Denso Announces Mobility-Focused Strategy as Tier Ones Attempt to Address Rapidly Changing Ecosystem

This month, Denso released its 2018 Annual Report, which details plans to restructure the company, along with its long-term corporate strategy. The report outlines plans, like having its Original Equipment Manufacturers (OEM) clients re-align with the company’s focus on “ACE” or “CASE”-based trends: Automated Driving, Connected Cars, and Electrification. As part of the new focus, the company will form a new Mobility Systems Unit that will focus on providing vehicle autonomy and providing new mobility services.

The establishment of a new mobility-focused division follows similar announcements by Bosch in March 2018, establishing Bosch Connected Mobility Solutions, Delphi spinning off APTIV, a separate mobility-focused business in 2017, AutoLiv spinning off Veoneer in 2017, and Continental’s 2020 mobility restructuring announcements made in July 2018. But why are Tier Ones restructuring so drastically and what mobility opportunities are out there for them?

Historically, Denso has focused on developing subsystems in a manner that was optimized for each of its businesses, namely Powertrain, Electronic, and Thermal Systems. However, under the new restructure, Denso will establish a new Mobility Systems Unit. The Mobility Systems Division will consist of a Business Unit, a Connected & Cockpit Business Unit, and an Automated Driving and ADAS Business Unit.

The establishment of a new mobility division by Denso, and similar moves and announcements by other Tier One suppliers, such as Autoliv, Bosch, Continental, and Delphi, suggests that the current Tier One structures, business models, and strategies are simply not applicable to the future mobility market. From a Tier One perspective, the following trends are defining the mobility market:

• In-House Development of Autonomous Technology:New mobility services are defined by the ability to develop driverless technology. Traditional Tier One customers, such as OEMs, have sought to develop driverless technology more in-house. Suppliers need to leverage key partnerships with companies farther down the supply chain, such as hardware platform companies and software developers. The lack of Tier One involvement in developing technology is troublesome for Tier One suppliers, who will not want their roles to be reduced merely to system integrators.
• Reduced Vehicle Shipment Numbers:The idea around mobility-as-a-service is to meet mobility needs with the minimum number of vehicles. This means that there will be fewer vehicles on the road, operating at much greater utilization rates with much longer lifespans.
• New Mobility Service Requirements: Mobility services will be built on connected services. The ability to interpret data to provide services optimization and other key aspects, such as fleet management or predicative maintenance, will be crucial to the success and, therefore, profitability of these services.
• New Market Entrants: The new vehicle mobility market will see the convergence of the traditional automotive consumer vehicle ownership market and the ride hailing/ridesharing market. This has led companies like Uber, Grab, and Lyft to work on developing driverless technology. In addition, this has led companies like Waymo and Apple to the marketplace.

Although the automotive market is still some time away from seeing a complete transition to mobility-as-a-service, the lack of involvement in developing autonomous technology and the ability to develop new connected services are issues that need to be addressed by Tier Ones now. Not only can restructuring help enable this, but restructuring could also enable Tier Ones to work with new customers and develop new mobility products.

The mobility market, as identified in the previous section, is defined by numerous potentially disruptive trends for Tier One suppliers. By shifting to a mobility-focused strategy, whether by establishing a separate mobility division or through a complete spin-off, tier ones can accomplish the following:

• Re-Establish Technology Development Leadership:Creating a separate mobility/autonomous division, or even a spin-off with completely different management can enable Tier Ones to accelerate their technology development. This restructuring can be supplemented by investment and acquisitions. Delphi’s acquisition of Nutonomy and Ottomatika and a subsequent restructuring to place these businesses under the new Aptiv spin-off is a good example of how a Tier One can stay abreast of autonomous vehicle developments.
• Develop New Connected Service Products: As part of Denso’s report, the company outlined plans to offer new connected services that will provide data-based services to mobility clients by leveraging vehicle data to provide fleet management services to mobility companies. As another example, Bosch Connected Mobility Solutions acquired ridesharing company SPLT as part of its restructure, and as part of its plans to develop new connected fleet management services for mobility companies. Revenue tied to new vehicle shipments in the future mobility market will clearly be counterproductive, seeing that mobility services will be defined by low vehicle numbers. Connected services can offer Tier Ones recurring revenue streams that are tied to vehicle utilization, which is something that will increase with shared mobility.
• Establish New Partnerships and Clients: Mobility companies could form key development partners for Tier One suppliers to co-develop autonomous technology. The Lyft/Aptiv partnership is a good example of this. The keys to developing any autonomous system will be accruing driverless miles on the road and mobility services providing a network for Tier Ones to deploy their autonomous technology. Furthermore, these new partnerships will not only enable Tier Ones to develop autonomous products, but they will also establish key relationships for Tier Ones with potential new customers going into the future mobility market.

In summary, the traditional automotive market is undergoing a significant period of transformation, shifting from traditional vehicle ownership to mobility-as-a-service, defined by increased autonomy. The shift in market dynamics and the ecosystem has caused disruption to all market participants, including Tier One suppliers. This, in turn, has led to companies like Denso, Bosch, Delphi, and others to realize that the current Tier One structures, business models, and strategies are simply not applicable to the future mobility market, leading to these companies forming new mobility divisions. These new mobility-focused divisions/spin-offs will enable these Tier Ones to maintain their leadership in technology development, develop new mobility products/services, and establish new customers. Other Tier One suppliers should now also follow their lead and seriously consider establishing similar divisions/spin-offs; in the end, this recommendation may not be optional, but a requirement for success.