Article
14 Sep 2021

Smart Cars: Tech’s Next Big Driver

Global Insights
Contributor(s): Citi Global Insights
Smart cars are set to have a transformative impact on the global tech sector in the coming years. A new report by Citi Research’s Arthur Lai, summarized here, offers an in-depth look at the possibilities and pitfalls for this burgeoning business.

Smart cars will be a huge driver of change for the tech sector. By 2030, Citi research analysts expect technology content to be 50% by value of a typical smart car, in an electric vehicle market forecast to be worth $1.4trn by then. In as few as 4-5 years, technology sales to the auto industry are likely to exceed those for smartphones, PCs, tablets and wearables combined.

As cars morph from passenger vehicles to something more akin to a moving mass of advanced electronics, the smart car will dramatically expand the addressable market for tech companies given the saturation of the mobile economy. According to a projection by consultancy firm McKinsey, by 2025, the auto electric/electronics and software markets could together be worth $362 billion

Smart cars are a game-changer not just for the auto industry, but for the technology sector, and society at large. Standard cars are defined and differentiated by their styling, comfort and performance specs. For smart cars, that’s just a starting-point. Crammed with advanced electronics and sophisticated software, a smart car moves its passengers around without a human hand necessarily touching the steering wheel, and at the same time offers an array of entertainment choices.

In recent years, we’ve seen the rise of advanced driver assistance systems (ADAS) and the advent of the smart cabin, which between them require advanced sensors and other hardware, along with artificial intelligence (AI) and operating software equivalent to that of a high-performance computer.

Citi analysts reckon rising ADAS penetration and spec upgrades will lead to an ADAS systems market with a total value of $31bn by 2025, from $8bn last year. Insurance savings, over-the-air (OTA) upgrades and service opportunities will drive a self-reinforcing rationale for automakers to adopt higher level ADAS on new models, the report says.

Smart Car – Key Trends

 

Source: Citi Research

 

Is that a car or a tech device?

Rising technology content is a pivotal change for the automotive industry. Adoption of automotive electronic components for safety, infotainment, navigation and fuel efficiency has been increasing in the past decades. Rapid growth could result from higher computing power and additional sensor counts for autonomous driving as well as from enriched infotainment systems. These trends could be self-strengthening from shifting consumer demand and the underlying economics of the service opportunity enabled by autonomous driving.

Electronic System Content as % of Total Car Cost

Source: Citi Research, iResearch, Deloitte

 

Currently, technology content accounts for roughly one-third of the cost of a car. That portion could raise to half by 2030E, from increased software functions, enhanced sensing capabilities, higher computing power and the smart cabin. This would bring rich opportunities for the tech sector to gain a value share in the auto industry.

The total addressable market for EV sales alone could exceed $800 billion by 2025E, more than the sum of smartphones, PCs, tablets and wearables. This does not include the value from services, insurance and maintenance. The EV market is fast growing, partly driven by rising EV adoption on consumer acceptance, technology maturity and more competitive costs.

Total EV Addressable Market vs Other Electronic Markets (US$ bn)

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Source: Citi Research

 

China has unique advantages in EV development, in terms of policy, infrastructure and driver behaviour. The Chinese government is committed to be a global leader in EVs and has set ambitious targets for both the number of units and penetration rates in 2025 and 2030. China is already advanced in EV adoption. China’s NEV sales in December 2020 were 9% of total passenger vehicle sales, largely driven by BEV adoption (8% of total passenger vehicle sales) with plug-in hybrid electric vehicles (PHEVs) accounting for only 1% of December sales.

Electric vehicle charging networks are a critical factor in the adoption of EVs. The number of charging points globally accelerated in 2019 to 862,118 publicly available points (598,000 slow chargers; 264,000 fast chargers). Among those, China leads the way with over 600,000 points (301,000 slow charging and 215,000 fast charging) across the country, or some 70% of the global count.

Number of Global Public Charging Points Accelerating (2010-2019)

 

The report goes on to discuss some of the barriers to entry to the electric vehicle business and examines partnerships with existing traditional car makers — many of which are themselves at a crossroads. It also presents specific case studies that illustrate some of the wider factors driving the smart car business. For more, please see the full report, published on September 1: here: Global Technology - Smart Car: The Next Secular Tech Driver (A Super-Sector Report)

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

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