The Future of the Automotive Value Chain Supplier industry outlook 2025
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Preface 05 Unprecedented change in the automotive world and its potential impact on the supplier industry 06 Four plausible scenarios for the automotive value chain and their implications for the supplier industry 12 The Deloitte Automotive Value Chain Industry Model 20 Investigating specific material cost developments: Selected model deep dives 30 Overall model result overview 45 Transformation paths towards 2025 for the automotive supplier industry 46 From integrated material cost projections to tailor-made transformation strategies for automotive suppliers 63 Conclusion 67 Contacts 68
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04 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Preface
Automotive players are facing disruptive We worked towards validating all these confident that we are bringing valuable times. Many insights, opinions, and rec- hypotheses by developing the Deloitte support to the table for automotive de- ommendations have been voiced on this. Automotive Value Chain (AVC) Industry cision makers when it comes to tackling Earlier in 2017, we published our views on Model, a comprehensive material cost some of the most burning strategic deci- the drivers that will likely shape the auto- forecasting tool, which gives volume sions. motive industry over the next decade. We predictions broken down into a vehicle's ranked and fused these into four scenario component clusters. The model shows that We hope you enjoy reading our insights narratives, giving an outline of what the 15 out of 19 vehicle component clusters and thoughts on the future of the automo- automotive value chain might look like in will likely see a decline in market volume tive value chain and the related supplier 2025. Our previous issue primarily high- (in Germany, NAFTA and China; not con- markets. lighted implications for car manufacturers sidering effects from general inflation or (OEMs). In this next piece we move further spare parts demand). The biggest losers down the value chain, in an attempt to shed will be components related to conventional Joe Vitale light on supplier market implications. combustion engines, e.g. transmissions Global Automotive Lead dropping up to -36% in volume. Likely at Deloitte Consulting We defined a set of four hypotheses as a winners, especially suppliers with stakes in starting point to our investigation: the fields of electric drivetrains and battery Dr. Thomas Schiller technology, as well as autonomous driving Global Automotive Consulting Lead •• Commonly discussed automotive feature development, on the other hand, at Deloitte Consulting mega-trends, like connected and auton- must prepare to manage and cater for omous drive or electrification, will lead to growing demand of up to 15 times their significant change in demand for specific current volume. Regional projections show vehicle component clusters that while material cost volumes in Germa- ny are facing a general decline, volumes in •• As a result (some) suppliers will face dras- China will increase due to general strong tically shrinking market volumes, whereas vehicle sales forecasts. others must be able to manage massive demand increases Our core premise, however, is that scenar- io-based thinking is the best preparation •• This will result in significant, strategic, for dealing with the uncertainties the future operational, financial, transformation automotive industry developments hold. demand for many suppliers Therefore, we split each of our volume pro- jections along our four scenarios for 2025 •• Portfolio and localization strategy defini- and beyond. tion processes should be supported by a solid market volume projection model By presenting the Deloitte AVC Industry taking all these drivers and megatrends Model now to the broader public, we are into account
05 Unprecedented change in the automotive world and its potential impact on the supplier industry
More than ever before, the auto- motive industry today is in a state of constant pressure: From cus- tomers demanding new and costly connect features – often without showing additional willingness to pay. From regulators rightfully demanding strictest adherence to environ- mental and safety standards. And also from major tech players with pockets full of cash pushing investment in mobility business models and threatening traditional OEM dominance.
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06 The Future of the Automotive Value Chain | Supplier industry outlook 2025
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07 Context It is well known that the n-tier automotive supply chain is strongly interlinked and ul- timately depends heavily on today’s seem- ingly almighty OEMs. The burning question for many decision-makers in the automo- tive supplier industry is how to REACT to these, potentially existential, changes and threats in the industry landscape. Or, more importantly: How to ACT, with vigor and strategic foresight, and be in a position not only to survive, but to come out on top of the disruptions facing the automotive value chain until 2025 and beyond.
This study focuses on possible develop- ments in supplier market volumes, their un- derlying trends as well as their implications for decision makers: In the economic and political sphere, at automotive suppliers as well as in OEM development, purchasing, and manufacturing departments. We aim to support automotive leaders in times of great uncertainty by highlighting four quan- tified scenarios of what the automotive ecosystem might look like in 2025.
Study approach Following up on our previous issue on the The methodical base for this differentiated future of the automotive value chain, we analysis was the breakdown of a vehicle based all our considerations on one simple into its modules and components: What will assumption: Future industry develop electrification, connected and autonomous ments are hardly ever one-dimensional. driving or other user trends change in Rather, they are based on a multitude of components used in the car of the future? drivers, which almost never develop in a What are the material cost implications straightforward way. When uncertainty is from these trends? And consequently, what high, thinking in scenarios can help. So we impact will all of this have on supplier mar- reviewed the four scenario narratives de- ket volumes and industry structures? scribing possible states of the automotive We developed an integrated calculation value chain in 2025, which were developed model, summarizing all our thinking and as- for the previous study – together with sumptions on future material cost trends – several top automotive managers, mobility distinguished along the four scenarios entrepreneurs, researchers, lobbyists, outlined above. From this Deloitte AVC as well as IT and battery developers. We Industry Model we derived differentiated enhanced these scenario narratives with material cost market volume forecasts more in-depth insights and discussions 2025 for vehicles in Germany, China and around the future of the automotive supplier NAFTA (in chapter III). industry, so we were able to specifically tack- le supplier-related concerns (in chapter II).
08 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 1 – Questions from selected interviews with automotive suppliers and other industry experts
Which drivetrain technology will prevail What will the in the future and how does it impact supplier my portfolio strategy? landscape look like in 2025?
ow fast will customers What will cars accept autonomous look like in driving once the safety 2025? issues are solved?
Should suppliers set up partnerships to work ow will the together on new technologies, and with whom? changing require- ments shift capacities and demand work- force transfor- mation?
ow can suppliers with shrinking market volumes compensate these negative effects?
We exemplify our reasoning and model These and further results from the Deloitte outputs (in chapter IV) along four selected AVC 2025 Industry Model (summarized vehicle component clusters where we in chapter V) shed light on substantial, might see the biggest material cost impact in some cases even burning, needs for until 2025 – and also face the greatest change. This study therefore concludes (in uncertainty: Interior & infotainment sys- chapters VI and VII) with a discussion of im- tems, drivetrain technologies (incl. internal plications and recommendations for three combustion engines, transmission and spheres of the automotive ecosystem: alternative drivetrains), high voltage (HV) Political actors and lobby groups when it batteries & fuel cells, and driver assistance comes to future industry and employment systems. We provide an outline of the key structures. OEM executives responsible technology trends that are expected to for purchasing, research & development determine the long-term material cost de- as well as manufacturing. And most im- velopment for each component cluster. In portantly: Decision-makers at automotive each case, however, we stress the different suppliers facing questions around strate- specifications these technology trends can gically reassessing product portfolios and have, depending on the overall scenario of potentially restructuring operations. the automotive world we anticipate.
09 Joint venture by Valeo and Siemens dedicated to high voltage powertrains starts operation
finanzen.net
ZF: Electric cars could destroy over 100,000 jobs
Handelsblatt
Baidu forges alliances with German auto suppliers
Financial Times
For automakers and suppliers, Silicon Valley is as much a shift in mindset as a location The Deloitte Forbes AVC 2025 Industry
Model sheds light on Supplier Brose sees the future of electric the substantial, in some cars in China Süddeutsche Zeitung cases burning, need for change at automotive suppliers
10 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 2 – Signposts to the automotive future
Bosch invents new Hella and ZF electric car battery to form strategic double mileage partnership The Telegraph
Automobilwoche
AI: 30,000,000,000,000 "Bad banks" supposed computational to save German processes in one automotive supplier second business Frankfurter Allgemeine Die Welt Zeitung
Continental: Supplier Musk's electric car Continental buys sees no future for vision doubted by sensor technology diesel and gasoline major parts suppliers for self-driving cars Spiegel Online
Bloomberg Technology WSJ
Continental partners with BMW and Intel
manager magazin
11 Four plausible scenarios for the automotive value chain and their implications for the supplier industry
Scenario-based thinking can support decision-making under circumstances of high uncertainty. We created four plausible scenarios for automotive suppliers as part of the automotive value chain in 2025.
12 The Future of the Automotive Value Chain | Supplier industry outlook 2025
13 Distinct and meaningful scenarios unfold from drivers where high impact and high uncertainty coincide
In our previous piece "The Future of for their degree of uncertainty and their the Automotive Value Chain – 2025 and impact on the future automotive value beyond" we laid out four quintessential chain, focusing on the upstream links of scenarios to describe the future of the the value chain such as R&D, procure- automotive industry. Coming from this ment, and manufacturing, and based on base, the core assumptions underlying the extensive research as well as validation scenarios were adopted and transferred interviews and workshops with experts to the supplier landscape. But before we in the respective driver topics. Grouping get to that, a brief recap of the overall 2025 the drivers according to their impact (on value chain scenarios. the y-axis) and degree of uncertainty (on the x-axis) highlights the zone of highest High-influence drivers for the automo- interest for scenario building: Distinct and tive value chain meaningful scenarios always unfold from We analyzed a wide variety of drivers from drivers where high impact and high uncer- the areas of social change, technological tainty coincide (figure 3). Finally, applying advancement, economic shifts, environ- the Deloitte Center for the Long View's mental trends, and political development. proven methods helped formulate four These 60+ drivers were in turn assessed quintessential scenarios:
14 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 3 – 60+ drivers that will shape the future automotive value chain clustered by impact on the upstream value chain and uncertainty h g i one of intere t
Conne te ne re ominant of Car o ertrain Te h Alternative i ht ei ht o ertrain o er Char in Te hnolo
Artificial ar et Control e la er our e of Auto ntelli en e mot nnovation Autonomou rivin e manufa turin ata le Car ro e e nvironmental e ulation Com etition for e ree of Talent an ma hine Cu tomi ation ialo ue rintin la e of ole of u lier ro th in A ian Con umer o er ro u tion ar et o er of mo ilit u lier Availa ilit of Future tan in u ine o el Ca a ilit of Car atterie of rivin Impact
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Low Medium igh Degree of Uncertainty
15 Fig. 4 – Four scenarios for 2025
To the full extent
ar are ata an mo ilit latform rovi er mana er
Suppliers OEMs and dominate outsiders alan e of o er alan e of o er the auto- set the motive rules world Ca a ilitie of Car
The fallen Below technological ta nant iant possibilities ar ma er
16 The Future of the Automotive Value Chain | Supplier industry outlook 2025
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Scenario 4 – Scenario 1 – Hardware platform provider Data and mobility manager IT players have disrupted the automotive In this world, connectivity has become a value chain. OEMs are now primarily the differentiator. E-mobility (including battery suppliers of white-label cars to the internet as well as plug-in hybrid electric vehicles, giants. In this world, OEMs can play a range extenders and fuel cell), autonomous relevant role only if they provide a superior driving, and integrated mobility are a platform for ‘infotainment’ and mobility ser- common reality for the broad public. OEMs vices and/or retain a strong brand image. are able to set the standards and are the Since OEMs are not able to fully cash in the dominant players in the automotive indus- revenue potential, the margin per vehicle try, offering a rich portfolio of products and decreases. services. Innovative automotive outsiders have to play according to the rules set by OEMs. In particular, premium brands and status play a decisive role in consumers’ buying behavior. OEMs offer an attractive workplace for talent.
Scenario 3 – Scenario 2 – The fallen giant Stagnant car maker The car is a mere means of transportation Massive lobbying by OEMs has prevented and brand attractiveness has diminished. potential new high-tech players from en- The technology hype has cooled down, tering the market. However, this defensive which has put an end to the rise of the strategy has also slowed down technical high-tech car. As mobility has become a development, with the result that many commodity, profit margins have decreased potential innovations have not been rolled and OEMs are focusing on improving out to the market, with regulations, for processes and cost efficiency. Industry example, limiting the deployment of tech- outsiders such as Uber have entered the nology. Dramatic accidents with immature market and are forging exclusive alliances autonomous cars have also resulted in a with suppliers to provide affordable mass loss of consumer acceptance. mobility. Since private car ownership has decreased, fleet management has become of significant importance for OEMs. New talent is hard to come by, due to the loss in the attractiveness of OEMs.
Source: Deloitte – "The Future of the Automotive Value Chain – 2025 and beyond" 17 Specific scenario implications for the supplier industry How will these value Based on these broad scenario narratives, the guiding question for the following chapters is: How will the scenarios chain scenarios impact automotive supplier markets? In the course of multiple interviews and workshops with automotive experts and impact today's researchers, the following supplier-specific considerations were added to each scenar- io for the automotive value chain in 2025: automotive suppliers? In the first scenario, the “Data and mobility manager”, premium suppliers dominate through alliances with OEMs and their soft- ware solutions. They will take over a higher number of OEM tasks, e.g. data analysis to improve products and features. Further- more, through massive investments, sup- pliers help OEMs to set standards for con- In the third scenario, “The fallen giant”, nected services while ensuring premium industry outsiders like Uber enter the quality, which plays a decisive role in this market and forge exclusive alliances with scenario. OEMs demand further services suppliers to provide affordable mass based on platform solutions provided by mobility. Suppliers support mass mobility suppliers. Research and development as by expanding their service portfolio, e.g. well as innovation activities are still driven by introducing usage-based pricing by rules set by the OEMs. schemes for certain components. This also applies to traditional OEM customers, who In the second scenario, the “Stagnant increasingly focus on fleet management car maker”, the automotive value chain operations and ask for highly durable but remains mostly unchanged and suppliers affordable spare parts. keep their traditional role. The hype around connected and autonomous drive In the fourth scenario, the “Hardware plat- technologies is gone and suppliers focus form provider”, suppliers support and form on what they were good at, i.e. incremental alliances with tech players designing new innovation along today’s vehicle features. automotive services/platforms alongside As today, suppliers are challenged by OEMs the classic parts supply for OEMs. They to provide high quality at competitive pric- become providers of innovative software es. E-Mobility emerges as an independent solutions. The coordination effort between business model among OEMs, which leads suppliers and third party service providers to a high spend in R&D for this sector increases drastically (e.g. for Google traffic among suppliers. In any case, suppliers control systems). Due to even stronger who focus on innovation in drivetrain interlinkage of provided software function- technologies are the “winners” in their alities, data, and conventional hardware, competitive fields. suppliers gain significant bargaining power.
18 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 5 – Four scenarios for the automotive value chain in 2025 – adjusted with supplier focus
To the full extent
2+
Scenario 4 – Scenario 1 – Hardware platform provider Data and mobility manager
Large tech giants manage all services OEMs dominate the automotive value chain around the mobility experience. OEMs are through gated platforms supported by pushed out to become mere hardware situational alliances with tech players. manufacturers. Incumbent suppliers have Winning suppliers influence these stan- the opportunity to form development dards (esp. alternative drivetrains and alliances with the new market players (e.g. connected & autonomous drive) via close from the group of tech giants), leapfrogging co-development with OEMs. Market entry OEMs in terms of product and service of large technology players as new automo- innovation. tive suppliers is limited.
Suppliers and OEMs dominate outsiders set Balance of Power Balance of Power the automotive the rules world Capabilities Cars of
Scenario 3 – Scenario 2 – The fallen giant Stagnant car maker
The entrance of new mobility players OEMs keep their dominant role in the value forces OEMs into strong displacement chain, while only incremental innovation competition. Selected suppliers forge ex- is accepted in the markets. Supplier roles clusive alliances with new mobility players remain largely unchanged compared to to- to provide mass mobility based on large day. A focus on components for alternative fleets. Providing durable and affordable drivetrains provides growth potential. (spare) parts is key.
Below technological possibilities
19 The Deloitte Automotive Value Chain Industry Model
Coming from the overall scenario nar- ratives, we go one step further and use expert assessments and project experience to explore what specific material cost implications might result from these trends and how the mar- ket volume for the individual vehicle components will develop until 2025.
20 The Future of the Automotive Value Chain | Supplier industry outlook 2025
21 Modelling approach As a first step, the Deloitte AVC Industry We started by breaking down a conven- Model takes the expected material cost tional vehicle into its components along 19 development for an average vehicle into ac- clusters. Based on project experience and count: What is the material cost baseline as expert interviews, we set up an average per today for an average mid-sized vehicle material cost baseline for 2016 of €16k per equipped with an internal combustion en- vehicle (figure 6). This baseline includes ma- gine and limited driver assistance features terial costs for pure hardware components (level 1 according to the classification of as well as embedded software systems. autonomous driving features) [step 1]?
Fig. 6 – Breakdown of vehicle component clusters as a basis for the Deloitte AVC Industry Model
Infotainment & Climate communications Interior Control Advanced driver Electronics assistance systems & Wheels & tires Electric sensors drivetrain Exhaust system
Transmission
Internal combustion engine Frame Steering Fuel system Brakes Seats Body Axles High voltage Suspension battery / fuel cell
22 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Several sources helped us to model the Fig. 7 – Modelling approach for the Deloitte Automotive Value Chain material cost development of this baseline Industry model car towards the year 2025, from extensive research into component-specific technol- ogy trends to discussions with industry Steps Vehicle split into 19 component clusters stakeholders. The guiding questions be- hind this assessment were: How will tech- aterial o t a eline (average vehicle) nology trends and/or substitution effects of certain materials and parts influence the value of the respective components in the aterial o t evelo ment (technology trends) car (not considering effects from general inflation) [step 2]? aterial o t a eline (average vehicle) As a next step, we distinguished different configuration factors regarding material Vehicle configuration factors cost impacts for different types of drive- Drivetrain trains, vehicle segments and levels of C P EV RE BEV FCEV autonomous driving. We considered a dif- Vehicle segment Micro Compact e ium Premium Luxury Autonomous ferentiation between ICE, PHEV, REX, BEV, 2 3 4 5 1 drive level and FC in terms of drivetrains and adapted the material costs relative to the 2025 baseline car (as mentioned above), e.g. Sales volume forecast 2025 the cost for electronics in a vehicle with a range extender can be around 1.6x higher aterial o t mar et volume than in a vehicle with an ICE. The same logic was applied to the vehicle segment config- uration factor (micro, compact, medium, Scenario-specific factors premium, luxury) as well as “autonomous drive level” (1–5). In conclusion, each vehicle configuration has its individual material aterial o t mar et volume per component cluster, region, drivetrain, vehicle segment, cost calculation [step 3]. level of AD features, and scenario
As in our previous issue on the future of the automotive value chain, we utilized Configuration of baseline vehicle our Deloitte E-Mobility Model to forecast general vehicle sales until 2025. It provides a scenario-specific forecast distinguishing annual sales of alternative drivetrains Using a last set of assumptions, we distin- and vehicle segments for China, NAFTA, guished market volume developments for and Germany. Additionally, we included the four scenarios, as highlighted in chapter assumptions regarding negative sales II. The key question is: impacts from a scenario-specific increase in the sharing economy, i.e. car and ride How does the varying degree to which sharing [step 4]. The multiplication of these available technological capabilities are vehicle sales forecasts with the above utilized in cars change the material cost described material cost developments outlook? These scenario factors consider, [steps 1–3] provides a first estimation of for example, that there will be a higher de- likely overall market volume developments mand for power supply due to “Electronics” for each of the 19 component clusters and “Infotainment” in the scenario “Data between 2016 and 2025. and Mobility Manager”, as highly connected vehicles are the norm here [step 5]. As an overview, the general approach to the industry model is visualized in figure 7.
1ICE: Internal Combustion Engine | PHEV: Plugin Hybrid Electric Vehicle |REX: Range Extender | BEV: Battery Electric Vehicle | FC: Fuel Cell 23 The Deloitte AVC Industry Model fuses and computes all these stated effects and provides a detailed material cost forecast per vehicle component cluster
24 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Model outputs generally show the impact Fig. 8 – Schematic material cost volume development 2016–2025 of the stated factors on material cost market volumes for each of the 19 vehicle component clusters, for different regions Market volume 2016 € 47.2 bn (Germany, NAFTA, China), powertrains, vehicle segments as well as levels of auton- omous drive features – for each of the four Material cost down General cost improvements -€ 8.9 bn Automotive Value Chain scenarios for 2025. E-Mobility € 5.8 bn This is shown in figure 8 as an example for the sum of all vehicle modules across key Autonomous drive features Cost of innovation € 4.7 bn markets (Germany, NAFTA, and China): Further technological € 2.8 bn innovations (scenario-specific) •• Across all scenarios, efforts to keep material costs down generally lead to a Vehicle sales development € 178.8 bn decrease in market volumes. A specific Volume effects split into winning and losing component Sharing economy effects -€ 96.4 bn clusters in terms of market volume will be provided at the end of this chapter. Market volume 2025 € 39.5 bn
•• The second, third and fourth pillars show the influence of customer preferences in terms of drivetrain, vehicle segment/ size, average level of autonomous driving features as well as other (scenario-spe- Fig. 9 – Model assumptions regarding potential impact of sharing economy on cific) sources of vehicle innovation (e.g. vehicle sales 2025 in the field of infotainment) assumed per scenario. On-demand and pay-per-use mobility models might increasingly •• Pillars five and six indicate material cost replace conventional car ownership, especially in urban areas effects from general vehicle sales devel- opments, with special consideration of negative sales effects from sharing econ- ale im a t in mar et anal e omy, i.e. car and ride sharing. See figure 9 for our specific assumptions for the OEMs establish positioning as overall sharing economy impacts in the markets mobility provider, incl. strong car ride sharing offerings -19% analyzed.
New (mass) mobility competitors are largely locked out by OEMs and individual mobility remains dominant -8%
Affordable mass mobility is the norm, private car ownership decreases -20%
New mobility players like Uber have strong control of mass and individual mobility alike -19%
25 10,000
ADAS Sensors 1,000
Electric Drivetrain V Battery/ Fuel Cell
100 Infotainment Uncertainty 2025 Fuel System Communications Transmission Steering Brakes Axles Electronics (spread across scenarios in %) Suspension Interior Wheels Tires Engine ICE Body Exhaust System Frame 10 - 25 - 20 - 15 - 10 - 5 0 5 10 15 20 25 30 800 805 965 970 1,200 1,205 Impact 2025 (average material cost volume development 2016-2025 across scenarios in %)
Fig. 10 – Impact versus uncertainty of material cost volume developments (2016–2025) across all scenarios2
10,000
1,000 ADAS sensors Electric drivetrain V battery/ Fuel cell Infotainment communications 100
ICE exhaust system Electronics Frame Brakes Seats Uncertainty 2025
Fuel system Interior 10 Transmission Steering (spread across scenarios in %) Climate control Axles Body Wheels tires Suspension
1 - 30 - 25 - 20 - 15 - 10 - 5 0 5 10 15 20 25 605 610 920 1,135 1,140
Impact 2025 (average material cost market volume development 2016-2025 across scenarios in %)
Bubble sizes indicate the overall market volumes 2016 (Germany, NAFTA, China)
Overarching model results (in %). Please note that all numbers exclude •• vehicle modules related to electric driv- Modeling four different scenarios for the inflation effects within the given time frame. etrain technologies and innovative areas automotive value chain in 2025 indicates What stands out is that like ADAS and sensors will see a further that exponential developments are ex- increase. pected, especially in the areas of electric •• 15 out of 19 vehicle component clusters drivetrain technologies, advanced driver will likely see a decline in market volume Regional differences are reflected in figure assistance systems as well as high voltage (not considering effects from general 11 (illustrative). While Germany’s material batteries. Stagnating or declining develop- inflation) across the entire scenario cost volumes are facing a general decline ments can be seen across scenarios and landscape. until 2025 across the scenarios, Chinese independent of the regional environment in material cost volumes will increase due to the conventional component clusters, such •• the winners will experience a noticeable the generally strong development in vehicle as ICE, transmission, suspension, fuel and impact on their business while most of sales. exhaust systems. the suppliers in the lower left quadrant will face high (displacement) competition Model outcomes can best be summarized and constant cost pressure. A fast strat- in an overview highlighting both impact egy assessment and adaption to future and uncertainty of expected material needs are indispensable. cost volume shifts (figure 10). Uncertainty describes the average market volume •• vehicle component clusters related to spread within each vehicle component the classic ICE vehicle, like transmission, cluster across the four scenarios. Impact combustion engine or fuel system, have describes the average material cost volume to deal with the biggest challenges due development 2016–2025 across scenarios to decreasing sales and smaller engines used in hybrid vehicles.
26 2Note: Excluding inflation The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 11 – Regional differences in an illustrative scenario
ata an mo ilit mana er ata an mo ilit mana er C
Market volume 2016 €47.2 bn € 317.7 bn
Material cost down -€8.9 bn -€60.0 bn General cost improvements
E-Mobility €5.8 bn €30.3 bn
Autonomous drive features €4.7 bn €30.1 bn Cost of innovation
Further technological €3.5 bn -€22.6 bn innovations (scenario-specific)
Vehicle sales development -€3.0 bn €181.2 bn Volume effects Sharing economy effects -€9.2 bn -€97.8 bn
Market volume 2025 -€40.1 bn €424.1 bn
ata an mo ilit mana er AFTA
Market volume 2016 €289.0 bn
Material cost down -€54.4 bn General cost improvements
E-Mobility €27.3 bn
Autonomous drive features €32.9 bn Cost of innovation
Further technological €21.4 bn innovations (scenario-specific)
Vehicle sales development €30.9 bn Volume effects Sharing economy effects -€65.0 bn
Market volume 2025 €282.1 bn
27 Taking another look at the global develop- •• The fallen giant In 2025, changes in market structures ment across the four scenarios shows: Due to the fact that affordable mass and technology developments will likely mobility dominates the markets, the lead to significant adjustments regarding •• Data and mobility manager negative vehicle sales effect from sharing product portfolios, business models, and Due to the increasing importance of con- economy is even stronger than in the organizational structures. Comparing all 19 nected services and further successes other scenarios. Furthermore, the high clusters in several categories, we identified in autonomous driving, ADAS & sensor market penetration of autonomous drive four deep dive topics (chapter IV) that are technology and the market for electron- level 3 vehicles pushes demand for ADAS of particular interest. ics are on the winning side. High voltage & sensors. By contrast, Infotainment & batteries grow strongly because of Communications decrease because the The results from the Deloitte AVC Industry increasing e-mobility market penetration. general technology hype cools down. Model can be sliced by vehicle module On the other hand, ICE-related clusters ICE-related clusters decrease just slightly. and influence factor, making deep analysis like the transmission or exhaust system possible and showing significant differ- and conventional hardware components •• Hardware platform provider ences for each vehicle module and region. lose market share. The ICE engine itself Autonomous driving plays a decisive We continuously update and discuss our keeps a relatively high volume but is in role, thus the ADAS & sensors market as modelling assumptions, so the model can strong decline. well as the market for electronics see a be customized and used for client-specific huge growth development. Tech players challenges. •• Stagnant car maker designing new automotive services and High voltage batteries and fuel cells grow platforms demand innovative software far less while the ICE cluster sees only a solutions. ICE-related clusters like moderate decline. Autonomous driving transmission face a decline due to an in- is not a promising field for suppliers. creasing number of alternative drivetrain Conventional automotive hardware parts vehicles. Consequently, the demand for face constant cost pressure. On average, high voltage batteries related to electric growth developments are less strong drivetrains grows rapidly and reaches a than in other scenarios. significant market volume in this scenario.
Fig. 12 – Deloitte Industry Model: Available data splits 3 5 6 re ional ale vehi le e ment level of fore a t Luxury, Premium, autonomou Germany, NAFTA, Medium, Small, rive feature China Micro Levels 0–5
19 5 4 vehi le om onent rivetrain t e automotive value lu ter ICE, BEV, P EV, hain enario Engine, Transmission, RE , FC Data and mobility Body, Interior, … manager, Stagnant car maker, The fallen giant, ardware platform provider
28 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 13 – Winning and losing vehicle component clusters per scenario (Germany, NAFTA, China)
To the full extent
Scenario 4 – Scenario 1 – 2+ Hardware platform provider Data and mobility manager
Highest decline in Highest growth in market Highest decline in Highest growth in market market volume volume market volume volume
HV Battery/ HV Battery/ Transmission -36% 1,380% Transmission -35% 1,359% Fuel Cell Fuel Cell
Electric Electric ICE -35% 1,231% ICE -34% 1,116% Drivetrain Drivetrain
Exhaust System -30% ADAS & Sensors 989% Exhaust System -29% ADAS & Sensors 995%
Suppliers and OEMs dominate outsiders set Balance of Power Balance of Power the automotive the rules world Capabilities Cars of
Scenario 3 – Scenario 2 – The fallen giant Stagnant car maker
Highest decline in Highest growth in market Highest decline in Highest growth in market market volume volume market volume volume
Infotainment & HV Battery/ HV Battery/ -59% 925% Transmission -16% 892% Communications Fuel Cell Fuel Cell
Electric Electric Transmission -28% 666% ICE -13% 670% Drivetrain Drivetrain
ICE -26% ADAS & Sensors 457% Exhaust System -6% ADAS & Sensors 6%
Below technological possibilities
29 Investigating specific material cost developments: Selected model deep dives
In order to illustrate highly significant material cost developments towards 2025, this chapter will explore specific technology trends that fed into our modelling assump- tions. As highlighted in figure 10, the most affected vehicle component clusters in terms of impact and uncertainty will likely be:
•• Interior & infotainment systems
•• Drivetrain technologies (incl. ICE, transmission and alternative drive- trains)
•• HV batteries & fuel cells
•• Driver assistance systems
The following illustrative deep dives demonstrate the capabilities of the Deloitte AVC Industry Model.
30 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Deep Dive 1: Interior & infotainment systems
Among all vehicle component clusters, in- However, the car of the future will not nec- fotainment, communications & interior will essarily have more displays in total: Smart probably be the ones with the strongest in- surface integration solutions allow, for fluence on the customer experience in the example, for read-outs to be displayed on upcoming years and will therefore shape various surfaces like windows or armrests. the view of customers on cars as a means LED lighting can be integrated directly on of transport. If and when fully autonomous textile surfaces. All interior surfaces might vehicles become the norm, passengers will have a second or a third purpose. Buttons, not only want to arrive at their destination, switches and knobs will be made increas- but also want to be entertained during the ingly redundant. ride. Levels of cost efficiency are improving rapidly, but they will not be able to com- Customized intelligent seats detect stress pensate for additional costs due to higher levels and notify the driver accordingly, customer demands. while biometric sensing systems monitor a passenger’s health and well-being. Seating All aspects of the human-machine interface in general will gain higher attention in in vehicles will gain importance in the increasingly self-driving cars: Rotating seats upcoming years. For example, strong pro- are already a regular feature in future vehi- gress will likely be seen in the realization of cle prototypes. head-up displays and touch technologies. This gives customers better usability of new However, in our material cost forecasts in-vehicle services such as predictive main- we do not expect highly autonomous cars tenance or app usage. Rear seat displays (levels 4 and above) to be the norm on the can be equipped with interactive city maps, roads by 2025, so rotating seats will likely information about the surroundings (e.g. not have a strong overall volume impact by local sights), and other forms of entertain- then. ment.
31 Fig. 14 – Market volume forecast 2025: Infotainment & communications
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Depending on the scenario for 2025, V2X communication is another cost driver, For 2016, we calculate a total material cost vehicles will have plenty of connectivity as it requires specific equipment such volume (Germany, NAFTA and China) for features: Customers demand media as additional wireless technology. Based these vehicle component clusters of €46.9 technologies, making internet access a e.g. on ITS G5, it enables various safety bn (Infotainment & Communications), re- must-have for future passenger cars. This applications like forward collision or hazard spectively €122.9 bn (Interior, incl. seats and enables a wide spectrum of opportunities warning. climate control). Due to a strong depend- like 5G - based music streaming and access ence on how technological possibilities to social networks, just to name a few (al- All of these trends will likely lead to strongly are used and integrated in the vehicle of ready existing) examples. But on the other increasing material cost levels in the vehicle the future, total volume forecasts for 2025 hand, connectivity leads to higher demands of the future. One significant counter-effect show a wide spread over the four scenarios. on electronic controller units (ECU) and – potentially lowering cost – might be the sensors, causing cost increases for which use of smartphone mirroring: Connecting customers are not necessarily willing to pay. a passenger’s smartphone to the vehicle makes the phone’s applications available for display in the car’s head-unit. GPS systems or other comparable software and data services would, therefore, become ob- solete and lead to material cost reductions.
32 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 15 – Market volume forecast 2025: Interior (incl. seats and climate control)
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Hardware platform provider Data and mobility manager We are in a world of fully connected cars Technological opportunities are utilized to the which communicate with each other. Con- full extent. Infotainment & communications nectivity and all forms of digital innovations components integrated in the interior are a inside the car are highly in demand. must for OEMs.
The fallen giant Stagnant car maker A strong decrease of relative material cost The hype around connectivity technologies of infotainment & communication and is gone, making it difficult for specialized interior components is likely, as affordable suppliers to grow. mass mobility is most prevalent in this world.
33 Deep Dive 2: Drivetrain technologies incl. ICE, transmission and alternative drivetrains
Almost all OEMs and many suppliers are However, a complete end to all ICE sales and moving parts) and reduce complexity. putting immense effort into the research is not likely either, and there might also be In any case, OEMs will try to decrease over- and development of alternative power- business potential for selected providers in all cost levels as much as possible in this trains. The ICE manufacturing industry is a strongly consolidated market. component cluster. affected by increasingly stricter environ- mental regulations. Gasoline engines can Together with alternative drivetrain Currently, material costs for electric driv- still be optimized through down-/up-sizing concepts, transmission components etrains are relatively high. This will change technologies. Diesel engine components have to adapt. Overall, the demand for over time. For example: such as injectors and high-pressure pumps transmissions due to alternative drivetrains can also be optimized incrementally. is decreasing due to smaller sized transmis- Additionally, there are ICEs that work with sions or even no need for transmissions at alternative fuels (ethanol, biodiesel, CNG, all. A remaining cost driver could be hybrid LPG). In general, however, investments in transmissions with integrated electric new ICE technologies are expensive and motors, complex mechanical design and seem highly risky in the long view (see additional parts, e.g. power connections. Figure 16 for Deloitte’s projections on the Also, dual clutch transmissions (DCT), which development of alternative drivetrains). have seen high market growth in the past Recent announcements from Britain, years, might see relatively stable volumes France (2040), India (2030), and Norway in the foreseeable future. Continuously (2025) on dates for planned ICE sales bans variable transmissions (CVT) make some add further validation to these notions. components obsolete (fewer gears, cogs,
34 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 16 – Deloitte E-Mobility Model – Development of alternative drivetrains
Annual sales of alternative drivetrains in million car sales and share of total vehicle sales (model incorporates data from China, NAFTA, and Germany) 99.7% 60 55 + increased willingness to pay extra 50 +91.8% 45 + Strong battery price and capacity development 40 + Willingness to pay extra + Supporting regulations 35 + Strong oil price development 30 + Fast learning curve + Supporting regulations (penalty payments) 52.2% 25 – Slow learning curve 36.4% 20 +85% 15 – Slow learning curve 10 10.5% 18.1% 5 6.5% 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Baseline case: defensive development Scenario 1 Scenario 2 Scenario 3 Scenario 4
Increasing electrification will not only lower demand for internal combustion engines, but also for transmissions
•• Electric engines without rare earth ele- •• Depending on the general market The total material cost volumes in 2016 ments (e.g. induction engines) can reduce demand for alternative drivetrains, we were €107.1 bn (ICE) and €1.3 bn (Electric production costs by 20–30% in upcoming foresee a strong market volume increase Drivetrain). Depending on the scenario we years. across all scenarios. All electronic-related expect the following market volume trends: parts like power electronics, converters/ •• Costs can be reduced by making engines inverters and electric motors face much smaller and lighter. This can be achieved higher demand. by, e.g., using silicon carbide transistors for the engine electronics to reduce the size of capacitors.
35 Fig. 17 – Market volume forecast 2025: ICE
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Investments in new ICE technologies are highly risky in the long view – across all four scenarios
36 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 18 – Market volume forecast 2025: Electric Drivetrain
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Hardware platform provider Data and mobility manager IT players foster the electric drive tech- Alternative drives are definitely in focus, the nology. This yields new chances for non-con- demand for electric motors and power elec- ventional automotive suppliers. ICE engine tronics increases strongly, whereas demand suppliers face drastically shrinking volumes. for ICE shrinks.
The fallen giant Stagnant car maker Regulators reinforce the shift towards Combustion engines and alternative driv- e-mobility. Public e-mobility offerings only etrains coexist, e-mobility emerges as an have limited customer acceptance and independent business model. market success.
37 Deep Dive 3: HV batteries & fuel cells
The main issues in the way of mainstream Because HEVs require lower energy capaci- Further battery types of the future are for market adoption of alternative drivetrains ties than BEVs, preferred batteries for HEVs example lithium sulfur and lithium air, which are charging times, cost, and range. All of are not only LiBs, but also nickel-metal both promise higher energy densities than these problems come down to energy stor- hydride (NiMH) batteries. In any case, LiBs lithium-ions. But both technologies are still age: The battery or fuel cell component. are a good option on a price basis, given in early development and not expected to the large amount of lithium that is available. enter the market before 2025. Thus, at the Battery packs represent around 25–40% As the technology is relatively new, they are moment everything comes down to the LiB of the value of fully electric vehicles. It is still expensive, but cost decreases coming market, which is currently dominated by needless to say that the price development from economies of scale and typical learn- Asian companies, in particular from Japan of batteries remains crucial to the market ing curves are expected. and South Korea. acceptance of electric vehicles. The most promising innovations for the automotive Due to an expected progressive market manufacturing industry are currently based penetration of BEVs and PHEVs, we will see on lithium-ion batteries (LiBs). For PHEVs a strong increase in demand for LiBs in fu- and BEVs, higher energy densities and high- ture years. As battery manufacturers try to er power capable electrode materials like anticipate this progress, they have built up lithium-ion are needed. Battery aggregates battery capacities in advance over recent for electric vehicles can be broken down years. Thus, battery manufacturing plants to the battery cells, modules, and whole currently face low utilization rates of around packs. LiBs can improve overall costs due 65% of production capacities. It remains to to a lower number of cells needed for an entire battery pack.
38 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 19 – Deloitte E-Mobility Model – Battery price development
Battery price development in € / kWh
220
200
180
160 138 140 Threshold of competitiveness at 130€ /kWh2
120 130 110
110 100 95 104
88 80 77 60 62
40
20
0 2015 2020 2025 2030
Scenario 1 & Scenario 4 Scenario 2 Scenario 3
be seen whether the demand for batteries The future differentiator in the battery mar- of platinum which is used for the platinum will grow fast enough to change this, as ket is considered to be neither the size or catalyst that splits the hydrogen. But the important market players have already range of electric vehicles, but in their charg- main issue for FCEVs is that there are only announced that they intend to establish ing time. In that field, flash batteries can very few hydrogen fueling stations, far few- further battery capacities. Excess capacity, play an important part, as they can drop er than public electric charging stations, as however, typically leads to decreasing the charging time down to just five minutes. these are extremely expensive and demand market prices. Since this technology is also still in the early is not overly apparent. stages of its development, the use of flash In recent years, the battery price in €/kWh batteries in vehicles would come only with In total, we estimate the material costs vol- has strongly decreased. Starting at €900/ significant material cost increases. ume for HV Batteries and Fuel Cells in 2016 kWh in 2010, we are now at just over €220/ at around €5.5 bn in the markets analyzed. kWh, and further cost decreases are ex- All those challenges are not apparent in The battery market volume will see a high pected. From our research, a price level of fuel cell electric vehicles (FCEV). They can increase across all scenarios. Nevertheless, €130/kWh is seen as necessary to establish be fueled just as fast as conventional ICEs the volume development until 2025 highly battery EVs on a broad basis (figure 19). and their ranges are comparable. Even depends on the speed of the e-mobility though FCEVs are relatively expensive, they uptake per scenario: become cheaper by reducing the amount
39 Fig. 20 – Market volume forecast 2025: HV batteries / fuel cells
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Hardware platform provider Data and mobility manager IT players are driving the trend towards As e-mobility is in focus, optimized batteries electric vehicles. The supply of (compo- and innovative charging solutions for these nents for) batteries creates new opportuni- are in high demand. ties for non-conventional suppliers.
The fallen giant Stagnant car maker Even though the government tries to push Electric drivetrains co-exist with ICEs, thus the shift towards e-mobility, consumers efficiency improvements in batteries are only use it to a limited extent. R&D invest- crucial for the competiveness of electric ments in battery innovations have cooled vehicles. down.
40 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Deep Dive 4: Driver assistance systems
Autonomous drive technology has the Fig. 21 – Industry challenges until series maturity of autonomous vehicles potential to completely transform mobility industries. In each step towards a fully autonomous vehicle, different development Key development topics Description and complexity stages of Advanced Driver Assistance Systems (ADAS) are used to set the technical foundation. Various sensors Function/Software Human cognitive abilities must be reproduced around the car detect obstacles, help keep the vehicle on track and warn the driver in case of danger. ADAS applications not only Back end/ HD Map Highly accurate maps and localization are a ensure a higher safety level for the driver by prerequisite providing the vehicle with more information about its surroundings, but also promote comfort. The different stages of autono- Fail-Operational New architectures needed to control car in mous driving can be differentiated in levels Architecture "first failure" cases until driver takes over from 0 to 5 (figure 22). (about 5–10 seconds)
In a Level 5 vehicle no human intervention Method Assurance New hedging methods are required is required, other than setting the destina- tion and starting the system. In order to get there, OEMs, suppliers, software com- Legal Aspects Change of existing laws and regulations. Cars, not panies, regulators and other stakeholders humans, will make maneuver decisions. have to solve a number of potentially show-stopping issues, ranging from the de- velopment of reliable driving functionalities to settling remaining legal concerns (figure 22).
41 Fig. 22 – Levels of autonomous drive
artial Con itional o Automation river A i tan e i h Automation Full Automation Automation Automation evel evel evel evel evel evel No system “Feet-off” “Hands-off” “Eyes-off” “Brain-off” No driver
No driver Driverless during Driver needs to defined use cases Driver is in be ready to take Driver in charge of monitoring mode over as a backup Driver completely longitudinal or system in charge lateral control
Source: Deloitte Consulting
Rough estimations suggest that a vehicle OEMs, suppliers, software upgrade to Autonomous Level 5 might come at a cost of several thousand euros companies, and regulators per vehicle from today’s perspective and an end-customer's point of view. Although the costs of hardware and software still have to solve a number components will decrease over time, we assume that the strong increase in required of potentially show-stopping components and higher degree of system integration complexity will keep overall costs high. As ADAS applications stand for questions to establish fully more safety, governments or organizations like the European Union might push all autonomous vehicles vehicle manufacturers to provide more of such applications over time, increasing the demand drastically.
42 The Future of the Automotive Value Chain | Supplier industry outlook 2025
The sensors themselves will likely become Apart from the hardware components, smaller and functionally more capable. An ADAS needs smart software algorithms increasing number of radar and lidar sen- which always take correct action to guar- sors and cameras, which are necessary for antee safety for the passengers. Software any adaptive cruise control system, will be platforms running on centralized ECUs integrated in more and more vehicles. or MCUs are used to make sensor fusion easier. In order to improve ADAS, constantly increasing processing power is required All of these factors will likely drive up vehicle due to more complex sensor fusion. Higher costs significantly. Considering the high performing electronic controller units (ECU) uncertainty of future technological solu- and microcontroller units (MCU) will drive tions in the field of autonomous driving, we costs. The need for processors with higher modelled four material cost projections. performance results in the development of smart sensors which come with integrated processors. Hardware costs itself could decrease due to increasing production technology capabilities.
Fig. 23 – Market volume forecast 2025: ADAS & sensors
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Hardware platform provider Data and mobility manager Autonomous driving features are highly in Massive increase of integrated ADAS: AD level demand by both OEMs and new mobility 3 (driver must be ready to take over as a players: AD level 3 (driver must be ready backup) is assumed on average across the to take over as a backup) is assumed on markets and vehicle segments analyzed. average across the markets and vehicle segments analyzed.
The fallen giant Stagnant car maker Autonomous drive technology in large Autonomous drive is not widely accepted: mass mobility fleets has become part of AD level 1 (driver in charge of longitudinal or life: AD level 2 (driver is in monitoring mode) lateral control) is assumed on average across is assumed on average across the markets the markets and vehicle segments analyzed. and vehicle segments analyzed.
44 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Overall model result overview
Fig. 24 – Deloitte AVC Industry Model: Result overview of scenario-specific material cost volume developments3 for Germany, NAFTA and China towards 2025
Vehicle component cluster Total Volume Volume Volume Volume Average Average (GER, NAFTA, CHN) Volume Development Development Development Development Develop. Volume 2016 2016–2025 2016–2025 2016–2025 2016–2025 2016–2025 2025 in € bn S1 S2 S3 S4 in % in € bn
HV Battery/Fuel Cell 5.5 +1,359% +892% +925% +1,380% +1,139% 68.1
Electric Drivetrain 1.3 +1,116% +670% +666% +1,231% +921% 13.2 ADAS & Sensors 6.4 +995% -6% +458% +989% +609% 45.4
Electronics 50.3 +48% +6% -6% +40% +22% 61.2
Interior 71.5 -2% +1% -8% -3% -3% 69.3
Seats 39.3 -3% +1% -9% -3% -4% 37.9
Infotainment & Communications 46.9 +25% -5% -59% 8% -8% 43.3
Body 114.9 -11% -4% -12% -11% -9% 104.2
Suspension 12.0 -11% -4% -13% -11% -10% 10.8
Steering 15.0 -11% -4% -13% -11% -10% 13.5
Wheels & Tires 22.2 -12% -4% -13% -12% -10% 19.9
Frame 22.3 -11% -4% -16% -11% -10% 19.9
Axles 20.7 -12% -5% -13% -12% -10% 18.5
Climate Control 12.1 -17% -5% -14% -17% -13% 10.5
Brakes 16.3 -20% -4% -13% -20% -14% 14.0
Fuel System 7.1 -28% -5% -19% -29% -20% 5.7
Exhaust System 21.8 -29% -6% -20% -30% -21% 17.1
ICE 107.1 -34% -13% -26% -35% -27% 78.5
Transmission 61.3 -35% -16% -28% -36% -29% 43.7
Likely winners (volume increases in more than one scenario) Uncertain component clusters (volume increases in one scenario) Likely losers
What about software and digital include the additional value-add from the resent an additional upside to our material services? suppliers' software and service development. cost forecasts, as we consider current cost The results summarized above represent ma- Most notably, this is the case for component predictions not reliable enough at this point terial cost developments along a convention- clusters such as infotainment systems and in time. al, i.e. hardware-focused, vehicle breakdown. driver assistance systems. An aspect not fully As pointed out above, however, we expect reflected in our overall modeling is purchas- Nevertheless, developing, sourcing, and a (scenario-specific) strong increase of OEM ing volumes originating from vehicle-related assuring quality of automotive software is money spent on software and digital (da- software engineering (e.g. autonomous driv- an increasingly important topic. We further ta-based) services for the future. This is partly ing features) and new digital service offerings elaborate challenges and solutions in this reflected in our modeling: Material costs for (e.g. connected infotainment, messaging, or field in our publication "Automotive Software components sourced as embedded systems vehicle health features). These volumes rep- Quality"4.
3Excluding inflation and spare part business 45 4https://www2.deloitte.com/content/dam/Deloitte/de/Documents/risk/Risk-Risk-Advisory-Automotive-Software-Quality-DE-s.pdf Transformation paths towards 2025 for the automotive supplier industry
The results from the Deloitte AVC Industry Model shed light on substan- tial, in some cases even burning, needs for change. Modelling results trigger and support discussions about re-pri- oritizing product portfolios and market exposure. We believe that six strategic fields of action should be assessed by automotive suppliers when considering potential transformation initiatives to- wards 2025. Welcome on board.
46 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Welcome on board.
47 When analyzing scenario-specific material Fig. 25 – Key transformation questions cost market developments along vehicle component clusters and regions, three key questions can help structure strategic considerations for suppliers: Should I restructure and strenghten my traditional •• Do we expect sufficient growth and prof- core business? itability in our current product portfolio and regional market footprint?
•• Do modelling results rather suggest reviewing our product and service port- folio, as our current portfolio will become obsolete in parts or highly commoditized Should I re-focus in the automotive future? my product and
•• Is it necessary to examine the regional service portfolio? customer focus and in turn reassess the current manufacturing footprint?
Naturally, answers will depend on the sup- plier’s current setup along products and Should I re-focus markets as well as the (scenario-specific) market development projections from the my regional Deloitte AVC Industry Model. We believe, footprint? however, that six priorities should be at the core of every supplier’s strategic planning towards 2025 and beyond.
The following chapters will illustrate transformation paths from the perspective of top decision-makers at a supplier for transmissions, which will likely face strong volume losses, as our projections in chap- ter III and IV showed.
Volume projections trigger discussions regarding re-prioritizing both product portfolios and market exposure
48 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 26 – Signature priorities for value chain transformations in automotive suppliers
ro u t Colla oration ortfolio an latform Should I restructure and hift trate ie strenghten my traditional core business?
Should I re-focus my product and service portfolio? Automotive Talent for suppliers Con oli ation future an alin u ine transformation trate ie eman priorities 2025 Should I re-focus Key enabler my regional footprint?
i iti ation o ation for o t trate lea er hi revie
49 Product portfolio shifts On the other side, specific AVC Industry As pointed out in the previous chapters, Model outputs imply a growing market suppliers in most vehicle component clus- demand for electric drivetrains by about ters must cope with ongoing cost pressure sixteen times in relation to today. Learning combined with the threat of technological effects and overall technology leaps will substitution of their current products. For beat down prices by 30% over time, but suppliers most affected by these technolog- also allow for variable cost reductions by ical shifts, e.g. in the fields of ICE or trans- almost 50% during the entire ramp-up missions, a radical shift in product offerings period. Significant investments in new de- can be a life-saving move. But developing velopment stages of the electric drivetrain new product offerings and profit pools re- technology are needed. In summary, a quires significant investments, which need consolidated view shows that the old tech- to be financed from cash flows coming from nology manages to sponsor the ramp-up the current core business (figure 27). In oth- of a new technology in order to establish a er words: Maintaining profitability despite new profit pool (figure 29). shrinking volumes in traditional products and managing a quick innovation and ramp-up process of new products must go hand in hand. Results from the Deloitte AVC Industry Model can help to support financial planning in the light of this, which the following case study will illustrate. We simulated profit and loss developments for a generic supplier of transmissions, who is threatened by significant volume loss by 2025. The supplier's plan is to develop a sec- ond product segment: Electric drivetrains (figure 28).
The simulation is based on the first sce- nario “Data and mobility manager” and assumes a decrease in market demand of 19% for the supplier’s transmission business as a mixed product portfolio of automatic and manual transmissions by 2025. Due to increasing cost pressure from OEM customers, prices are assumed to also shrink by 20% over time (inflation-adjusted). The supplier will not be able to compensate such a drastic price decrease with variable product cost reduction measures. Product margin loss of more than a quarter of the 2016 figure is the inevitable consequence. To make up for this, efforts for innovating the transmission product portfolio are almost fully ramped down until 2025.
50 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 27 – Profit & loss simulation of portfolio shift for generic supplier
Transmission Electric Drivetrain
# #
Market demand Market demand decreases in increases in volume volume by by fa tor Volume t t
€ € Due to cost pressure from igher product OEMs price maturity lowers shrinks by prices by ri e t t
€ Slow decline € of variable cost Learning effects and by , lower technology leaps decrease than reduce variable cost prices by
Varia le o t t t
Cyclical cost peaks € Steady decline of € from developing next development cost for generation technolo- expiring technology gies ( compared to 2017 baseline)
evelo ment o t t t
€ €
Declining profit After investment margin by almo t phases overall profit (-92%) until 2025 margin of Profit t t
Transmission – shrinking business Electric Drivetrain – future technology t = Analyzed time frame (2017–2025)
Source: Deloitte AVC Industry Model, Deloitte analysis
51 Suppliers must be capable of bridging years of negative returns from new technologies, subsidized by traditional profit pools
Fig. 28 – Profit & loss simulation of portfolio shift for generic supplier – consolidated profit view
In-house development
Profit
Decreasing demand leads to a phase-out of R&D efforts in transmission products Profits from transmission business sponsor ramp-up of new profit pool Period of continued losses due to high R&D and ramp-up cost for new technology
Dent due to cyclical R&D cost peaks for ramp-up of new electric drivetrain technology
Transmission – shrinking business Electric Drivetrain – future technology Consolidated
Source: Deloitte AVC Industry Model, Deloitte analysis
This example highlights the need to be able to go through periods of strongly dimin- to bridge and sponsor up to seven years of ished or even negative profits. Many sup- negative profits from new technology and pliers are and will be faced with such large product innovation by the existing busi- scale transformation, which – as the simula- ness. The dent in the consolidated curve tion highlights – not only requires immense is based on cyclical R&D cost peaks and efforts from management and employees, ramp-up cost for future technology and but also careful deliberation of financial development stages. Large financial efforts risk taking and margin expectations from are required for this, so decision-makers shareholders. The next chapter shows one and their shareholders must be prepared effective strategic approach to countering these negative effects.
52 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Collaboration and platform strategies Fig. 29 – Profit & loss simulation of portfolio shift for generic supplier – The previous chapter focused on where to consolidated profit view for development cooperation with a set priorities in developing product portfo- non-competitive partner lios in accordance with automotive material cost projections. This chapter discusses Development cooperation how to develop and invest in new profit
pools in a smart and collaborative way. Profit The simulation of the generic transmission supplier has shown that there might be Cooperation with non-competitive phases of negative consolidated profits partner accelerates to endure during the reshuffle of the core business model business. Several examples in recent transformation years have shown that collaboration and development partnerships in the automotive ecosystem are considered a In-house development viable strategy for decreasing development costs and reducing fiancial risk from failed Split of development costs helps almost Profit investments. Depending on the specific avoid period of nega- scenario of a 2025 automotive world, it can tive returns be a lifesaving step to break today’s strong dependency on OEMs and form new part- nerships for joint innovation or high volume manufacturing orders (e.g. with new mobil- Transmission – shrinking business Electric Drivetrain – future technology Consolidated ity players). Joint drivetrain developments by BOSCH and Schwalbe (for motorcycles) Source: Deloitte AVC Industry Model, Deloitte analysis as well as partnerships between TM4, PSA Peugeot Citroen, Exagon Motors and the Government Du Québec (passenger cars), can be named as recent examples.
The abovementioned profit & loss simu- lation for a generic supplier can help to highlight the potential from such collabora- tion strategies: The simulation shows that a reduction of up to one third of develop- ment and ramp-up cost are achievable. The assumption behind this is the successful implementation of a development cooper- ation with a non-competitive partner (see above). The simulation shows that negative returns can almost be avoided and that an overall business model transformation can succeed at a faster pace than in a stand- alone effort. However, besides mitigating costs and risks by collaborating with other companies, governance issues as well as shared ownership of intellectual property need to be considered. An up-front analysis of these possible show-stoppers is crucial.
53 In general, two options for such a collabo- Furthermore, the development of supplier- ration can be distinguished: A collaboration OEM or cross-OEM platforms around key between competitors from the same indus- topics like autonomous driving or multi- try, with all the legal questions that come modal mobility can create new ecosystems along in this case, especially from cartel and value dynamics. Cooperating on the authorities; and a collaboration between basis of joint platforms can be the founda- noncompeting companies across indus- tion for new revenue streams. Value cre- tries. Regarding the first option, surviving ation through data and analytics is one of in the evolving new automotive ecosystem the key elements in supporting new service could mean that competitors in one area offerings for suppliers. Capturing, storing, may be collaboration partners in others. securing, and analyzing product data is the Flexibility can become a critical condition basis for value-added services. Relevant for participation in specific business areas. supplier use cases can, for example, be The ability to transact through multiple found in the development of autonomous types of commercial relationships will likely drive features. Suppliers can offer to store become a prerequisite for success, and sensor data for extended periods of time innovation-oriented collaborative coope- (e.g. 15 years) and maintain auditing accept- tition becomes the norm. As an example, able data repositories for OEMs. Another in 2017 ZF Friedrichshafen AG and HELLA potential use case can be to process and formed a strategic partnership on sensor sell collected sensor data packages so that technology, particularly for front camera OEM developers can use them to further systems, imaging, and radar systems. The improve autonomous drive simulations aim is to further strengthen the ZF portfolio and quality assurance of features. As the as a system supplier as well as to provide mentioned fields of action are all relatively broader market access to HELLA with its new, they should be seen as an opportunity innovative technologies. for suppliers to reach out in new business fields and build new revenue streams. Regarding the second option, providing innovative solutions outside of classical business models, collaborations with indus- try-external players become more relevant. For example, the increased integration of software solutions leads to more and more partnerships between conventional software companies on the one hand and traditional automotive suppliers on the other. The collaboration between IBM and Valeo in co-developing embedded software for vehicles in a joint development center is only one example. The technical expertise on both sides is leveraged to invent better solutions than each could do on their own.
54 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Consolidation and scaling strategies Looking at the projections from the Deloitte Transformation strategies described in the AVC Industry Model provides a few exam- two previous chapters force companies to ples of component clusters, where the con- venture into new, profitable business fields. solidation and scaling strategy can become Consolidation strategies, on the other hand, a viable option. Picking up the example of attempt to achieve performance leadership the generic transmission supplier: With the in traditional products and locations, breakthrough of alternative drivetrains, despite declining market sizes and profit demand for ICE-related components like margins. Prerequisite for this strategy is transmissions will decrease sharply. How- to ruthlessly drive process and cost effi- ever, the remaining ICE and transmission ciency, scale up production capacities, and demand (e.g. for niche segments like sports ultimately become the undisputed partner and luxury cars) should still be significant of choice for the remaining customers in enough to provide profitable business for a an otherwise shrinking market. This also selected few German ICE suppliers. OEMs means pushing remaining competitors out and other mobility customers might even of the market – partly by mergers and have a strong incentive to support such acquisitions. However, it requires not only a plan because otherwise the safety and significant funds to be able to act in the stability of the transmission supply might merger markets, but also strong manage- become problematic. ment and financial efforts to ensure smooth post-merger integration and exploitation of If the consolidation and scaling strategy synergies. is carried out successfully (see figure 30), financial returns can even enable further in- vestment in new, growing product clusters (as described on pages 50–54).
Fig. 30 – Profit & loss simulation for generic suppliers – consolidation and scaling strategy
Transmission consolidator
Profit Synergies from integration are being Stable returns despite shrinking market realized and improved market share volume due to implementation of consolida- supports profitable growth tion and scaling strategy
Do-nothing scenario: profitability loss due to shrinking volumes and margins (see figure 28, left side)
Acquisition of competitor and its trans- Take-over of production facilities mission manufacturing capacity requires from (bankrupt) competitor high integration and financing cost again causing higher integration and financing cost
Do-nothing scenario (transmission business) Consolidation strategy (transmission business)
Source: Deloitte AVC Industry Model, Deloitte analysis
55 Localization strategy review product complexity and usage of new tech- more complex and expensive to do so in a Shifts in product strategy – as described nologies, the risk increases significantly of low-cost country where knowledge, infra- above – also require high flexibility in a sup- ending up with a production plant in a low structure, and change capability have to be plier’s localization strategy. Higher complex- cost market which does not have access to imported. In addition, the risk sensitivity of ity of vehicle systems and higher numbers the required pre-products or services. the factory has to be analyzed. With new of variants further increase supply chain and more complex products, the require- complexity, drive change and qualification The strongest impact happens to the com- ments on infrastructure, deviation process- costs, and increase the risk sensitivity of mon productivity/labor cost systematic: es, and also the supply chain increase. manufacturing plants. A simple framework The specific business case will typically be for integrating and balancing these and positive if labor cost savings exceed effects other challenges is the localization cost of lower quality or productivity standards. radar (figure 31). However, the calculation must also consider the slower qualification speed of the work- When products and plant production plans force as well as lower flexibility. While it is change regularly, the underlying materials (relatively) simple to change a product in a and services must be available at target mature market with generally low rates of locations on short notice. With higher labor attrition like Germany or France, it is
Fig. 31 – Localization cost radar
Fixed o t Cost for local risks and Cost of infrastructure and potential product changes other fixed costs
i ro u t o t flexibility o t Localization Co t a ar Local material cost and supplier accessibility
Labour cost and productivity
anufa tur o i ti in o t o t
Supply chain and distribution cost
Source: Deloitte Consulting
56 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Digitization drives optimization of traditional core business, which in turn allows companies to invest in new business opportunities
57 The conflict between the different areas of stability, sourcing strategies, and political After choosing a specific location, the key the localization radar can be highlighted environments increases investment risks challenge for most players is establishing by looking at the transmission suppliers significantly. As an example, Ford canceled a robust process framework, especially discussed on the previous pages: Based on a $1.6 billion plant manufacturing project in for low cost locations, that integrates all our model outputs, shrinking transmission Mexico due to political pressure, which di- relevant process areas, including product market volumes as well as lower profit rectly influenced the whole supply base and change and launch processes as well as margins are to be expected. Thus, closer their bet on a growing customer base. Many support and deviation processes. Consist- scrutiny of transport costs and opportu- suppliers had already started to expand ent risk monitoring is the key to success. nities for producing local content close to their business in anticipation of the new customer plants must be considered. On plant. On the other hand, there are several the other hand, increasing uncertainty examples where suppliers followed their regarding customer (OEM) demands and OEM customers to their respective growth markets (figure 32).
Fig. 32 – Selected examples of recent supplier plant manufacturing projects
Webasto opens Components for the new plant in connected future: Baoding Bosch opens new Aims to satisfy the electronic plant in continuing increase in Mahle expands in China Changzhou, China demand for sunroofs and Strengthened presence in the important Growing local demand for panorama roofs growth market China connected products and Opened in 2017 Opened in 2017 solutions
Opened in 2017
Schaeffler celebrates grand opening of new plant in Thailand “Local production allows us to get closer to our customers and […] improve their access Johnson Controls to to our high-quality products […]” build 4th automotive
Opened in 2016 battery plant in China Ford's reversal Adding capacity to meet growing demand for fuel efficient on Mexico plant technology spooks suppliers Constructions expected to begin […] spooked a network of in 2017 suppliers who bet on a growing customer base […]
Cancellation announced in 2017
58 The Future of the Automotive Value Chain | Supplier industry outlook 2025
With new and more complex products, the local supplier and manufacturing infrastructure will be tested like never before
Continental selects site in Thailand to build new greenfield tire plant for passenger cars by 2019 “[…] improving the balance of our global manufacturing footprint [….]”
To be built by 2019
Yazaki’s automotive wire harness production starts in Serbia
Localization in Europe by establishing a new company
Production started in 2017
Brose expands Mexico presence with new production facility in Querétaro “Being the first regional site to produce our rear seat structures […] expand our footprint […]”
Series production expected to begin in 2018
59 Digitization for cost leadership As one example, the integrated use of digi- The abovementioned transformation steps tal use cases for product cost optimization put significant levels of financial stress (figure 34) allows for additional savings on organizations. Continuously realizing potential of up to 15% on top of conven- efficiency gains and the resulting cost im- tional potentials: Specialized scanning tools provements is crucial along the way. Recent convert the geometrical layout of parts into years have seen a rapid rise of use cases for digital files, which allow in-depth material utilizing the potential of so-called Industry cost analysis and optimization. Based on 4.0, such as predictive maintenance, data this digital part specification and with the driven demand prediction, or 3D printing. use of a 3D printer, a physical prototype However, many companies fail to fully of the cost-optimized part can be manu- operationalize these solutions, because factured quickly. This method provides an they lack an integrated approach. In order opportunity to significantly reduce both to create exponential value through digital material and production costs, as up to transformation, the overall goal is to achieve 70% of a product’s cost are commonly an integrated concept with combined use decided through the design stage. cases (figure 33).
Fig. 33 – Typical challenges towards the digital transformation
Predictive Maintenance Simultaneous Engineering Complexity Reduction
Product Cost Analytics
Predictive Quality Digital Performance Management Traditional New Business Core Business Expand core Virtual Product e.g. cost reduction, business into Development optimized sourcing, solutions for new footprint Digital and adjacent strategy markets 3D Continuity Transformation
Artificial Intelligence
Digitalized Purchasing Rapid Prototyping Data Driven Demand 3D Printing Prediction Simulation Model-based Experience Product Complexity Augmented Reality Analytics Cost Parametric Analyzer Next Level Product Cost Remote Monitoring Automated Planning Optimization Human-Machine Cooperation and Control
Source: Deloitte Digital Factory
60 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 34 – Digitization example - integrating digital use cases for product cost optimization to achieve additional savings potential
Conne te Conne te inte rate inte rate a roa h a roa h Use Case 1 Use Case 2 Use Case 3
Analytics-supported Design-to-value-enabled product CAD/3D print-enabled rapid product cost analysis optimization prototype manufacturing
1. Product selection: 1. Design to value: 1. Design/CAD: Usage of sourcing & procurement Identification of cost reduction Design of cost optimized analytics tool in database potential with design-to-value product variants methods 2. TCO assessment: 2. Rapid prototyping/3D-print: As-is cost analysis from 2. Cost analysis to-be: Print of relevant parts different sources Evaluation of costs for alternative design variants 3. Product teardown: 3. Assembly: Teardown into parts for cost 3. Complexity analytics: Functional analysis of new evaluation Assessment of complexity costs product (total-cost-of-ownership approach) 4. Sourcing/negotiation: 4. 3D scan and data import: Supplier request for new 3D scan of parts and CAD models product or component supplier negotiations 5. Cost analysis as-is: Assessment with software Source: Deloitte Digital Factory
At Deloitte, we have set up a Digital to explore live use cases of Industry 4.0 Factory that provides a flexible environment solutions.5 All of this serves the strategic for innovative workshops and training purpose of securing financial means from courses. The Deloitte Digital Factory com- today's profit pools in order to fund for bines a shop floor for product teardown innovation and build new profit pools, as and manufacturing as well as an integrated we have exemplified in the P&L simulations office floor. Thus, suppliers and other for generic transmission suppliers on pages automotive players have the opportunity 51 and following.
5https://www2.deloitte.com/de/digital-factory 61 Key enabler: to develop a future-oriented talent model, •• how future technologies affect the way in Talent for future business demands which is designed to attract digital talents which work is done Suppliers develop new business models, in particular. These digital talents require alliances, and technologies – like the independence and empowerment as well •• when the new skills are needed within generic transmission supplier used to as transparency of their work environment the organization exemplify each strategic move throughout and appreciate a high degree of flexibility. In this chapter. Forming the future value chain addition, the new model must also enable •• and in which areas of the organization will not only have a significant impact on the the resulting cultural and operational shifts the change will take place. number of employees, but especially on job to be reconciled with the needs of the exist- profiles and required qualifications. On the ing organization. This leads to the necessity of a much more one hand, new roles with adapted abilities flexible model for the organization, which arise within the organizations. On the Integrating new types of employees and can take changing requirements into other hand, new organizational structures skills into existing organizational structures account quickly and supports the future of such as flexible internal talent markets can is a major challenge. The human resources work. occur. New dynamic development models, organization plays a decisive role in this like agile or hybrid-agile methods, require process. A new workforce planning mind- At Deloitte we regularly publish on topics new types of toolsets from employees. The set has to be established. Due to new around the future of work. One of the latest reorientation of organizations will inevitably requirements from evolving technologies examples is the publication “Making the fu- influence how the current workforce, which such as robotics, artificial intelligence, or ture of mobility work“ in the Deloitte Review has shaped the automotive industry over data analytics, a forecast of the required Issue 21, 2017, “Navigating the future of the past decades, can be successfully abilities of the employees is only possible work”, which gives you a deeper insight into integrated and how future talents can be based on long-term thinking which takes the subject. attracted at the same time. The challenge is into account:
Fig. 35 – Talent transformation priorities for future business demand
01Unleashing networks of teams 02Rethinking your hierarchy 03Developing digital leaders Build organizational ecosystems through Revisit the meaning of “career” and what Develop bold leaders who are comfortable focused, autonomous, and less hierarchical it takes to develop in multi-role, flexible with new tools and management teams. career paths. approaches.
04Pulsing your people 05Creating a culture of real-time 06Recognizing learning is everyone’s job Use internal crowdsourcing and hacka- measurement Embed learning seamlessly in each part thons to collect ideas to build a compelling Invest in applications that provide real-time of the organization – through formal and employee experience. metrics on engagement, recruitment, and informal knowledge sharing. turnover.
Source: Deloitte Review – "Navigating the future of work" 62 The Future of the Automotive Value Chain | Supplier industry outlook 2025
From integrated material cost projections to tailor-made transformation strategies for automotive suppliers
63 Trends, scenarios, and modelling results As a tendency, more innovation-driven presented in this study are based on scenarios (I and IV) might ask for product both intensive research and an ongoing portfolio shifts, collaboration strategies, discourse with industry experts. As we and solutions for seeking the talent for fu- all know, however, trends in today’s au- ture business. On the other hand, scenarios tomotive world can change dynamically, II and III might rather demand digitization as sometimes even turn around fully, e.g. due well as consolidation and scaling strategies. to unexpected political interventions on environmental regulation. Therefore, we In the end, it is indispensable for any player created the Deloitte AVC Industry Model in in the automotive industry to develop such a way that it can be updated regularly quantified and qualified company-specific and adjusted to specific product portfolio scenarios. Thus, for the development of setups. individual transformation paths, consistent monitoring of signposts and the consid- It is up to individual automotive deci- eration of the capabilities of one’s own sion-makers to define and implement their company is of paramount importance. optimal transformation paths towards 2025. The six key strategic priorities rep- We, as Deloitte, regularly support such resent a set of initiatives that we believe decision making processes: Based on our should be assessed in any case, irrespec- Deloitte AVC Industry Model as well as tive of scenario, product portfolio and integrated strategy and P&L scenario sim- market exposure. ulation, as shown in the previous chapters. But also, of course, based on many more insights and points of view on the currently immense challenges for the automotive supplier industry.
64 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 36 – Summary: Signature priorities for value chain transformation for automotive suppliers
Data and Stagnant The fallen Hardware mobility manager car maker giant platform provider
2+
Product portfolio shifts Match product offering with Changing demand and shrinking market volumes in most vehicle component demand in growing component clusters will make product portfolio expansions/re-shifts necessary clusters
Collaboration and platform strategies Partnerships ranging from specific-purpose alliances to broad collaborations Accelerate developments and help to decrease development costs and increase profitability share risks through partnerships
Consolidation and scaling strategies Consistent cost efficiency initiatives in component clusters with decreasing Seek economies of scale by volumes and consolidation efforts (i.e. acquisition, integration, and consolidating volumes of losing rationalization of production capacity) stabilize financial returns component clusters
Location strategy review Integrating all relevant process areas, including the product change & launch Re-focus production locations processes as well as support and deviation processes, especially for low cost according to future market and locations, is key for success customer demand
Digitization for cost leadership Achieving an integrated digital concept helps raise established cost Establish an integrated, digital optimization methods to the next level supply chain for next level cost optimization
Talent for future business demands As suppliers explore new business models, alliances, and technologies, the Create a forward-thinking talent changing requirements also create change and friction within the workforce
Enabler model that considers changing requirements
65 Transformation demand in the automotive supplier industry is enormous: Use an integrated market volume forecasting model to challenge and develop strategies
66 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Conclusion
Disruptive changes in the automotive These and further modelling results should Naturally, each company needs to evaluate ecosystem will lead to significant transfor- trigger discussions amongst decision-mak- product-specific material cost volume pro- mation demand for automotive suppliers ers in automotive suppliers regarding jections and scenarios according to their until 2025 and beyond. Results from our re-prioritizing both product portfolios individual circumstances and environmen- AVC Industry Model indicate that and market exposure. The Deloitte AVC tal requirements. Derivations of quantified Industry Model can be utilized to compute and qualified supplier-specific scenarios •• overall material cost volume in Germany, individual volume projections based on lead to a basis for strategic decisions that NAFTA, and China will grow slightly (+6%, company-specific assumptions in order to need to be made in the near future. The not considering spare part business; challenge existing strategies or to develop high uncertainty forces robust and at the excluding inflation). alternative ones. In our view, six strategic same time flexible options for reacting to fields of action should be thoroughly short-term changes within the individual •• 15 out of 19 vehicle component clusters assessed when considering transformation transformation path. A constant monitoring will likely see a decline in market volume. initiatives towards 2025: of market trends and indications regarding the anticipated scenario will help to actively •• winners (e.g. electric drivetrains, HV 1. Product portfolio shifts: Match pro shape suppliers' future and in a way that batteries, advanced driver assistance duct offering with demand in grow- plays a significant role in the automotive systems) show growth projections of up ing component clusters supply chain of 2025 and beyond. to 15 times their current volume. 2. Collaboration and platform strate- •• vehicle component clusters related to gies: Accelerate developments and the classic ICE vehicle (e.g. transmission, share risks through partnerships combustion engine or fuel systems) will have to deal with the biggest losses (up 3. Consolidation and scaling strategies: to -36%). Seek economies of scale by consoli- dating volumes of losing component •• material cost volumes in Germany are clusters facing general decline, while Chinese vol- umes will increase due to strong vehicle 4. Location strategy review: Re-focus sales forecasts. production locations according to future market and customer demand •• each of these average results, however, must be viewed along their scenar- 5. Digitization for cost leadership: io-specific projections (e.g. Infotainment Establish an integrated digital supply & Communications, which we expect to chain for next level cost optimization grow by 25% in one scenario, but decline by almost 60% in another). 6. Talent for future business demands: Create a forward-thinking talent model that considers changing re- quirements
67 Contacts
Dr Nikolaus Helbig Dr Harald Proff Partner Partner Strategy & Operations Strategy & Operations Tel: +49 (0)89 29036 7604 Tel: +49 (0)211 8772 3184 [email protected] [email protected]
Matthias Nagl Senior Manager Strategy & Operations Tel: +49 (0)89 29036 7503 [email protected]
Special thanks to Jonas Schnabel, Georg Kempa, Nadja Benzow, Philipp Enderle, Maximilian Rathnow, Eike-Christian Koring, and Alexander Vowinkel for their contributions.
68 The Future of the Automotive Value Chain | Supplier industry outlook 2025
Joe Vitale Dr Thomas Schiller Partner - Automotive Sector Lead Global Partner - Automotive Sector Consulting Lead Global [email protected] [email protected] Tel: +1 (0)313 324 1120 Tel: +49 (0)89 290 367 836
Damon Cantwell Carlos Eduardo Ayub Dr Marco Hecker Partner – Automotive Sector Lead Australia Partner – Automotive Sector Lead Brazil Partner – Automotive Sector Lead China [email protected] [email protected] [email protected] Tel: +61 (0)396 7175 43 Tel: +55 (0)115 1861 227 Tel: +85 (0)228 5265 88
Svetlana Fedorova Lars B. Nielsen Guillaume Crunelle Director – Automotive Sector Lead CIS Partner – Automotive Sector Lead Denmark Partner – Automotive Sector Lead France [email protected] [email protected] [email protected] Tel: +42 (0)246 0439 04 Tel: +45 (0)307 037 28 Tel: +33 (0)155 6123 05
Rajeev Singh Giorgio Barbieri Masato Sase Partner – Automotive Sector Lead India Partner – Automotive Sector Lead Italy Partner – Automotive Sector Lead Japan [email protected] [email protected] [email protected] Tel: +91 (0)124 6792 000 Tel: +39 (0)115 5972 64 Tel: +81 (0)804 3677 936
Jung Hee Bae Alberto Torrijos Sharad Mishra Partner – Automotive Sector Lead Korea Partner – Automotive Sector Lead Mexico Partner – Automotive Sector Lead SEA [email protected] [email protected] [email protected] Tel: +82 (0)2 6676 3604 Tel: +52 (0)55 5080 7087 Tel: +65 (0)933 735 18
Ruwayda Redfearn Jordi Llidó Martin Larsson Partner – Automotive Sector Lead South Africa Partner – Automotive Sector Lead Spain Partner – Automotive Sector Lead Sweden [email protected] [email protected] [email protected] Tel: +27 (0)315 6070 74 Tel: +34 (0)932 5337 02 +46 (0)70 080 24 30
Güneş Süsler Michael Woodward Craig Giffi Partner – Automotive Sector Lead Turkey Partner – Automotive Sector Lead UK Partner – Automotive Sector Lead US [email protected] [email protected] [email protected] Tel: +90 (0)212 3666 031 Tel: +44 (0)207 303 0884 Tel: +1 (0)216 830 6604
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Issue 12/2017