Mega trends in automotive boosting demand for semiconductors

02 May 2017 Consultancy.uk

The mega trends set to disrupt the automotive industry: electrification, connectivity, mobility and automation, are set to create considerable value chain element growth. The semiconductor industry, in particular, will see demand increase from around $30 billion in 2015 to $42 billion by 2020. China, will continue to sees its share of the total market increase in the mean time.

The automotive industry is set to continue to see the sale of new units rise, as car ownership becomes more affordable across Asia. The industry is facing a number of mega trends however; as the globe moves towards a sustainable economy, electrification is set to pick up; while digitalisation is opening up connective car opportunities; mobility considerations, such as car sharing and carpooling too are being created through technological advance and new business models; finally, automation, is set to radically transform the roads, reducing accidents and creating new ownership models.

As the mega trends begin to set in, the wider value chain that supports many of the innovations, is likely to see considerable boosts in revenues. In a new report from McKinsey & Company, titled ‘Mobility trends: What’s ahead for automotive semiconductors’, the consultancy firm explores the effects the mega trends will have on semiconductor sales.

Global automotive revenues

The global revenues derived from the automotive industry is set to grow considerably under the firm’s ‘highly disruptive model’, from $3.5 trillion in 2016 to $6.7 trillion by 2030. The new-car sales segment will continue to represent the largest share by far by 2030, hitting $4 trillion in sales. The aftermarket, which is seeing heated competition, will increase slightly to $1.2 trillion.

The recurring revenues segment is set to take off, supported by semiconductors and new operating models within mobility, it will grow from $30 billion in revenues to around $1.5 trillion over the coming 15 years.

Automotive industry increasingly generating large portion of semiconductor sales

The four mega trends affecting the industry are, according to the firm, set to grow the demand for semiconductors in the medium- to long-term. Electric vehicles (EVs) for instance, require more than $1000 in semiconductors to function, hybrids around $900 and more traditional ICE vehicles around $330. Additional connectivity features in vehicles will likely further boost the number of sensors and processors, while automation and the technologies that underpin its potential are heavily semiconductor dependent.

The market itself has already been growing steadily, with automotive semiconductor sales up from around $8 billion in the late 1990s, to almost $30 billion by 2015. The industry too has increased its share of the total semiconductor market, up from 5.3% in the late 1990s to 8.2% in 2015.

Sales growth for automotive semiconductors

The research notes that the gains for individual countries will vary somewhat. Japan is likely to miss out on much of the growth, with total sales increasing at around 2% between 2010 and 2020, to $4.4 billion. China will continue to grow its global share of sales in the intervening period, up from 19% in 2015 to 23% by 2020. The country’s semiconductor industry growth, in line with its wider economy, will slow somewhat however, from 15% CAGR between 2010 and 2015 to 10% CAGR between 2015 and 2020.

Canada, the US and Mexico will too see a slowdown in semiconductor sales growth for the automotive sector, from 11% over the years prior to 2015 to 6% to the years to 2020. Total sale will be relatively robust however, hitting $10.2 billion by 2020. Europe too will see relatively slow growth between 2010 and 2015, maintaining 6%, growing sales from $6.4 billion to $11.2 billion.

Growth in core application segments

The management consulting firm also looks at the areas of the business that will see the biggest growth spurts over the coming five years. Safety features, a key early development in the automation journey for the industry, will grow its total market share of semiconductors from 17% to 24%, with collision warning generating $4.1 billion more in semiconductor sales, eCall telematics $1.3 billion more and tire-pressure warning technology, $0.6 billion more. Driver info will see its share fall slightly, from 23% to 22%, with navigation and primary instruments up $2.2 billion and $1.9 billion respectively.

Growth in major semiconductor segments to 2020

In terms of the automotive-semiconductor-device segment, all are found by the firm to see pockets of growth.

The optical sensor segment will account 17% of total semiconductor sales by 2020, with image sensors the segment to see the biggest net growth, up by 11% CAGR. Discrete semiconductors will see relatively low levels of growth, with power transistor and thyristor and rectifies & diodes up 5% and 4% CAGR respectively.

Analog will represent 29% of total market share, with general purpose and ASIC components growing at 7% and 6% CAGR respectively. Micro-components will be the biggest segment by 2020, with MPU and MCU growing steadily in the coming years, up at 14% and 9% CAGR respectively. NAND, in the memory segment, is the fastest growing of the industry, up 19% CAGR to 2020.

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”