All change: Here’s how financial services firms can keep pace with the fast-moving mobility sector
A new generation of mobility services is upending the traditional automotive industry. Specialists from financial services firms reveal how best to navigate the risks and opportunities on the road ahead.
In partnership with
Corporate Value Associates
Corporate Value Associates is a Global Strategy Boutique supporting market leaders in creating value through its customer-centric approach.
A new generation of mobility services is upending the traditional automotive industry. Specialists from financial services firms reveal how best to navigate the risks and opportunities on the road ahead.
At the flick of a switch the value of the electric car parked in your garage soars.
Your pride-and-joy is transformed into a powerful autonomous vehicle. It’s worth far more than before. And all that was needed was a simple software upgrade.
Throughout the world the process is repeated. Millions of electric vehicles can now drive themselves. Their value goes through the roof.
“We could witness the biggest asset appreciation in history,” says Jakob Böhme, Head of EMEA markets and credit at Tesla. “Suddenly, these cars would be worth much, much more.”
The surge in asset value forecast by Böhme would certainly be good news for owners of electric vehicles. Although it’s still too early to know when such an upgrade might happen.
But what about banks, insurers, leasing companies? How will financial services firms manage sudden swings in the value of the assets they finance, protect and oversee?
Answers to these questions are far from clear.
Many conventional business models won’t work in future
The rise of a new generation of mobility services, such as software-driven performance upgrades, subscription services and multi-cycle leasing, is upending the traditional automotive industry. Many conventional business models and practices won’t work ilon the future.
Financial services firms that misread shifts in the mobility sector could easily be caught out and fail to meet the changing needs of retail and commercial customers.
Tesla’s Böhme, together with several other specialists from the financial services industry, discussed the upheaval in the mobility sector during a recent online conference hosted by Qorus and Corporate Value Associates (CVA). They identified some of the risks and opportunities facing financial services firms as they engage in the fast-changing mobility ecosystem.
It’s essential to understand the forces driving change and stirring uncertainty, says Markus Collet, Partner at CVA. “In a rare seminal moment, strong exogeneous factors are impacting an automotive ecosystem that is ripe for systemic change.” Collet points to such external forces as high inflation, shifts in geopolitics, revisions of economic policies and new environmental constraints.
Systemic changes are shaking the mobility sector
Working together with the external influences buffeting the mobility sector are some profound systemic shifts within the industry that are increasing its instability, observes Collet. These systemic changes include:
Surging electric vehicle sales: Electric vehicles only account for 1% of total vehicle sales in Europe but are rapidly growing market share. Vehicle asset values and repair costs are set to rise but service frequency and expenses will likely fall.
The shift from vehicle ownership to usage: Flexible, cost-effective and convenient vehicle usage offerings products such as operating leases, rentals and subscription services are growing in popularity among consumers and businesses. The swing to vehicle usage rather than ownership will force banks and insurers to secure closer ties with asset owners and build industry partnerships with other service providers.
The rise in multi-cycle asset planning: The increased popularity of electric cars together with the shift to usage services will increase the lifespan of vehicles and encourage multi-cycle asset planning. Vehicle owners and finance providers will need to rework their value strategies.
More powerful onboard software: The software installed on vehicles in future will enable upgrades in driving performance, asset value and user experience. It will also provide a platform for the monetization of an array of onboard digital offerings. Finance providers will need to offer service finance while insurers will have to cover new risks such as asset cyber security and software uptime.
Vehicle manufacturers moving down the value chain: Automotive makers are exerting greater control over the distribution and sale of their products as well as the delivery of aftersales offerings. Dealer networks are contracting and former outlets are often replaced by agents. Financial services companies will likely need to shift their focus from auto dealers to national sales companies.
The dawn of digital services platforms: Comprehensive digital platforms that deliver a wide range of mobility solutions are driving down costs and creating new business opportunities. Financial services firms will need to establish a strong presence in the mobility sector’s digital services ecosystem to attract and keep customers.
Greater scrutiny from regulators: The transformation of the mobility sector is drawing increasing attention from regulators. New controls in the provision of mobility services financing are likely. Finance providers and their partners in the mobility ecosystem will need to adapt to regulatory changes.
“All parts of the mobility ecosystem are shifting at the same time. And this is introducing change that is inevitable, massive and profound,” says Collet.
Five steps to come out ahead in the emerging mobility ecosystem
How can financial services providers thrive in the unfolding mobility ecosystem?
Five key steps will enable financial services firms to seize opportunities and sidestep risks that emerge from the transformation of the mobility sector. They are:
1. Scale up. “The mobility world where we are heading is going to be a world of giants,” says Annie Pin, Chief Commercial Officer at fleet management and vehicle leasing company ALD Automotive. Size and reach are likely to be big advantages. ALD Automotive, for example, recently expanded with the acquisition of LeasePlan.
2. Secure partnerships. As the mobility sector consolidates, partnerships with the major product and service providers will become increasingly important. “We will get together with other large groups to deliver a well structured and seamless customer journey,” says Giacomo Carelli, CEO at CA Autobank and Chairman at car rental firm Drivalia.
3. Engage with regulators. The mobility ecosystem comprises a mix of highly regulated established markets with entrenched incumbents and greenfield sectors where regulations are often ill-suited or even absent. “Regulation is the biggest barrier to entry for companies like ours. We will engage with regulators to explain our business model,” says Böhme at Tesla.
4. Select key strengths. Few companies will be able to encompass the breadth and diversity of the mobility ecosystem. Providers of financial services should build on their strengths. In partnerships with vehicle manufacturers, for instance, insurers could provide digital capabilities or consulting services, remarks Pierre Stalla-Bourdillon, Head of Business Development, Motor and Mobility, at Generali.
5. Simplify. Upheaval in the mobility sector is creating considerable complexity in the operations of many product and service providers. Companies that succeed in future will be those that simplify their own activities and the experiences of their customers. A lot of the disruption in the mobility sector is a return to basics, says Tesla’s Böhme. “It’s about providing customers with very good online journeys, integrated journeys, simple journeys, honest journeys.”
On 27 September, the Qorus Mobility community will host an online event on ‘Revolutionizing the auto industry: exploring the transformative effects of distribution changes on financing, insurance and leasing’. For more information about this event and other activities organised by the Qorus Mobility community contact Mirka Tokarova
Mobility community
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