The global automotive industry sold record 88 million vehicles in 2016, up 4.8% from 2015 with OEM and supply chain profit margins are at a 10-year high. However, the industry faces challenges originating from advent of new technologies, desire for greater functionality, autonomous driving and environmentally-friendly as well as the need for greater ROI.
In terms of future, consider the car’s interior which has been a relatively stable component in terms of engineering and value to the vehicle. However, now the vehicle’s interior surfaces have become real estate for enhancements of safety or entertainment. New technologies such as smart glass, haptic sensors and augmented reality head-up displays are offering the potential of driver alerts, safety aids and warnings on invisible screens embedded in the windshield. Large navigation and entertainment display screens in the dashboard offer Web-based information and media as well as data arrays picked up from networked roads and other cars. The autonomous car will further this trend and soon change the “living space” dimension of automotive interiors. The front seat may be reoriented to face the back seat, so passengers can converse as they would in their living rooms while the car cruises to a destination. Or seats could face a windshield that’s become a large movie screen. This will also lead to vehicle electronics accounting for up to 20 percent of a car’s value by 2019, up from only about 13 percent in 2015.
Furthermore, innovative software developments and AI may make tomorrow’s vehicles exceptionally expensive. OEMs and suppliers must earmark resources for acquiring new technology and technical expertise. Many of the new features going into cars require the expertise of software engineers, who by and large prefer the ostensibly more dynamic work environments of Silicon Valley start-ups to those of the automotive industry. As a result, some of the recent mergers and acquisitions in the automobile sector were undertaken to augment in-house technical knowledge and capabilities. For instance, German supplier ZF Group, paid US$12.4 billion in 2015 to acquire TRW in order to expand into the electronic safety and connectivity market and also took a 40% stake in vehicle radar supplier Ibeo Automotive Systems in 2016.
To summarise, challenges related to innovation, health and safety and environmental regulations are reshaping traditional auto industry structures and relationships. In particular, by threatening the existing distribution of profits and the boundaries between OEMs and Tier One or Tier Two suppliers, as well as between automotive and technology companies. Some suppliers will fold, as their business goes away completely, and others will struggle because changes in technology content will bring OEMs or non-automotive suppliers into their markets as new competitors.
One of the options for the industry is to partner with smaller technology companies that have more expertise in designing and developing the technologies, components and software needed to meet the aforementioned challenges. Some early initiatives such as BMW i-Ventures (a venture capital fund based in Silicon Valley) and Toyota Connected (a partnership with Microsoft) offer insights into how the automotive–technology ecosystem might work together.
We are interested in providing automotive industry with technology solutions from our own R&D and from our highly innovative small company partners. The technologies of interest to us include smart materials such as glass and plastics, smart coatings, sensors and IoT hardware/software and supply chain management software innovations based on blockchain.