AUTOMOTIVE ELECTRONICS The biggest trends and challenges in the automotive electronics industry
We are entering an era in which connected vehicles are the new norm. As a result, the market is seeing increased penetration of advanced vehicle safety systems, growing demand for electric vehicles, and a boom in mobility sharing technologies. What’s more, autonomous vehicles are likely only about a decade away. All of this is leading to an increased need for automotive electronics.
According to an industry report published by Global Market Insights, the automotive electronics market was valued at USD285 billion in 2018 and is expected to grow at a compound annual growth rate of 7 % between 2019 and 2030. While mature automotive markets may stagnate as consumers increasingly opt for shared mobility solutions over car ownership, a raft of dynamic industry changes are opening up fresh opportunities in digitization, connectivity and electrification. This is good news for manufacturers of electronic components, given that they are the foundation of many innovations in mobility.
ACES trends: the forces behind the changing automo-tive electronics landscape
The ACES trends are disrupting the automotive value chain and affecting all of its stakeholders. These trends are: autonomous driving, connectivity, the electrification of vehicles and shared mobility. They are being driven by social change, technological advancements, economic shifts, environmental trends, and regulatory developments. By 2030, 50 % of a vehicle’s total costs are expected to be related to its electronics components.
While autonomous vehicles (AVs) still have a lot to learn before they can be released onto our streets en masse, there has been much progress in both software and hardware, such as LiDARs and graphic processing units. Virtually every automotive manufacturer has some form of AV project in the works, and government bodies are now investigating the ways in which AVs could improve public transport. While the wide-spread introduction of AVs seems inevitable, the transition period will be marked by a great deal of uncertainty.
Government regulations regarding safety, security and emissions reductions are adding to the push for greater connectivity, and expanding the market for advanced driver-assistance system (ADAS) technologies. Automotive manufacturers are developing new, lightweight components to increase energy efficiency, and ADAS features such as automated emergency braking (AEB) and lane departure warning systems are on the verge of becoming mainstream applications. According to one Roland Berger Global Automotive Supplier Study, “within the next 10 years almost all cars in mature markets will have some form of connectivity”.
Electric vehicles (EVs)
EVs do not produce any local greenhouse gas emissions, which is why they are viewed as an essential part of any global strategy for the mitigation of climate change. This “green” factor is increasing demand for EVs, as is the increasing availability of charging stations and improvements in vehicle range. Government incentives for the adoption of electric consumer vehicles in countries such as China, India and Japan is further aiding this trend. European countries have announced plans to phase out diesel and gasoline engines by 2030. Whether they are able to achieve this ambitious target remains to be seen. Current estimates suggest that only between 20-30 % of cars in Europe will be electric by 2025.
Consumers have embraced the convenience and affordability of shared mobility in the form of ride-hailing (e.g. Uber) and car-sharing services (e.g. ShareNow, Miles). This trend has also spawned related businesses specializing in sharing services for e-bikes and e-scooters. The percentage of new vehicle sales for these applications “may range between 10-15 % in the US and Europe and up to 35 % in China by 2025,” according to a Roland Berger Global Automotive Supplier Study. These disruptive new markets have already given rise to a range of innovative electronic management systems, and this trend is likely to continue.
How can industry suppliers prepare for upcoming market developments?
In light of this disruption, suppliers would be well advised to re-evaluate their product portfolios. Is diversification possible? Would it be beneficial to create spin-off business-es that focus on particular specializations? Can new products and services be developed based on emerging technologies? Hardware suppliers have the opportunity to expand into related software services that could be used in AVs or EVs. More traditional electronics suppliers should consider partnering with tech newcomers to close their competency gaps, leverage new automotive electronics ecosystem and facilitate innovation. Many such partnerships have already been established with the aim of developing solutions such as smart safety systems and AI algorithms for autonomous applications.
The ACES trends and related changes in the automotive electronics market mean that many suppliers will have to develop news ways to handle rapidly increasing market volumes, which could be as much as 15 times their current share. This will require developments at strategic, operational and financial level if production bottlenecks are to be avoided.
Deloitte offers a succinct overview of the ways in which suppliers can successfully respond and adapt to the automotive electronics landscape of tomorrow*:
- 1. Product portfolio shifts: Match products and services with demand in growing component clusters
- 2. Collaboration and platform strategies: Accelerate developments and share risks through partnerships
- 3. Consolidation and scaling strategies: Seek economies of scale by consolidating volumes of losing component clusters
- 4. Location strategy review: Refocus production locations according to future market and customer demand
- 5. Digitization for cost leadership: Establish an integrated digital supply chain for next level cost optimization
- 6. Talent for future business demands: Create a forward-thinking talent model that considers changing requirements
*Source: The Future of the Automotive Value Chain: Supplier Industry Outlook 2025, Deloitte. The full report can be downloaded here.