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Global automotive technology to create $350B in opportunities – IHS

Automotive technology costs should decrease as volumes increase and further technology refinements are in place

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SOUTHFIELD, Mich. – Fuel efficiency, weight reduction, advanced safety technologies, human machine interface, lighting and consumer comfort features will drive $350 billion USD in incremental automotive supplier business opportunities, by 2021 — but not without initial challenges, according to a study released by IHS Markit.

The race toward emissions compliance and weight reduction in key global markets is estimated to create an incremental cost per vehicle of $744 USD globally between now and 2021, IHS Automotive says.

“The regulatory environment around emissions will drive usage of lighter materials for components and further electrification,” said Matteo Fini, senior manager, supplier solutions for IHS Automotive.

Comfort functions such as infotainment, vehicle connectivity and autonomous driving features may add an average of $360 USD to vehicle costs when compared to 2015.

“New opportunities for suppliers are emerging through a variety of powertrain technologies such as turbocharging and cooled EGR (exhaust gas recirculation) being implemented in more cost-sensitive but higher volume segments, for example,” said Fini.

Consumer demand is a significant driver of this incremental cost as consumers crave to get connectivity and active safety features in the new vehicles they purchase.

Further integration of consumer electronics in the vehicle will for example require OEMs to offer in-vehicle wireless charging.

In addition, automatic air conditioning, passive entry systems and power seat adjusters are being deployed across several segments on a global scale – further supporting greater penetration of well-established comfort features across key markets.

Autonomous driving features could add incremental costs of $75 USD per vehicle by 2021, led by increased penetration of forward collision warning and emergency braking systems, according to the research; those values may increase further as regulation continues to drive more safety technology into the market.

More intelligence will be applied to lighting systems with camera- and sensor-enabled lighting controls being installed in one in five vehicles by 2021.

Increased content opportunities for suppliers are also a linked to vehicle connectivity with 4G and 5G networks availability, which will allow OEMs to offer component health checks.

Some OEMs are already introducing this technology on components like fuel pumps, batteries and starter motors – however, based on IHS Automotive analysis, wider applications will materialize, within chassis, as an example.

Emerging markets also are expected to play a major role in driving the average content upward on a global basis, as consumers in these markets drive demands for higher levels of sophistication for vehicles made available locally.

For example, the increased use of digital and analog-digital instrument clusters in China alone is expected to generate $1.2 billion USD in incremental business for suppliers of this component by 2021.

Not all component areas will equally benefit from expanded opportunities, the analysis says.

Enhancements to powertrain subsystems and electrification are anticipated to contribute approximately 37 per cent to the overall component cost increase by 2021, for example, but interior hardware is expected to stay relatively flat.

This indicates any incremental costs in some interior sub-systems will be balanced by efficiencies in others.

Disruption in planning and operating environment creates opportunity, challenge

Suppliers’ attempts to grab a share of these new business opportunities come with significant challenges given the operating environment.

Suppliers are called upon to commit resources in developing new technology at a time when technology roadmaps are a moving target due to regulation, competitor pressure and consumer demand.

The level of resources that suppliers have to deploy is significant, as the share of revenues that top suppliers dedicate to Research and Development activities is well above 5 per cent annually.

Suppliers wanting to succeed in the next few years will also have to adapt their business processes to operate in an increasingly more agile development environment, which challenges the usual ‘60 months design to job-1’ process.

“Some of the technology advances being introduced in vehicles are taking shape much more quickly than anything ever experienced in the auto industry, bringing disruption to some well- established business processes,” Fini said.

Technology costs should decrease as volumes increase and further technology refinements are in place.

In some component areas such as batteries, costs are expected to follow Swanson’s law in a baseline scenario, which outlines a 20 per cent reduction in costs for each doubling of the cumulated deliveries in others it might be less aggressive as technologies are more established.

Nonetheless, a cost burden will be shared among consumers, OEMs and suppliers linked to the deployment of new technology.

As consumers have historically proven to be moderately unwilling to pay for some of the add-on technology costs, there will be increased cost pressure from the OEMs to suppliers and the request to apply “kaizen costing” more widely, in other words delivering the same or better functionality at a lower cost.

IHS Automotive estimates that nearly one third of the incremental business opportunities for suppliers is linked to the introduction of new features, rather than increasing penetration of existing ones or overall vehicle production volumes.

Organizations that can succeed in understanding the technology roadmap and competitive environment — while strategically aligning their business initiatives to take advantage of these opportunities quickly — will position themselves for long-term growth and reap benefits in the years ahead.

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