Automotive engineering 2025 (PDF, 628 KB) - Roland Berger

Roland Berger Strategy Consultants Automotive Competence Center
Automotive Engineering 2025
April 2011
Dr. Wolfgang Bernhart
Dr. Thomas Schlick
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Editorial
Dear reader,
In our recently published study, "Automotive 2025", we gave an overview of megatrends
which will heavily impact the automotive industry over the next 15 years.
We described ten key findings based on these megatrends, the different scenarios
and the key success factors common to them, to help management define their
long-term strategy for
> Markets, customers and products
> Partnerships, business models and the value chain
> Organizational structures, employees and necessary changes
With this "Automotive Engineering 2025", we take our findings to the next level
and outline approaches for coping with the special challenges automotive engineering
is facing.
We hope you find some time to read through this special edition and would be
happy to discuss our perspectives and approaches with you in greater detail.
Best regards,
Ralf Kalmbach
Head of Global
Automotive Competence Center
Dr. Wolfgang Bernhart
Partner
Automotive Competence Center
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A. "More with less" – five main challenges for automotive engineering
over the next 15 years
Cars and systems "closely tailored to the demand for low cost and flexible enough
to allow upgrades and personalization" – that's how we described future product and
technology trends in our recent "Automotive 2025" study [1]. "R&D will take place
close to the market and local R&D centers will be connected by strong, flexible networks.
Partnerships will grow in importance as a way of providing timely access to new
technologies, markets and business models." This phenomenon will be independent
from the different scenarios ("budget world", "sustainable world", "high tech world")
that may develop.
Let's first recap the main trends influencing automotive engineering over the
next 15 years.
> Sales and production will shift further to BRIC markets, but triad markets
still account for over 40% of global sales and production
> Clear distinction to other vehicles for individual mobility blurring;
increasing importance of low-budget cars
> Rise of new technologies (materials, electrification, connectivity)
> Shortage of qualified employees, especially in traditional triad markets
These trends will not only increase the complexity and amount of engineering work,
but also call for "delivery at same cost". Before we discuss the resulting requirements
to engineering organizations in detail, let's have a closer look at the above mentioned
trends first.
1. Further shift of sales and production to BRIC markets –
New "lead markets" developing
Sales and production will shift from triad markets especially to the BRIC countries,
which will surpass the triad by between 2020 and 2025 in absolute production
and sales figures (Fig. 1).
Fig. 1:
Sales
Sales and production of light vehicles by region
2000-2025 [m units], "Base scenario"
Production
57 69 114
11% 14% 11%
11% 14%
22%
31%
Other
BRI
China
2.8
6.8
12.4
57
5%
3% 6%
69 114
9% 8%
11% 15%
22%
32%
Other
BRI
China
2.8
6.7
12.8
80%
86%
53%
44%
Triad
0.4
59%
44%
Triad
0.2
3% 6% CAGR [%]
2000
2010
2025
CAGR [%]
2000
2010
2025
Source: Roland Berger
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The emerging markets also have different product requirements: while emissions and
safety standards are likely to converge, customer requirements remain different. Not
only are they looking for a higher share of low-budget solutions, but car functionality
will also see different requirements.
At the 2011 Shanghai Motor Show, the first Chinese car will be shown featuring
speech/audio-enabled online navigation, web access to stock prices, personalized
points of interests, music stored "in the cloud" and RSS feeds.
In 2025, nearly a quarter of all Chinese car drivers will be younger than thirty, and
only around 10% will be older than sixty. By contrast, only 6-7% of all drivers in Germany
will be under thirty, while the share of elderly drivers (sixty years old or over) will
increase to over a third of all drivers. These distinct groups have completely different
priorities regarding ergonomics, comfort and driver assistance.
Markets like China will therefore not only become more important from a sales and
production perspective, but they will also become lead markets for specific technologies.
Basic technologies are usually available in all markets, but differentiating
know-how is being generated only by applying these technologies in engineering and
production and interacting with the customer – "learning by doing" and "learning
by using". As centers of economic growth shift and demographics change, new lead
markets will arise. These lead markets are characterized by increased competitive
intensity, which leads to better designs and faster cost reduction. Empirical studies
show that companies actively innovating and developing in the lead markets are more
successful than those who try to innovate from the home market only, usually with
an ever-widening gap to their competition.
Challenge 1: Successful innovation therefore means not only innovation at the right
time, but also at the right place – managing a much higher regional complexity.
2. Clear distinction to other vehicles for individual mobility blurring – Increasing
importance of low-budget cars
Increasing urbanization and the raise of megacities will lead to massive congestion
problems. Coupled with increased environmental awareness, especially in Europe, new
forms of mobility (such as car sharing concepts) as well as new means of individual
transportation will increasingly gain significance.
With new vehicles such as the Renault Twizy ZE (to be launched in 2012) or concept
studies shown by GM at the Shanghai Expo in 2010, the portfolio of most car companies
will be expanded to include very small vehicles – blurring the formerly clear line
to single-track vehicles.
At the same time, driven by the increasing share of new vehicle sales in emerging
markets, low-budget solutions will become more important and a major source of
future growth. To participate in that segment, automotive players need to integrate
design effectiveness while leveraging low operating costs with a high share of
localized parts (Fig. 2).
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Fig. 2:
Leveraging cost advantages of local production is a "must" for
low-budget solutions
Local component supply
Increasing local content is essential
for optimizing production costs
Transportation cost of selected
components [EUR/unit 2) ]
84%
79%
74%
Cost of
production [%] 1)
Dashboard
Front bumper
31
100
45%
55%
65%
Local
content
[value, %]
Rear door
Trunk
19
18
Radiator grill
8
Drive shaft
7
Brake cylinder
2
1) Assumption: Cost of production = 100% if local content = 0
2) Assumption: Distance 1,000 km by ship and truck, incl. packaging
Radio
1
Source: Roland Berger
Challenge 2: Product requirements management will become much more complex –
from the market, customer and product portfolio perspectives. Implementing local
or locally adapted solutions will also increase requirements for localization.
3. Rise of new technologies
Revival of hydrogen fuel cell activities, increasing importance of lightweight materials,
electrification of the powertrain, "always connected, always online" – these are just a
few examples of the new technologies to be covered by OEMs in addition to their current
technology portfolio. At the same time, OEMs need to invest in improving conventional
technologies. Figure 3 shows an example of new technologies to be developed
to improve the conventional combustion engine at current cost levels.
Fig. 3:
Cost development 1) gasoline engine over time – Example: 140 hp engine
[EUR]
250
-250
1,300
400 1,700 -200 200
• Turbo
• Direct inject.
• VVT
• Var. pumps
Downsizing
(3 cyl.)
Additional
functions
(BiVVT, VVL,
2nd gen DI,
etc.)
1,700
Lean Necessary
(3rd gen DI, cost
AGR, etc.) reduction
1,700
2005
Line4 2.0l 16V
2010
Line4 1.6l Direkt,
Turbo, VVT
2015
Line3 1.2l Direkt,
Turbo, BiVVT, VVL
2015+
Line3 1.2l Lean,
Turbo
1) Installed costs, excl. R&D
Source: Roland Berger
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European OEMs alone need to invest another EUR 1.7 billion over the next 5 years to
develop this functionality (Fig. 4). These costs need to be more than offset to free up
budgets for alternative powertrain technologies.
Fig. 4:
Cost of engine development, EU OEMs
2011-2016 (w/o application) [EUR bn]
Increasing development costs
1.7
8.9
Countermeasures
-1.6
7.2
-1.6
5.7
-1.5
Cumulated base
development
costs 1)
Additional
development
costs 2)
Development
existing engine
families (incl.
replacements)
Reduction of
OEM engine
families
Common engine
families (with
partners)
Target
development
efforts
1) Combustion processes, variability, etc.
Source: Roland Berger
Challenge 3: A much broader technology portfolio needs to be covered at current engineering
cost levels – new materials, electronics, electro-chemistry, information and
communications technology, etc. At the same time, the understanding of the vehicle
as part of a larger transportation and communications system needs to be improved.
4. Shortage of qualified employees – especially in traditional triad markets
As outlined above, regional, market, customer, product portfolio, technology and
supply chain complexity will increase dramatically. This will result in demand for
highly qualified workers – not only in traditional vehicle engineering disciplines, but
also in adjacent skill areas, combined with intercultural skills. But statistics indicate
a growing gap of qualified engineers and developers in mature markets – new talent
sources need to be developed and integrated.
Challenge 4: "War for talent" – Automotive engineering will need to compete with
other industries for qualified employees, especially those with a strong background
in engineering and other natural sciences. Relative wage levels may increase, and
engineering needs to manage high (cultural) diversity.
5. All of the above, while "delivering at same cost levels"
While the complexity of automotive engineering will reach unprecedented levels, the
industry as a whole needs to increase its financial performance to remain attractive
to investors. As competition increases, there is little room to push price levels up.
Costs therefore need to come down, and engineering will not be exempt.
This leads us to the fifth, overarching challenge:
Challenge 5: Automotive engineering needs to improve effectiveness and efficiency
to deliver more at the same – or better yet, lower – cost levels than today's.
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B. "Effective global coverage" – Dominant requirement for the
engineering organization of tomorrow
To cope with these challenges, the engineering organization needs to be transformed
from worldwide presence to worldwide integration. Automotive engineering needs to
become "glocal", adapting a global framework to local particularities (Fig. 5).
Fig. 5:
Requirements for the engineering organization of tomorrow
Regional
complexity
Market/customer/
product portfolio
complexity
Technology/
systems
complexity
"War for talent" –
(cultural)
diversity
Effectiveness:
"Delivery at same
cost levels"
From worldwide presence…
… to worldwide integration
• Multiregional locations
• Centralization of development
• Sequential launches of new products,
based on centrally developed platforms
• Dispersed production network
• Local/regional purchasing bases,
limited projects in partnerships with
other OEMs
• Multiregional integration
• Network of development centers globally integrated
though a competence center approach
• Simultaneous launch of models, based on architectures
and construction kits developed in lead markets
• Standardized processes, combined with a superior level of output
coordination and greater use of socialization and networks
• Global purchasing base and broad partner network
Source: Roland Berger
Local market know-how (both of customer and supply markets) needs to be seamlessly
integrated with engineering competences in multiple locations. Trend scouting
using dragnet methods such as the lead-user approach as well as traditional market
research needs to take place in lead markets. If a specific technology is used broadly
in a specific lead market, concept and prototype development should be done there
as well. Centers of competence need to be defined accordingly, e.g.
> India for low-budget solutions
> Japan/East Asia for 3-D (online) navigation solutions
> Brazil for alternative fuels
> China or California for online infotainment solutions, etc.
New products need to be launched nearly simultaneously on a global scale, based
on architectures and construction kits developed and industrialized in the respective
lead markets. To do so, a balanced approach of strong global coordination and local
freedom is necessary.
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Most large automotive companies have already realized the need for global, multinational
integration and consequently started to decentralize their development
activities. This geographic dispersion is coupled with significant efforts to coordinate
development activities. Our recently finished study [3] showed that such coordination
is successful if it is rooted in a combination of two factors. The first is superior levels
of output coordination (focusing on targeted outputs through plans, goals, monitoring
and reporting systems rather than specific employee behavior).
The second key factor is an increased use of socialization and networks. Socialization
refers to encouraging employees to share a corporate culture that encompasses
values, vision and mission. A common corporate culture shared by all employees
is the key to managing diversity arising from the different (cultural) backgrounds
of talent recruited from across the globe. Networks are used to promote the (nonhierarchical)
sharing of information through formal relationships such as task forces,
cross-functional teams and management transfers.
And finally, engineering must focus on what is truly essential for the long-term success
of the company. Effective engineering focuses on the aspects of products, accompanying
services and technologies that really set the brand apart. This means:
> Developing new in-house competences needed to gain competitive advantage
> Shedding those in-house activities that do not lead to differentiation from
competition, and rather partnering with others to improve economies of scale
or to leverage each partner's specific strengths
Transforming the engineering organization into a more focused globally integrated one,
changing the culture to share a common vision and values, embracing diversity at the
same time and entering into partnerships even with competitors – these are enormous
tasks and require a structured approach.
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C. "Automotive engineering 2025" – Five steps to manage the transformation
into a highly effective glocal engineering organization
Most automotive companies realize that they need more globally integrated development.
However, most development employees – and hence most development
work – are still located in the company's home region. Whereas basic development is
often focused in one region (the home, and not necessarily the lead market), adaptive
development is frequently located in two regions (the home and the largest foreign
market).
The need to cover a broader technology and product portfolio is well understood and
the new skills needed for the future have been defined. However, determining what
areas to shed is much more difficult and not always supported, especially by middle
management, who tend to be skeptical regarding transferring competences to external
partners.
Increased diversity is stated as a goal, but in reality, a single nationality clearly
dominates at most automotive companies, especially on VP and SVP levels. This
is particularly true for OEMs.
And last but not least, improving engineering effectiveness and efficiency is a clear
objective – but how to attain that objective is unclear.
To achieve these goals, we propose a five-step framework for managing the transformation
into a highly effective glocal engineering organization (Fig. 6).
Fig. 6:
Framework for transforming the engineering organization
1
2
3
4
5
Develop a scenario-based product and technology roadmap
and identify potential lead markets
Define long-term requirements for the organization
(core competencies/skills, regions, partners needed)
Assess current status and identify gaps
Define long-term roadmap (10 years) to close gaps
Create short-term (3-year) action plan and set up an
implementation organization to start transformation
Source: Roland Berger
Before beginning with the first step, the company needs to clearly define its vision,
mission, intended strategic position and overall business model.
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Once these have been firmly established, the first step is to develop a scenariobased
product and technology roadmap. This roadmap should seek to link automotive
macroscenarios (i.e. scenarios applicable to the entire industry) with companyspecific
microscenarios. Companies need to identify potential lead markets based
on the latter's market requirements, trends and economic demand. Once the lead
markets have been identified, designs can be drafted and tailored to meet a market's
unique profile.
The second step is to define requirements for the organization: What will be its core
competence(s)? What areas can be eliminated? In considering these and similar
questions, one must take into account the predicted impact on the brand and/or the
desired strategic position/business model. The target organizational set-up needs to
be defined, e.g. (regional) centers of competence based on lead markets and other
key features, target skills/headcount and ideal partnership structure.
At this point, the company needs to figure out how far it is from the defined "ideal"
organizational set-up. To do so, it must assess its current status, identify gaps and
then derive high-level measures to close them.
The measures for closing the gaps then need to be prioritized by synchronizing them
with roadmaps (technologies, products, ..). When prioritizing the measures, companies
must take into account uncertainties, impact on competitive position, availability of
resources and economic levers.
In the last step, a detailed improvement plan needs to be developed with a short-term
(3-year) action plan. Finally, all that's left is to start the transformation.
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D. Summary and conclusion
Over the next 15 years, the automotive industry will undergo the greatest transformation
of its history. Complexity is rising everywhere, putting tremendous pressure on
engineering organizations to become more effective, more efficient and faster. They
also have to become more innovative as they will need to master a broader spectrum
of technologies.
The right setup is crucial – but it also takes time. To be prepared for the upcoming
challenges, transformation needs to start now, and with a clear target picture in mind.
Solid and profound know-how of the challenges ahead, a deep understanding of
automotive engineering and hands-on experience in working in the automotive
industry are necessary to add value in this process.
That's what we have at Roland Berger – and we would be happy to support you
in meeting these new challenges.
Further reading:
[1] Kalmbach, R.; Bernhart, W.; Grosse Kleimann, P.; Hoffmann, M.:
Automotive landscape 2025: Opportunities and challenges ahead
Study, Roland Berger Strategy Consultants GmbH, Munich 2011
[2] The next wave: Emerging market innovation – Threats and opportunities
Study, Roland Berger Strategy Consultants GmbH, Munich 2007
[3] Schmid, S.; Grosche, P.; Bernhart, W.; Schott, S.:
Focus on corporate culture and networks – How automotive companies
successfully coordinate their activities across borders.
A survey of the automotive industry.
ESCP Europe Business School & Roland Berger Strategy Consultants,
Munich 2011
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Contact
The authors welcome feedback and will be glad to
address any questions.
Dr. Wolfgang Bernhart
Partner
Roland Berger Strategy Consultants
Löffelstraße 46
70597 Stuttgart, Germany
Phone: +49 (711) 3275-7421
E-mail: Wolfgang_Bernhart@de.rolandberger.com
Dr. Thomas Schlick
Partner
Roland Berger Strategy Consultants
Bockenheimer Landstraße 2-8, OpernTurm
60306 Frankfurt, Germany
Phone: +49 (69) 29924-6202
E-mail: Thomas_Schlick@de.rolandberger.com
Co-authors:
Max Blanchet
Partner
Roland Berger Strategy Consultants
11, rue de Prony
75017 Paris, France
Phone: +33 (1) 53670-907
E-mail: Max_Blanchet@fr.rolandberger.com
Ralf Kalmbach
Partner
Roland Berger Strategy Consultants
Mies-van-der-Rohe-Straße 6
80807 München, Germany
Phone: +49 (89) 9230-8669
E-mail: Ralf_Kalmbach@de.rolandberger.com
Dr. Satoshi Nagashima
Partner
Roland Berger Strategy Consultants
1-12-32 Akasaka
Tokyo 107-6023, Japan
Phone: +81 (3) 358 76-683
E-mail: Satoshi_Nagashima@jp.rolandberger.com
Per M. Nilsson
Partner
Roland Berger Strategy Consultants
Vasagatan 43 B
41137 Gothenburg, Sweden
Phone: +46 31 75755 - 10
E-mail: Per-m_Nilsson@se.rolandberger.com
Juergen Reers
Partner
Roland Berger Strategy Consultants
2401 West Big Beaver Road, Suite 500
Detroit, MI 48084, USA
Phone: +1 248 729 - 5115
E-mail: Juergen_Reers@us.rolandberger.com
John Shen
Partner
Roland Berger Strategy Consultants
23F Shanghai Kerry Center, 1515 Nanjing
Shanghai 200040, China
Phone: +86 (21) 52986677-874
E-mail: Jun_Shen@cn.rolandberger.com
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