A Look at the Connected Car

A connected car is equipped with internet connections and software. This connectivity allows people to stream music, look up movie times, be alerted to traffic and weather conditions and power driving-assistance services such as self-parking. It can also provide automatic notification of crashes as well as notification of speeding and safety alerts. In short, a connected car is a vehicle that can optimize its own operations and maintenance as well as the convenience and comfort of its passengers by using onboard sensors and Internet connectivity. Connected cars represent one element of the Internet of Things.

Automakers and analysts believe smart, internet-connected cars could define the next 10 years in the same way smartphones redefined the last decade. This belief is driven by the ability of these cars to leverage new technologies making them safer and more efficient for drivers and passengers alike. At the same time, most people are unaware of what connected cars can do.

According to Harris Poll data from last July compiled for Business Insider Intelligence, nearly half of all survey respondents said they had never heard of a connected car. Almost as many people said they were aware of the concept but still weren’t sure what connected cars could do. Only 14% of people surveyed were truly familiar with the concept.


Sources: BI Intelligence, Harris Poll Interactive 2014

According to research by McKinsey & Co. (a global management consulting firm), even with the dramatic increase in vehicle connectivity, the total cost of vehicle ownership for consumers will remain relatively stable. However, McKinsey estimates the global market for connectivity components and services will increase to €170 billion by 2020 from just €30 billion in 2014. In addition, Business Insider Intelligence estimates that by 2020, 75% of cars shipped globally will be equipped with the hardware required to connect to the internet. As a result, companies from the software and telecommunications sectors are already entering the automotive market.

Over time, it is expected that connected cars will necessitate the creation of new business models and provide opportunities for current businesses to greatly improve their service offerings. Areas including targeted marketing, fleet management, insurance and auto repair can potentially derive meaningful benefits from the data that connected cars will provide in the not-too-distant future.

We recognize that the development of connected cars and the benefits they will ultimately provide is still in its early stages. At the same time, we believe the industry has meaningful growth prospects. It is hard, if not impossible, however, to determine who the industry leaders might be at this time. In such situations, oftentimes our preference is to focus on what can be referred to as the picks and shovels companies. In other words, most client portfolios include holdings of companies that can benefit from the base technology that will drive the business in the future. Beneficiaries of this trend include companies that develop the computer chips or other hardware that can benefit from growth in the connected car market.