but not crucial
Share of respondents,¹ percent Critical, would not buy car without it
100
Connected navigation, including real-time
33 67
traffic, weather, and road conditions
Automated collision prevention at intersections 32 68
Autopilot in selected environments,
23 77
(for example, on highways)
Networked parking, including automated
20 80
guidance to available parking spots
Full automation, with no interaction needed
18 82
but driving apparatus still present
Self-parking on private property
17 83
(for example, garage or carport)
Automated platooning with other cars to
14 86
save fuel and reduce congestion
1
Selected premium OEM owners asked “Imagine your next car purchase. How important would the below features be in your buying decision?”; n=895
Source: McKinsey “Future of Automotive” consumer survey 2018
The new realities of premium mobility 1390%
Design is core A more granular look reveals two
In addition to connectivity, our categories of interior features as
analysis suggests that interior styling the most important in the coming
is becoming a differentiating factor years; environmental enhancements
for premium vehicles in the near (for example, air purification) and
term—even as experts and executives comfort features (such as massaging
of automotive experts and executives predict the importance of exterior seats). More generally, we believe
expect that interior features such as styling will decline (Exhibit 9). Nine in premium customers are looking
display screens, interior space, and the ten automotive experts and executives for more innovative, multipurpose,
use of high-end materials will have more also expect that interior features, such and ergonomic cabins capable of
impact on the premium market than on as display screens, interior space, and supporting the way they want to live
the mass market. the use of high-end materials, will have their life today. The customization of the
more impact on the premium market space to the specific individual, rather
than on the mass market, as OEMs have than the specific vehicle, is a rich area
fewer ways to set premium autos apart of opportunity for OEM differentiation—
from the competition.10 for example, temperature, routing, and
other preferences could be dynamically
This forecast by experts aligns with
matched to drivers as they move from
consumer self-reporting about the
one vehicle to the next.
importance of interior functionality. Half
of premium US customers state that
interior functionality is very important.
Again, however, we see regional
differences; for premium customers in
China and Germany, that number drops
to 40 and 38 percent, respectively.11
10
“Future of Automotive” executive and expert survey, McKinsey, 2018.
11
McKinsey “Future of Automotive” consumer survey 2018.
Exhibit 9
Exterior and interior styling are top differentiators
Importance of customization in five years More important Impact of interior features in premium
No change
vs. today vs. mass market
Less important
Slightly
Exterior 39 51 10 52
more impact
Significantly
Interior 71 29 35
more impact
While both exterior and interior styling will be differentiating factors for premium OEMs,
interior customization will become more prominent
Source: McKinsey “Future of Automotive” executive and expert survey 2018, McKinsey “Future of Automotive” consumer survey 2018
14 The new realities of premium mobility45%
4. Brand remains king— 5. Driving disruptive force:
but evolves regulation
Premium OEMs will need to rethink According to the McKinsey “Future
their strategies as two elements begin of Automotive” executive and expert
to challenge what was once a reliable survey 2018, automotive experts of premium consumers who use shared
asset: brand power. see regulation as the single biggest mobility services rate vehicle brand
disruptor for OEMs from 2017 to 2023. important in on-demand car sharing.
41%
First, the non-OEM companies behind
Specifically, regulations on emissions
the proliferation of mobility services
and autonomous vehicle technology
are beginning to compete directly with
will have the largest impact. The
OEMs on brand. Uber, for instance,
opportunity arises for the OEMs
saw its brand value climb from
best able to address the specific
$11 billion in 2016 to $16.6 billion in
challenges presented by regulatory of premium consumers who use
201812 —roughly equivalent to the brand
constraints, including typically short shared mobility services rate vehicle
values of Audi and Porsche. The good
timelines for impact, a lack of (or brand important in on-demand
news is that even in shared mobility,
changing) regulatory direction, often chauffeuring services.
premium consumers still value vehicle
divergent or mismatched regional
brand; a McKinsey survey found that
differences, and underlying political
45 percent of premium consumers
instability. And of course, the fact that
who use shared mobility services rate
vehicle sales transcend regulatory
The impact of London’s
vehicle brand important in on-demand
borders adds complexity, as OEMs emissions regulations
car sharing, and 41 percent rate it
seek to derive scale advantage related London has been at the vanguard
important in on-demand chauffeuring
to both emissions and AV-related of cities in seeking to limit
services.13 These preferences give
regulation and the various markets emissions from vehicles, and
OEMs an opportunity to use the brand
they serve. its ever more ambitious targets
capital they have built to capture value
for emissions reductions have
in the mobility solutions space. Meeting increasingly stringent
been matched by increasingly
emissions standards
Second, as OEMs expand their stringent regulations on vehicles.
Today, China, the European Union, and
portfolios to include more products, Dating back to the early 2000s,
the United States are in the middle
services, and partnerships, they face London was already implementing
of five-year efforts to reduce carbon
the risk of increasing brand complexity. measures such as a congestion
emissions. Beyond 2020, each region
In other words, as OEMs tackle new fee for vehicles. More recently, the
is also looking to set ambitious targets.
customer segments, increase global city’s goals— such as a 60 percent
In December 2018, for example, the
awareness of their brand, and enter the reduction of CO2 emissions
EU established an emissions reduction
mobility game on their own terms, they (against 1990 levels) and the sale
target of 37.5 percent by 2030. These
also face the challenge of a stretched of 250,000 ultra-low-emission
efforts are forcing OEM executives
or diluted brand. For example, OEMs vehicles by 2025—all correspond
to adjust their strategies in response.
rolling out EVs will need to balance the to a ban on gasoline-fueled autos in
(For one example, see sidebar,
brand reputation of those vehicles with the city center that same year.
“The impact of London’s emissions
ongoing ICE vehicles.
regulations.”) Premium OEMs are better To pursue these targets, London
positioned to comply with emissions has instituted a number of
regulation, as their customers are measures aimed at changing
typically willing to pay for vehicles with driver behavior through financial
cutting-edge technology. To achieve disincentives, such as £10 toxicity
these targets, regulatory bodies will charge on top of a congestion
aggressively promote BEV technology charge for high-polluting vehicles
and set tighter restrictions on internal in central London. With programs
combustion engine vehicles. that encourage the purchase and
operation of electric and hybrid
vehicles, the city’s regulatory
trajectory serves as an early
indication of the additional (and
varied) regulations that premium
OEMs will have to address in order
12
to stay competitive in global cities.
Brand Finance; Global Top 500.
13
McKinsey “Future of Automotive” consumer survey 2018.
The new realities of premium mobility 1554%
The rise of autonomous vehicles premium customers are more likely
Eight of the top ten OEMs plan to than their mass-market counterparts
have highly autonomous technology to agree that OEMs will guarantee
by 2025—and this technology will be the safety of these features. To this
showcased in the premium segment end, premium OEMs are introducing
before the mass market. Approximately autonomous features to their
of customers globally are willing to 70 percent of automotive experts vehicles incrementally.
pay a premium for automated driving predict that L314 will be the minimum
Regulatory bodies, however, are the
functionalities. autonomy requirement for customers
gatekeepers of AV implementation.
in the premium and luxury segments
As regulations allow for an increasing
(Exhibit 10).
number and level of autonomous
More than half of customers globally features on roads, shared mobility
(54 percent) are willing to pay players are expected to be first
a premium for automated driving adopters, given the potentially huge
functionalities; however, the current reduction in operating costs that AVs
price-point expectation ($4,250 in could usher in. Accordingly, these
addition to the vehicle’s base price) companies have taken the lead in
is below what it would cost OEMs educating consumers on the benefits
to deliver it today. Furthermore, of the technology.
14
Conditional automation (driver must be able to intervene).
Exhibit 10
More than 70% of experts expect consumers to demand automation of L3 and above by 2025
What level of automation do you believe will be the minimum requirement by consumers for vehicles in your segment
by 2025?
Share of respondents, percent (n = 31)
No automation, driver controls car
L0 3
without any support
Minimal driver assistance (for example,
L1 adaptive cruise control and automated 6
braking)
Semi-autonomous driving assistance
L2 (driver must always pay attention) 23
Conditional automation (driver must be
L3 42
able to intervene)
L4 High automation (driver should not
need to intervene)
19
~70
Full automation (driver not required)
L5 6
Source: McKinsey “Future of Automotive” executive and expert survey 2018
16 The new realities of premium mobilityPart II.
Recommendations for
premium players
The increasing importance of digital technologies to support the customer
journey, changes in brand power, and regulatory uncertainty will continue to
disrupt the premium automotive segment. But just as premium players will be
uniquely affected by these trends, they are also uniquely positioned to tackle them
head on. Premium OEMs that act now to take advantage of the unprecedented
opportunities presented by this market disruption can solidify their position as
a differentiated and attractive alternative to mass-market autos. To prepare for
the premium market of the future, OEMs should take several strategic actions.
Know and embrace your complete a mindset shift from driving elements of their offer. As our research
customer their business from an engineering-lens has shown, customers are willing to
towards challenging the way of doing “fight” for their brands even when
With market growth for premium
business through a true customer-lens. using third party mobility providers
cars slowing down and partially
such as UBER. Yet, this preference
stagnating, premium OEMs have to
for the brand needs to be constantly
find new opportunities in smaller Be agile
nurtured across all customer segments,
pockets of growth to continue their
Flexibility and agility in design, including the increasing segment of
success story. This, however, means
engineering, and manufacturing are non-car owners, so OEMs need to
that they will need to innovate their
critical to reduce the time to market double down on developing a clear
offers along 3 dimensions: (1) they
and adapt to changing consumer “brand design language” that includes
will need to find new ways to address
preferences. Given the different pace signature elements that can be found
granular customer needs and create
of advancements in car manufacturing across all mobility offers. Finally, with
demand without always adding massive
and technology, traditional the increasing number of offers and
product complexity with the new, costly
manufacturers in the premium space the multitude of available channels,
product derivates. (2) They will need
must embrace agile principles to OEMs need to implement a rigid
to widen their spectrum from being a
synchronize the widely disparate brand monitoring and management to
sheer car manufacturer to being an
development times of vehicles and keep the brand promise across offers
end-to-end premium mobility provider
connectivity services. and channels.
that is able to address widely differing
customer needs. And (3) they will need
to rethink their relationship to the Strengthen and differentiate Become a premium mobility
customers, from primarily focusing the brand provider
on one-time transactions towards The future role of brands for premium As mentioned earlier, OEMs can
becoming a relevant partner in a true OEMs cannot be overemphasized. With generate significant additional value
lifetime relationship with continuous sheer product differentiation becoming from mobility by focusing on service-
interactions beyond servicing the car. more and more difficult with the advent based business models that provide
Only if the premium OEMs will be able of electromobility and brands becoming access to a pool of vehicles. Key
to this, they will tap new opportunities more and more stretched through will be to leverage the desirability of
for growth and profitability. And to do mobility offers, premium OEMs need their products as well as to provide a
so, they will need to step-change their to overinvest into their brands and premium experience to keep the third
understanding of the customers and translate their brand essence into all party mobility providers such as UBER
The new realities of premium mobility 17at a distance and/or make the demand for the products so distinctive that the success of premium mobility providers will depend on offering the OEMs’ products. Beyond the sheer offer aspect, OEMs should also leverage their ability to generate distinctive insights about customer behaviors through advanced analytics that can inform the development of high- potential services and how to monetize them. To do so, OEMs will have to embrace a larger and more complex ecosystem that involves technology partners and other third parties. 18 The new realities of premium mobility
Outlook
The convergence of several trends Companies that are able to rethink Urgency will be critical to success. Given
is behind a once-in-a-generation their approach can develop the right the trajectory of change and the impact it
disruption to the premium automotive products and services for the right is expected to have, the time to act is now.
market. Technology advancements customers in the right places. The Premium automotive players that wait
are reshaping the customer journey, successful OEMs will build this new too long to develop strategies aligned
expanding options for mobility, portfolio through the lenses of both with new consumer preferences, new
and transforming the vehicle itself. hardware and software, but they will business models, and new regulations
Premium customers, in particular, are do more. They will also commit to the risk their brands as well as their
embracing these changes as they, belief that the sale of these products customers. What are you waiting for?
more than customers of other vehicle and services is just the beginning of
segments, are responding positively to a long and valuable relationship with
these developments. their customers, enabled and sustained
by software-enabled customization
Companies of all types—from traditional
and a superior “end-to-end”
manufacturers and suppliers to the new
customer experience.
OEMs, tech companies, and mobility
service providers that have entered
the space more recently—will feel the
effects of the resulting new realities. In
addition, the challenges presented by
these trends are accompanied by a set
of valuable opportunities for companies
ready to take decisive action.
The new realities of premium mobility 19Authors
Jan-Christoph Köstring Asutosh Padhi
Senior Partner, Senior Partner,
McKinsey & Company McKinsey & Company
Munich Chicago
Timo Möller Andreas Tschiesner
Partner, Senior Partner,
McKinsey & Company McKinsey & Company
Cologne Munich
Simon Middleton
The authors would like to thank Andreas
Associate Partner, Cornet, Thomas Baumgartner, Silvia Bruno,
McKinsey & Company Rupert Lee, and Ewelina Gregolinska for their
London contributions to this article.
Media contact The McKinsey Center for Future
Mobility was created to help business
Martin Hattrup-Silberberg leaders and policy makers come to
Senior Communication Specialist, terms with a future that is increasingly
McKinsey & Company autonomous, connected, electrified,
Düsseldorf and shared. Based in four global
hubs (Beijing, Detroit, Munich, and
+49 (211) 136-4516
Silicon Valley), our forward thinking
martin_hattrup-silberberg@mckinsey.com
and integrated perspective, industry
expertise, proprietary research, and
global convening power gives us
a unique combination of assets to help
clients navigate the mobility revolution.
For more information:
www.mckinsey.com/mcfm
20 The new realities of premium mobilityMcKinsey Center for Future Mobility November 2019 Copyright © McKinsey & Company Designed by Visual Media Europe www.mckinsey.com @McKinsey @McKinsey
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