Market study
2014
Engineering
Services
2
This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness and accuracy of the statements made in this document.
© Roland Berger Strategy Consultants GmbH
Contents
Page
Management summary
3
A. Technology trends and their impact on engineering service provider
4
B. The market of engineering services
15
3
> Automotive OEMs have to deal with an all-time high of technology complexity, driving engineering spend
and creating the necessity to have a clearly defined strategy regarding core competences and
outsourcing of engineering services
> Three areas see a dramatically increasing demand for ESO skills and capacity:
– Powertrain and powertrain electrification as driven by CO
2emissions regulations in Europe and
China
– Weight reduction technologies as driven in the same context, especially on the European market
– Connectivity and IVI-related engineering services as especially driven by customers' "always on"
attitude
> In total, the global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at
approx. EUR 16.5 bn – growth is mainly driven by Chinese market while slowing down in Europe
> Highest share of outsourced work in Europe (approx. 30%) in E/E, also incl.
connectivity/In-Vehicle-Infotainment, in China around power train/powertrain electrification (approx. 25%)
> For ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China or
India) in order to stay competitive in terms of their cost structure and to develop specialized know-how in
the growing ESO areas
Management summary
4
A. Technology trends
and their impact on
engineering service
provider
5
Three mega trends reshape the automotive industry – the regarding
domains have strong impact on the future ESP landscape
Major trends – overview
ESP-relevant domains
CO
2reduction
Comfort/mobile web
> Oil scarcity and dependency as well as global warming as initiators
> Efforts to increase fuel efficiency enforced by
government regulations (penalties or incentives)
and growing environmental awareness > Increasing importance as buying criterion
> Growing wealth/age and increasing time spent in vehicle as initiators
> Expectations for "living room atmosphere" and
"always on" attitude getting more and more
important, also as differentiator for OEMs > One of the key buying criteria
C
In-Vehicle
Infotainment
(IVI)/Connectivity
APowertrain
electrification
BLightweight
Mega trends in the automotive industry
6
xEV markets EU and China are primarily legislation-driven –
USA primarily driven by customer pull
A Powertrain electrification – regional specifics
Source: Roland Berger
Push and pull factors xEVs
Pus
h
Pu
ll
> Even under optimistic assumptions regarding ICE improvements and light- weight measures, all OEMs will need xEVs
> xEV share depends on CO2 emissions regulations (weight-based vs. constant target)
> From a cost perspective, light hybrid and PHEVs are most favorable
> Technology penetration is only driven by government targets for PHEVs and EVs > Segments fuel consumption targets can be met by optimized ICE in all segments > Fleet emissions are possible, but there
is no clear indication yet
> However, if fleet emissions apply, high xEV penetration to be expected
> CAFE emissions targets can be met by utilizing ICE improvements and some weight reduction technology
> In relation to costs, OEMs also have no incentive to apply xEV technologies on a large scale
> However, ZEV mandate and the ability to earn credits will lead OEMs to build some PHEVs and EVs
> No TCO advantage for FHEV, PHEV, BEV powertrains
> Light hybrids will become TCO neutral, but will enable additional functions > In larger cars, there will be customer
willingness to pay for stronger hybrids > Only niche demand for BEVs
> Almost no customer pull for xEVs – except for the luxury segment
> Light and full hybrids would offer signif-icant consumption advantages, but TCO advantage is limited due to low fuel cost > No willingness to pay for "green" image
– in luxury segment, innovativeness of xEVs is an important purchase criterion for customers
> No TCO advantage for xEV powertrains due to low fuel costs
> However, some customers are willing to pay for xEVs for environmental image reasons
7 EV: 0.4 m PHEV: 1.2 m EV: 0.2 m PHEV: 0.7 m EV: 0.3 m PHEV: 0.7 m EV: 0.3 m PHEV: 0.7 m
In a conservative scenario, xEVs only represent a minor share of
total powertrain in WE, NA and China in 2020
A
Source: Roland Berger
> Technologies share estimates taking push and pull factors into account – conservative scenario shown
> Improved ICEs as dominating concept by 2020, with conventional start/stop more or less standard in WE and JP/KR – electrification of powertrain at lower speed compared to historic forecasts > Introduction of 48V micro systems
significantly gaining share by 2020 (particularly in Europe), outperforming traditional mild hybrid systems due to cost advantages
> Hybridization expected to gain ground – at regional differing speed
> Full EV vehicles still remaining niche in 2020 (e.g. ~500k units manufactured in Europe in 2020) 1% 6% 2% 3% 66% 21% 1% Full hybrid PHEV
BEV Mild hybrid Micro (48V) Conventional start/stop ICE
Western Europe ∑ 20.5 m Japan/Korea ∑ 12.4 m North America ∑ 18.2 m China ∑ 30.4 m 6% 65% 6% 0% 15% 6% 2% 31% 53% 6% 1% 4% 4% 2% 2% 2% 1% 1% 1% 70% 23%
Share of powertrain technologies in major markets in 2020
Powertrain electrification – regional specifics8 Ø fleet weight [kg] 0 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 175 150 125 100 75 CO2 emissions [g/km] CO2 target 2015
130 g + (m
OEM- m
Ø) x 0.0457
-27% -27% CO2 target 20211)95 g + (m
OEM- m
Ø) x 0.0333
OEMs 20113)EU Commission proposes weight-dependent OEM-specific CO
2
emissions target – same CO
2
reductions are required in all segments
Powertrain electrification – regional specifics – Europe A
OEM fleet CO
2emissions target 2021, EU [g/km]
> 95 g CO2 per km is the target for the 2021 EU new car fleet, indicative range 2025: 68-78 g
> Vehicle weight is the underlying utility parameter for OEM-specific targets – the factor used is 0.0333
> Credits for low-emission vehicles (<50 g): Between 2016 and 2023 every car will be counted as 1.5 cars2)
> Eco innovations: As for the 2015 regulation, OEM can apply a maximum of 7 g/km credit for the use of ‘inno-vative technologies’ which are not covered by the test cycle – Will com-pensate higher CO2 emissions in WLTC
1) EU Commission 2) Cap of 2.5 g per OEM and year 3) Average fleet weight
9
All OEMs need to reduce their CO
2
emissions by 25-30% until 2021
– French manufacturer profit from high Diesel share of their fleet
94 132 -29% 2021 2012 101 138 -27% 2021 2012 98 138 -29% 2021 2012 100 143 2012 -30% 2021 92 129 -29% 2021 2012 95 133 2012 2021 -29% 93 133 2012 -30% 2021 92 131 2012 -30% 2021 93 122 2012 -24% 2021 93 124 -25% 2012 2021 91 121 2012 -25% 2021 88 120 2021 -27% 2012 3)
1) Incl. Mini, Rolls-Royce 2) Incl. Smart 3) Incl. Alfa Romeo, Lancia
2) 1)
A
Source: Roland Berger CO2 Emission Market Model
10 0 4 8 12 16 X IX VIII VII VI V IV III II
I XI XII XIII XIV XV XVI
By 2015, China is likely to tighten fuel economy standards – caps
can be met by advanced ICE technology in all curb weight classes
Today - Automatic or SUV/MPV 2015 - Automatic or SUV/MPV Today - Manual 2015 - Manual
Curb weight [t]
<0.75 <0.87 <0.98 <1.09 <1.21 <1.32 <1.43 <1.54 <1.66 <1.77 <1.88 <2.00 <2.11 <2.28 <2.51 >2.51
A
Permissible fuel consumption by curb weight class [l/100 km]
China's fuel economy standard
> Chinese fuel economy standards limit fuel consumption based on vehicle curb weight
> Consumption caps are set for 16 weight classes in 2
categories:
– Vehicles with manual transmission
– Vehicles with automatic transmissions or
SUVs/MPVs
> Average fuel consumption is determined using NEDCs > Average fuel consumption is
to be 7 l/100 km by 2015
Source: UNEP; Roland Berger
11
The introduction of a fleet emissions metric on top could be another
measure to trigger efficiency gains – no decision made yet
60 70 80 90 100 110 120 130 140 150 160 170 180 190 2025 2021 2015 2012 2010 2008 2005 2000 1995 185 g CO2/km 177 g CO2/km 140 g CO2/km 130 g CO2/km 95 g CO2/km 75 g CO2/km 2008 (stage 2): 8.0 l/100 km (184 g CO2/km) 2015 (stage 3): 6.9 l/100 km (159 g CO2/km) 2020 (stage 4 forecast): 5.6 l/100 km (130 g CO2/km) 2025 (stage 5 forecast): 4.1 l/100 km (95 g CO2/km) -14% -19% -27%
> China could also introduce fleet emissions standard in addition to category caps > Though exact policy
formulation and penalties to be imposed are still unclear, standard is likely to put
international and luxury OEMs at a disadvantage
> However, if a fleet emissions metric is introduced, strong xEV growth is expected due to missing diesel technology
2008
2012
Source: FAW; Interviews; Roland Berger
Potential China fleet emissions limits in comparison to EU limits
A
CO2 emission [g/km]
12
The importance of weight reduction technologies varies widely in the
different markets – in China not relevant yet
Implications
B Lightweight – regional specifics
Source: Roland Berger
> Weight reduction technolo-gies will be applied as additional measurement to meet the CO2 emissions
regulation target, but with focus on larger/premium vehicles (lightweight design for volume models)
> Weight reduction technolo-gies do not play a major role in Chinese car industry > The concept is relatively new
to OEMs and just seen as a future topic for R&D with lower priority than xEV
> Weight reduction technolo-gies can be used in order to meet CAFE targets
> Weight reduction technolo-gies are especially relevant for SUVs and Trucks
Regulations > Importance of lightweight
depends on weight-based CO2 emissions regulations
> Vehicle weight is the under-lying utility parameter for OEM-specific targets – the heavier a car is, the more CO2 emissions it can produce
> CO2 emissions regulations
are by no means related to vehicle's weight
> Focus is only on electric drive
> CAFE emissions and fuel consumption targets do not differentiate between the weight of vehicles
> Therefore, the fleet consump-tion of a manufacturer is highly dependent on the weight of each individual model
13
IVI solutions with medium to high OEM involvement and medium to
high sophistication provide highest opportunities for ESPs
Overview of global IVI solution scenarios
C IVI/connectivity – general OEM directions
Level o f I VI syst em so ph ist icat io n
OEM IVI system development involvement1)
High
1) Example OEM solutions Low
Medium
High
> Mercedes-Benz: Comand Online with media interface (all classes)
> BMW: Connected Drive > Audi: MMI and MMI touch with
connect
> Volkswagen: High-end navigation system
5
Low
> MB: Drive Kit Plus MB > Chinese/Indian manufacturer > Skoda: Navigon – PID > Volkswagen: Navigon – PID > Daihatsu: Garmin satnav
> DACIA: Touchscreen navigation system
1
> Renault: R-Link
> Chinese/Indian manufacturer > SEAT Media System (v2.2) > Peugeot Connect Navigation > Citroen: MyWay
> Mitsubishi: MMCS > Alfa Romeo: Uconnect > Fiat: Blue&Me
2
Medium
> Ford/Lincoln: SYNC with MyFord Touch/MyLincoln Touch
> Lexus: Enform
> Cadillac: CUE incl. navigation
> Mercedes-Benz: Audio 20 (base for Becker® MAP PILOT)
> Volkswagen: RCD 510 (incl. mobile phone connectivity)
> Ford: Sync without navigation > Ford: SYNC with MyFord > Kia: Kia UVO
> Hyundai: Hyundai Bluelink > Toyota: Entune
> Volkswagen: Medium navigation system
> Chrysler Uconnect
> Buick, GMC: Intellilink, plus navigation
3 4
Source: Roland Berger
14
Opportunities for ESP can be found in all domains – specialized
know-how as necessity to benefit from automotive trends
Powertrain
Electrification
> Increasing demand in powertrain-related engineering services, both conventional and (some) hybrid> With higher share of alternative propulsions and fuels (CNG, xEV) also opportunities for related engineering services and component business (CNG tanks, battery packs, etc.).
> Sometimes complete engines, but also complete application developments are outsourced
Lightweight
> Demand for weight reduction technologies will increase, especially on the US and Europeanmarket
> Opportunities for engineering service provider can be divided into lightweight design and
specialized material/process know how:
– Advanced lightweight design and CAE capabilities for sporty volume models
– Specialized material and process know-how for hybrid and composite body structures, relevant only for premium models
In-Vehicle
Infotainment/
Connectivity
> Demand for In-Vehicle Infotainment/Connectivity solutions will increase
> Most outsourced development activities are around software; esp. HMI and integration relevant for ESPs
> With integration of connectivity boxes trend towards consolidation of supply base ("critical size")
Source: Roland Berger
15
B. The market of
16
The market of engineering services is growing by 5-6% CAGR until
2020 – ESPs need to have a best-cost-country footprint
Source: Roland Berger
Summary market of engineering services
> The global automotive ESO market was estimated at approx. EUR 10.7 bn in 2012 – overall growth has
been slowing down
> Global passenger and light commercial vehicle production is forecast to increase about 4% p.a. until
2020
> Global automotive R&D expenditures are forecast to grow at approx. 6.7% p.a. until 2020 – outsourced
share is expected to slightly decrease
> The global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at
approx. EUR 16.5 bn
> Body/Interior will remain the largest domain for ESO, but with a CAGR of 7.2%, E/E market will grow to
EUR ~4.5 bn by 2020
> ESPs need to clearly define their USP and have a best-cost-country footprint in order to stay competitive
on the ESP market
> Especially in Germany, OEMs need to ensure that they are able to outsource engineering services
17
Overall development
CAGR 2009-2012 9.5% 2012 57.0 2011 55.4 2010 50.3 2009 43.4Top-10 OEMs, 2012
Total Top-10 43.3 Renault 1.1 PSA 2.0 BMW 4.0 Nissan 4.0 Ford 4.2 Daimler 4.2 Honda 4.6 GM 5.6 Toyota 6.7 VW Group 6.9Historical ESO market development
R&D expenses have been steadily increasing since 2009 –
top-10 OEMs with approx. 75% share
Source: Company data; interviews; Thomson Financials; Roland Berger
R&D expenses automotive industry, 2009-2012 [EUR bn]
1)18
The automotive ESO market was estimated at approx. EUR 10.7 bn
in 2012 – overall growth has been slowing down
> Overall ESO market size
approx. EUR 10.7 bn in
2012
> Europe as the largest
ESO market in the world
> China with highest
relative growth
> Overall growth of ESO
market is slowing down
CAGR 2009-12 7% RoW India 2012 Europe1) China2) NAFTA3) 10.7 1.4 0.3 2.0 1.3 5.8 2011 10.4 1.3 0.2 1.9 1.2 5.8 2010 9.7 1.2 0.2 1.6 1.1 5.6 2009 8.9 1.1 0.2 1.4 0.8 5.4 9% 18% 13% 1) Including Russia
Source: Company data; interviews; IHS; Thomson Financials; Roland Berger
Automotive ESO market by region, 2009-2012 [EUR bn]
2%
8%
2) Including HQ-developed models 3) Including GME, Ford Europe
"We are currently trying
to insource lost
competences in certain
technology fields"
European premium OEM
19
The automotive ESO market is influenced by several trends and
market drivers
Interview insights Trends and impact
High importance Low importance Positive impact Neutral impact Negative impact Market trends and drivers
Globalization of OEM engineering activities
2
An increasing number of global engineeringlocations and growing needs to adapt to local product requirements offer additional opportunities for ESPs, especially in China The number of car models and body types is expected to remain high or to slightly increase, especially in China, which will increase the R&D demand
Number of models and body types
1
Source: Interviews; Roland Berger
General automotive ESO market drivers and impact on outsourced volume
Cost pressure of OEMs
3
Cost pressure of OEMs is generally passedthrough to ESPs
> Vehicle features and performance increases while share of customer spending decreases
> Especially prices for expert-on-demand may face some pressure
Importance
Engineering capacities
4
Shortage of engineering capacity inGermany is expected to further decrease
"We have launched most new segment models and derivatives. Outsourced engineering services will therefore not further increase"
German Premium OEM
"If we source locally (e.g. in India), we will gradually transfer the respective engineering activities. Similar we will outsource some work locally"
German Premium OEM
20
Global passenger and light commercial vehicle production is
forecast to increase about 4% p.a. until 2020
> Highest absolute growth is expec-ted in China: Production in China is expected to grow from 19 m units in 2012 to 32 m units in 2020
> Highest relative growth is expec-ted in India: Production in India is expected to grow at approx. 9.1% p.a. from 2012-2020
> Overall growth rate is expected to be about 4% p.a. from 2012 to 2020 Automotive production 22 22 22 23 24 24 25 26 27 17 18 19 19 20 20 19 20 20 19 21 23 25 27 28 30 30 32 18 18 18 19 20 21 22 22 23 7 6 6 RoW India NAFTA China Europe 3.9% 2020 108 2019 103 2018 101 2017 98 5 2016 95 5 2015 90 4 2014 86 4 2013 82 3 2012 79 3 CAGR 2012-2020 3.0% 2.6% 6.7%
Source: IHS; Roland Berger
Global production of PVs and LCVs by region, 2012-2020 [m units]
1.7%
9.1%
21
Global automotive R&D expenses, 2012-2020 [EUR bn]
Global automotive R&D expenditures are forecast to grow at c. 6.7%
p.a. until 2020 – outsourced share is expected to slightly decrease
5.6%
7.0%
6.7%
Market forecast
Source: Company data; Interviews; IHS; Thomson Financials; Roland Berger
"Many OEMs are now focusing on core engineering competen-cies for their captive engineers again, thus the dynamics of ESP are likely to cool down over the next years, but still remain on a high level"
European OEM
> Higher R&D share in emerging markets and new technologies in alternative propulsion, light-weight construction and E/E are main drivers of increasing
automotive R&D expenses
> Own OEM engineering capacities for key competences and know-how are expected to remain high > Share of ESO is expected to
decrease until 2020 CAGR 2012-2020 Out- sourced 2020 Captive OEM 96.0 2019 2018 89.5 15.4 79.5 74.1 16.5 83.5 69.1 14.4 2017 79.6 65.9 13.7 2016 75.4 62.3 13.1 2015 71.6 58.7 12.9 2014 66.8 54.7 12.1 2013 62.7 51.3 11.4 2012 57.0 46.3 10.7
22
Automotive ESO market by region, 2012-2020 [EUR bn]
The global automotive ESO market is forecast to grow by 5% to 6%
p.a. until 2020, totaling at approx. EUR 16.5 bn
5.5% 3.0% 7.3% 11.9% 6.0% 5.5%
Source: Company data; interviews; IHS; Thomson Financials; Roland Berger
Note: Possible differences from rounding Market forecast
> Overall growth rate is expected to be about 5.5% p.a. from 2012 to 2020
> Highest absolute growth is expec-ted in China: From EUR 1.3 bn in 2012 to EUR 3.2 bn in 2020 > Includes only "in-vehicle"
development work
CAGR 2012-2020
"Whatever service cannot be covered in terms of contracts for work and labor anymore will be shifted to our engineering locations in China and India"
European Premium OEM
15.4 2019 7.4 3.2 China 2.7 13.8 2018 2017 14.4 2020 6.6 2.5 16.5 Europe 6.2 2.9 7.0 2016 0.4 2.0 2.8 2.0 0.4 2.7 1.6 0.3 2.4 1.7 0.3 2.5 1.9 0.4 2.6 NAFTA 1.4 1.4 India 0.3 0.3 RoW 2.0 2.3 2.2 0.4 2.9 2.3 0.4 3.1 13.1 2.3 6.0 12.9 2015 1.9 6.5 2014 12.1 1.7 6.2 2013 11.4 1.5 5.9 2012 10.7 1.3 5.8
23
ESPs need to clearly define their USP and have a best-cost-country
footprint in order to stay competitive on the ESP market
Source: Roland Berger
Challenges for ESPs
> For the ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China
or India) in order to stay competitive in terms of their cost structure
> Opportunities in low-cost countries are also driven by captive engineering centers increasingly being
used to develop subsystems and derivates resulting in a lowering of the ESP market esp. in Europe
> Project-based service contract will allow that more easily, but at the same time provide an opportunity
for especially the large Indian players, who all try to enter the European market with massive efforts
> It is therefore also very important for the ESPs to clearly define their USP based on specialized
know-how e.g. in the areas of powertrain or material know-know-how in terms of weight reduction technologies on
24
Especially in Germany, OEMs need to ensure that they are able to
outsource engineering effectively and ensure compliance
Source: Roland Berger
Work package for outsourcing
… Department 2 Department 1 SM3) SD1)
1
Outsourcing of clearly defined work packages in the V-model/process (e.g. HIL test)2
Outsourcing of seriesmanagement4) …
Trunk lift (electric) Body component SP3) SD1) … ECU derivative ECU 1st model SP3) SD1)
3
Development of first vehi-cles/systems inhouse; outsourcing of variants/ derivatives4
Outsourcing of all modules/ components of a certain type ("non-core competence") … …Possible standard models for the outsourcing of engineering services – illustrative
1) SD: Series development 2) SOP: Start of production
SM3) SD1) SOP2) SM3) SD1) SOP2) SOP2) SOP2) SOP2) 3) SM: Series management
25
26
Authors of the study
Source: Roland Berger
> Global head of Automotive Practice Group – Innovation
> Over 17 years of consulting experience, especially in automotive industry
> Extensive knowledge about automotive, e-mobility and new materials
> Deep knowledge about energy material trends and new e-mobility markets > Expert on connected vehicles > Strong expertise in diagnostics
Competence Center Automotive
Dr. Wolfgang Bernhart
Partner> Over 6 years of consulting and industry experience, especially in automotive > In-depth automotive wholesale and retail
experience
> Several projects in mobility, telematics and connected vehicles
> Experience in engineering services provider markets Competence Center Automotive
Dr. Stefan Gutberlet
Senior Consultant [email protected] [email protected]Experience
27
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