Suppliers that secure a spot in an automotive design can usually look forward to decades of consistent component sales. Even though automakers demand a lot from their suppliers, car designs don’t change as quickly as – for example-- consumer electronics specs. However, research firm IHS Markit believes that’s about to change.
There are considerable new business opportunities for high-tech companies as consumers demand better safety, connectivity and efficiency features in their cars. But suppliers’ attempts to grab a share of these new business opportunities come with significant challenges given the operating environment, according to IHS’s SupplierInsight and Component Forecast Analytics. 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 R&D activities is well above 5 percent annually, IHS found.
Features such as fuel efficiency, weight reduction, advanced safety technologies, human machine interface (HMI), lighting and consumer comfort features will drive $350 billion in incremental automotive supplier business opportunities by 2021, IHS predicts. Suppliers that want 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,” said Matteo Fini, senior manager, supplier solutions for IHS Automotive.
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 percent 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, according to IHS. 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 cost-per-vehicle forecasts are as follows:
- The race toward emissions compliance and weight reduction in key global markets is estimated to create an incremental cost per vehicle of $744 globally between now and 2021
- Comfort functions such as infotainment, vehicle connectivity and autonomous driving features may add an average of $360 to vehicle costs when compared to 2015.
- Autonomous driving features could add incremental costs of $75 per vehicle by 2021, led by increased penetration of forward collision warning and emergency braking systems
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. The increased use of digital and analog-digital instrument clusters in China alone is expected to generate $1.2 billion in incremental business by 2021, IHS said. But not all component areas will equally benefit from expanded opportunities. While enhancements to powertrain subsystems and electrification are anticipated to contribute approximately 37 percent to the overall component cost increase by 2021, 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.
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 -- can position themselves for long-term growth in the years ahead.