Hitching a ride to disruption
The automotive sector is at the cusp of change. In an industry renowned for pushing the envelope, electric vehicles (EVs) are gaining in popularity, data are providing more granular insight into vehicle health than ever before, and new materials are revolutionizing design and safety. Those who get off the line first and react to these new developments will put their businesses firmly in the driver’s seat in 2018.
Electric vehicle take-up on the rise, but roadblocks may slow growth
A McKinsey July 2017 report on the car industry in China found sales of locally produced EVs would grow as more businesses recognized the new revenue opportunities they represent. The domestic industry’s growing production share of EVs rose from 18% in 2016 to 23% in 2017, the report said, providing proof that Chinese brands may increase their presence in the EV segment as more car buyers recognize that Chinese carmakers produce acceptable EVs. McKinsey also continues to keep China at the top of its Electric Vehicle Index, so has the time come for electric vehicles?
In the next four years, I predict that one quarter of all new cars bought will be electric. The overall trend toward wider EV uptake is solid, but even in China, where the central government has strongly legislated for EVs, two major roadblocks remain: a lack of standardized charging stations and battery capabilities.
China currently leads in the number of charging stations, with about 150,000 public charging points, and plans to install enough to support 5 million EVs by 2020. But lack of standardization on the ground presents a big problem for customers. A September 2017 Citylab article takes a deep dive into how China handed out subsidies to a wide range of private companies to build charging stations. This resulted in almost every station using different payment models and charging capabilities; it could take anywhere from one to eight hours to recharge a vehicle, depending on its operator and which of the dozens of EV manufacturers it serves.
It’s a clear warning to regulators, governments, and manufacturers that even in countries where EVs are actively being promoted without standardized charging, they could take longer than previously predicted to reach their market potential. Batteries too remain an issue, but accelerating research into hydrogen fuel cells and recent Japanese government targets to significantly bring down the cost of fuel cells are encouraging. The business potential for battery development too, estimated currently at $240 billion, remains huge and hard fought for. But right now, there are no clear winners.
Emerging opportunities put traditional business models to the test
In 2018, data analytics will put OEMs and servicers in pole position. When German car manufacturer Opel first launched in 1863, it made sewing machines, choosing to switch its focus to cars in 1899. Peugeot was founded in 1810 as a coffee mill company before finally turning its hand to cars in 1891. So, although it’s sometimes seen as conservative, the auto industry has change woven deep in its DNA. Today’s auto leaders need to show the same resilience, agility and adaptability so as not to fall behind when their competitors invest in new digitally-driven services and revenue opportunities.
Take the Schaeffler Group, one of the world’s largest suppliers of bearings, clutches, torque converters, and transmission systems to the automotive industry. In 2016 it sold automotive parts worth US $10.88 billion and announced a new digital strategy for its automotive operations. In October 2017, Schaeffler acquired Autinity systems GmbH, a German IT company specializing in digital condition monitoring and machine data recording.
And Schaeffler is not alone. One IFS client, a major automotive supplier, recently finalized an important new contract in which it not only produces and supplies parts for the OEM, but collects data from the parts too, using it to carry out aftermarket services for dealers. This includes providing data for spare parts that may be needed for recalls and completing the spare parts documents directly at the dealers. If it sounds futuristic, think again – the supplier will start implementing the contract in early 2018.
But it is still a radically new scenario. Going from just producing components to producing customer schedules and handling and managing spare parts throughout for the OEM, including warehouse management, requires connected business systems and thinking. But as Klaus Rosenfeld points out, the clock is ticking.
New materials threaten to leave slow, rigid businesses at the starting line
Today’s gasoline cars typically require around 30,000 parts, whereas EVs require around 10,000-12,000. India and France will both begin phasing out gasoline cars by 2040; France has said it will ban gasoline cars in Paris by 2030, while India also wants all EVs by 2030. For manufacturers of components like exhausts, a part that don’t exist in EVs, “servitization” is a lifeline. But businesses need to get ready today; it takes time to integrate the kind of enterprise software that will ensure the agility and capacity for this change, so waiting is no longer an option.
New materials will balance efficiency with safety. What’s it going to be, lightness or safety? Why not both? Well, we can. But for many years automotive manufacturers have faced this dilemma, as they’ve tried to satisfy conflicting demands: one for lighter vehicles that help produce less CO2 emissions, and another for safer vehicles that usually require heavier components.
In 2018, we will see an accelerating uptake of a new generation of materials that are lighter and safer – meeting tougher regulatory demands for safer vehicles that simultaneously emit less CO2. Materials like aluminum and high tensile steel will become the industry standard, and the exceptionally strong carbon fiber reinforced plastic (CFRP), currently used mainly in sports cars, will start to be used more widely in other vehicles.
But these new materials are expensive. A new study from Goldman Sachs, Cars 2025, shows CFRP is currently 40 times more expensive per kilo than normal steel, plus it takes more specialist skills and equipment to produce. As uptake and research of new materials in regular vehicles accelerate, costs for high-tensile steels and aluminum could well fall, and ultimately the cost of CFRP too as new production methods emerge. What will not change are regulatory demands on emissions and safety—and these materials are the solution to that.