Disruptive Technologies Impact Investment Decisions

By T Murrali

With the evolution of the automotive industry and the disruptions catching the players unaware, the unknown is getting more known than in the past. Disruptions, or the changes in the traditional way of operation of the automotive industry for new and effective systems, are coming from different quarters. One of the most prominent changes is in the way the customers perceive their mobility needs like the increasing preference to ride sharing across markets. They look also at their in-car experience, the features and the way the vehicles are hauled.

Experts attribute to ride sharing the passenger vehicle sales drop in India since a few quarters. IHS Markit, a global information provider, estimates that 10 billion rides were completed in China, Europe, India, and the US combined in 2017, representing almost one percent of all vehicle miles travelled in these regions. This number illustrates the importance of such a service that is becoming the primary mode of mobility for many consumers.

The new mobility is transforming to a service that revolves around the consumer. This will gather momentum and create new opportunities to meet the needs of the connected consumer, setting aside the prominence given to the make and model of a car. The automotive companies have begun to realise that their brands will no longer be defined by style or substance in terms of performance but by the mobility experience they offer.

With greenhouse gas and environment protection taking centre-stage, the powertrain of vehicles in every segment is going through several changes. A few options such as hybrids, plug-in hybrids, electric vehicle (EV), fuel cells etc. are under consideration and even implementation.

According to Frost & Sullivan, more than 2.8 million EVs are likely to be sold globally in 2019, of which 68 percent will be battery EVs and 32 percent plug-in hybrids. The EV market is expected to account for three percent of the total passenger car market in 2019. This evolution will have far-reaching consequences for a major section of players in the industry. The long-term impact of the new mobility, especially of the electric vehicles, will be the elimination of about 30 percent (in terms of value) of components that go into the traditional vehicles. The irrelevance of many of the conventional parts may affect the companies that manufacture components only for IC engines and the aftermarket. However, the growing number of partially or fully electric vehicles brings new opportunities and challenges for innovative approaches and solutions. As the disruption looms large the business ecosystem may need a complete overhaul aligning everything with total cost of ownership.

Several major OEMs have announced investment plans on their new mobility initiatives and the suppliers are forced to follow suit. For instance, Hyundai, the South Korean maker of Sonata sedans and Tucson SUVs, plans to invest 45.3 trillion won ($40 billion) in the next five years to develop new models and technologies for electrified and autonomous vehicles as well as transportation services. The average annual spending will be 58 percent more than in the past five years.

Volkswagen AG said it was investing $800 million to build a new electric vehicle at its plant in Chattanooga, Tennessee. Several other OEMs have drawn plans on their proposed foray into new mobility. However, the good thing about the technology is that it has the power to transform entire business models. Irrespective of the time or the phase the industry is experiencing, none can afford to neglect research and innovation. Only technology and innovation will guide the people to the next generation of manufacturing landscape. The challenge is to bring about a transformation in the mindsets along with scalability. How to ensure a smooth transition will be the major challenge for the leadership as this will pave the way to success.

The challenges within the industry and the ecosystem at large will of course have to be addressed, but this is always the case while managing any disruptive innovation. In future, suppliers have to move from the present transactional relationship to strategic partnerships and solution-based approaches and participate in the entire life cycle of the final product. They must be ready to collaborate seamlessly with all other stakeholders for mitigating the risks of the OEMs which face an uncertain future for their new launches.

More volatile and rapidly changing environment requires suppliers to speed up their flexibility and agility to develop and run their business. They should think well ahead of the next generation vehicle scenario and plan a more innovative approach to product development.

Experts predict that the transition in some market segments may take decades, with fleets opting to use a combination of battery electric vehicles and alternative-fuel powertrains, as well as those powered by gasoline, diesel and natural gas in the short-term.

Getting the right people, re-skilling the employees, educating the workforce, and keeping track of changes are key challenges for every player in the eco-system.

All these involve huge investments. The greater challenge is in investment decisions: where, when and how much? There should be a paradigm shift in the way investment decisions are taken. The suppliers will have to rethink if a customer-centric and customer-driven decision alone can help them withstand the turbulent times ahead.
For this Fourth Anniversary special, AutoParts Asia is taking a closer look at how each company is equipping itself to face the changes and the associated challenges with new investments on men, machinery, technology, Brownfield / Greenfield projects and research. As we are keen to highlight some of the best practices, investment parameters, funding methodologies, risk mitigation plans and other investment strategies that can be shared and can be valuable inputs for others in decision-making to face the unfolding future which is also uncertain, we invited columns from the who’s who of the global automotive industry. We sought their views on the challenges and opportunities for their companies from the disruptive technologies and emerging changes in mobility, the key drivers for their investment plans, their priority of order for investments and the other short-term and long-term plans than investments.

We are presenting to you a bouquet of perspectives on the imperatives of investment for innovation in the following pages.

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