Automotive industry is undergoing deeper changes than it has for decades
July 11, 2018
By Elton Alisson | Agência FAPESP – The automotive industry has undergone more profound changes recently than it has for many decades. Automakers have long been accustomed to wielding decision-making power with regard to strategies for new model development, production and marketing, but their technological leadership is threatened by suppliers such as Siemens and Bosch because of the growing digitization of vehicles, production lines and value chains. According to specialists, these suppliers have developed technologies that automakers lack and need to acquire.
“The automakers are the main players and have the most power in the automotive industry’s production chain. However, some years ago, it began to seem as if they could be outweighed by these first-tier suppliers, which have become very powerful players and developed technologies the automakers don’t control,” said Roberto Marx, a professor in the Production Engineering Department of the University of São Paulo’s Engineering School (POLI-USP) in Brazil, speaking to Agência FAPESP.
With the advent of digitalization and digital transformation, not to mention electrification and the development of autonomous cars, the automakers’ hegemony has also been threatened by technology companies, such as Tesla, Uber, Google, Amazon, Cisco and Microsoft, as well as by manufacturers of batteries and other electrical equipment.
These companies have entered the industry and could become its leading players, changing its structure and the very nature of the business, according to Marx and other experts who took part in the 26th Colloquium of the GERPISA International Network of Researchers on the Automotive Industry, held at the University of São Paulo (USP) on June 11-14, 2018.
The meeting, which was supported by FAPESP and attended by researchers from several countries, focused on the new and traditional players driving the changes undergone by the global automotive industry.
“The key question, to which there are as yet no answers, is who will prevail in this new scenario of technological competitiveness in the automotive industry: the ‘dinosaurs’, who in this case are the automakers; the newcomers, who are the tech companies; or both,” said John Paul MacDuffie, a professor at the University of Pennsylvania’s Wharton School in the United States.
In his view, the automotive industry is currently experiencing disruptive change, a type of transformation that involves a break with existing standards, models and technologies.
Electric cars, for example, represent the first fundamental change in the design paradigm that has dominated the industry since the 1920s. Moreover, if the typical car is a multitechnological product containing between 5,000 and 10,000 functional components supplied by a multitier global supply chain, it is fast becoming even more complex.
“Cars are heavy, fast-moving objects operating in public space and have faced ever-tougher environmental, regulatory, transportation and consumer demands. The new technologies are making this complexity even greater,” MacDuffie said.
By 2030, experts predict that some 70% of all cars produced and sold worldwide will be connected to the internet and that electric cars will account for up to a fifth of the global fleet of cars in circulation.
Autonomous vehicles are also expected to become commonplace in the near future, reducing the number of traffic deaths, changing urban transit services and urban planning, eliminating jobs, and enhancing mobility for the handicapped and elderly.
“If all the disruptive changes experienced by the automotive industry arrived separately, automakers could deal better with these problems, as they have in the past,” MacDuffie said.
Batteries and high-speed connections
Electric cars, self-driving cars and cars connected to the internet, however, are still far from ubiquitous. In fact, they face a number of technological barriers, according to the experts who spoke at the event. Of the 94.5 million cars sold worldwide in 2017, only 1 million (1.04%) were electric, and there are still no models that are fully connected to the internet or completely autonomous.
Some of the factors that have limited the advance of electric cars, for example, are the low power density (output per unit volume) of lithium batteries and the long time required to recharge them.
In the case of fully connected cars, the challenge is providing high-speed connections that are secure enough to stave off hackers. Autonomous vehicles are still in the experimental phase and must surmount several challenges related to safety and standardization.
“All these technological challenges are opportunities for the entry of new players to compete with automakers in the race for technological supremacy,” McDuffie said. “The technological obstacles also present opportunities for collaboration among automakers in research and development.”
Thanks to their investment in R&D prior to the entry of tech companies into the industry, the incumbent automakers now own most of the patents relating to electric and autonomous cars, and they still dominate the automotive market owing to their role as systems integrators. However, new entrants and tech companies have the advantage of being in a position to leapfrog the incumbents by leveraging new concepts and business models, according to the experts.
“The changes now being experienced by the automotive industry worldwide don’t mean automakers will become contractors to leading tech companies like Google, Apple and Facebook,” said Takahiro Fujimoto, a professor at the University of Tokyo. “They can do smart cooperation with the tech giants.”
Fujimoto wrote an article with MacDuffie entitled “Why Dinosaurs Will Keep Ruling the Auto Industry”, published in 2010 in Harvard Business Review. At that time, the authors concluded that although many strategists believed new entrants would reinvent the industry and that incumbent automakers faced extinction like the dinosaurs, they were in reality positioned to beat new challengers for at least the next few decades.
“We’re still betting on that, but to stay on top, the automakers will have to move fast and take strategic steps,” MacDuffie said.
Automakers can hire researchers to gain experience in new technologies such as batteries, software development and sensors, among other things. They can also form alliances with each other to share the huge cost of developing new technologies, and they can use the knowledge acquired by suppliers, he added.
Recent examples include BMW, which is collaborating with Microsoft, Mobileye (an Israeli startup) and Intel to develop an autonomous driving platform. Mobileye, which Intel bought in 2017, announced in May that it had signed a contract to supply its self-driving technologies to a European automaker.
Ford has joined hands with Google, Uber, Lyft (a rival of Uber) and Volvo to help develop a regulatory framework that supports autonomous vehicle development and deployment. “Although partnerships between automakers are common, the new collaborations extend beyond the boundaries of the industry,” MacDuffie said.
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