Circa 2030. As Rohini wakes up, she realizes there is change in her day’s schedule, her client meeting is starting two hours earlier than planned. As she prepares to leave for work, her electronic assistant has connected with the car provider to amend the booking. A driverless, zero-emission electric car rolls up at the re-scheduled time and as she gets into it, the entertainment system starts to play the song she was listening to while having breakfast. A large screen provides live feeds from the market, and curated news updates relevant for the meeting. The car automatically follows the fastest route to the client office, leveraging car-to-car communication over the citywide network.

Rohini’s consumer experience is not very difficult to imagine, even with technologies currently being tested. What is more difficult to envision is the huge opportunity it offers for current mobility industry players and disruptors to upset the league tables. Never since the invention of the ICE (internal combustion engine), has the business of mobility been buffeted by so much change.

Mobility of the future will provide consumers a new paradigm for their commutes by reducing cost per km, lowering congestion (through automation) and improving productivity—all while helping protect the environment. Our analysis shows that the future of mobility disruptions can create a new ecosystem for India worth upwards of $25 billion. This would be the revenue pool for current and new original equipment manufacturers (OEMs) to capture, over the course of next 7 to 10 years.

The transition hinges on four dimensions which are driving this global change and significant movement has already started to happen. The industry calls it ACES—Autonomous, Connected, Electric, and Shared urban mobility.

Electrification of vehicles: Electric Vehicles (EVs) were less than 5% of all vehicles sold globally in 2016. The picture is changing, and more than half of the new models in 2021 (going by OEM launch plans), would be equipped with electric drivetrains.

Autonomous driving: About 1% of vehicles were equipped with basic partial-autonomous-driving technology in 2016. Eight of the top ten global OEMs have announced plans for highly autonomous technology to be ready by 2025.

Shared mobility: Large shared-mobility providers with combined market share of up to 90% have firmly established their business models. About $50 billion is invested in ride-sharing startups.

Connectivity: The percentage of consumers willing to change car brands for better connectivity has doubled in the last two years.

While India lags the developed world on these parameters, it has the potential to catch up quickly, driven by electrification and shared mobility. Even as these disruptions gain momentum, it is important to look at the factors that could speed or slow down the pace of change.

Future powertrains

Electric vehicles are zero-pollution vehicles and growing pollution in our cities lends momentum to the push towards their adoption. India accounts for nine of the world’s top ten most polluted cities, measured by PM2.5 levels. Automotive emissions, particularly from diesel engines, is one of the key contributors to the increasing PM2.5 concentration in the cities. And so, the push towards EVs is a step in right direction. But there is a growing feeling that we should not move too fast on this transition.

India will move to BS-VI emission standards for traditional ICE vehicles from April 2020, bringing the norms on par with the developed world. With BS-VI, the PM (particulate matter) emission standard will come down to a sixth of the currently enforced BS-IV, significantly reducing the PM emissions burden that the automobiles carry today. The increasing number of gas-based vehicles (CNG, LPG) will cut emissions even more. Would this make the case for EVs weaker?

Firstly, reducing pollution is not the only imperative for electrification of vehicles, overall emissions include greenhouse gas emissions. With electrified mobility, every user would contribute to lowering carbon emissions and helping reduce global warming.

Moreover, even as they contribute to reducing global warming and pollution, users will enjoy significantly reduced operating cost—an EV operates at 0.8-1/ km, while a diesel vehicle with similar specs costs 4-5/km to operate. EVs are five times cheaper to run, with almost zero maintenance cost. There is the added advantage of a simplified driving experience (no gear shifts or clutch). EVs are fully automatic machines and fun to drive, with the torquey nature of electric powertrains. With all these advantages, EVs should be dominating our roads. This is not the case yet, and it will be a while before users can fully realize the benefits. This is partly because the momentum on supply has not yet caught up with the demand momentum.

From a consumer’s point of view, EVs available in India today do not provide the product experience that consumers have begun to expect from their vehicles. This is true on multiple dimensions including the car design, build quality, driveability, and range. Few users are okay with a car which promises 80-100km per full charge (currently available products) leading to constant range anxiety. The vehicles are priced 1.5-2X the equivalent traditional engine vehicles. We cannot expect users to make trade-offs in their experience and usage and migrate to EVs.

Automakers have to push their product development and leverage the evolution in battery technology to bring down EV costs, enhance their range (per full charge) and create products that do not require consumers to discount any of their expectations from their vehicles. For customers to come flocking to EV showrooms, they would to do all this and more, at price points which are not astronomical.

This offers a window of opportunity for new car companies and nimble marginal players, to enter this space and disrupt the market position of current players who are too focused to defend their franchise.

The infrastructure conundrum (read charging infrastructure) also needs a strong solution. Wherever EV penetration has grown globally, most of the charging has been overnight at the consumer’s home. But unlike developed markets, vehicle owners in India often do not have dedicated home parking, and night parking is often on the streets. One answer to this could be a network of fast DC chargers across cities and highways. But this is an expensive option and cuts into the economic benefits of EVs. Fast chargers are also a bit tedious for the consumer (15-20 minutes for every charging at DC station). EV penetration in India will require India-specific solutions, and car companies will have to take the lead in creating a solution, at least in the initial years.

Future of shared mobility

Future of mobility is also gaining strength from a very strong consumer bias towards sharing versus owning. Vehicle owners are questioning the need to own a vehicle when they can hail it at the time they need the ride, for the time they want to use it, and depending on what they need it for—a big self-drive car for a family trip from Chandigarh to the mountains and back, a chauffeur-driven car for showing up at a party, and a small self-drive car to navigate the lanes of a congested city market. And with all this, the total cost being lower than owning a car.

Shared mobility/rental companies are innovating solutions at rapid pace. Ola and Uber are well-known hailing service providers, but many new players like Zoomcar, Revv, with different sharing models are emerging. There is a virtuous cycle in place now—more offerings in the market leading to more demand as specific customer use cases open up, bringing in more investor money to launch newer offerings.

Growth in shared mobility corelates very well to electrification, as EVs are way cheaper to run versus traditional engine cars. With the increased usage that shared mobility can ensure, the economic argument, of paying more upfront for an expensive vehicle but saving on lower operational costs, is playing out. More of the shared mobility offerings will eventually convert to EVs to benefit from the economics, which will provide scale and base load demand to car manufacturers—much needed to support broader electrification.

This would be a virtuous cycle on two fronts: shared mobility costs go down with electrification, leading to more use cases appearing, and more users shifting to shared mobility asking for more shared vehicles on the roads. As car manufacturing companies build scale, they will pass on the cost benefits to consumers and more personal cars will convert to EVs.

Two complementary forces, building on each other’s strengths!

Regulatory enablement

Automotive industry contributes to more than half of India’s manufacturing gross domestic product. It is also one of the large employers in the organized sector. As the industry sees multiple disruptions over the next decade, it would need a supportive and stable policy regime.

China leads the supply chain for EVs through scaled-up manufacturing of Lithium-ion batteries and other electronic/ electrical components needed in manufacturing of EVs.

Global and local car companies are looking at sourcing from China to maintain lead in technology and costs. India will have to move quickly and think of holistic ways to build this supply chain and maintain the trajectory of job creation in the sector within the country.

It is encouraging to see some leads on the software elements of EVs like the battery management system, and power electronics. The EV disruption should be seen in the light of global opportunity it brings to India to lead product creation for emerging markets like South-East Asia, Latin America and African countries where frugal engineering is a differentiator. The software element and frugal engineering to customize EVs for the developed markets, could well be India’s USP to creating and holding the jobs in India.

In conclusion

Future of mobility disruptions are fundamentally altering the nature of automotive industry as well as how users consume mobility. They create a new ecosystem for current and new car companies to capture in the coming decade, and present one-of-a-kind opportunity for attackers to be able to turn the league tables. The race is on between the traditional car companies and the new entrants.

Whatever the fate of the companies, consumers will certainly benefit from next-generation products and services, with better value proposition.

Rajat Dhawan is a senior partner of McKinsey & Co., based in New Delhi; Shivanshu Gupta is a partner of McKinsey, based in Bengaluru; Brajesh Chhibber is an associate partner of McKinsey, based in Gurugram.

This is the fifth in a six-part year-end series to rethink work and life around us.

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