The Future of Automotive Tier One Suppliers in a Smart Mobility Context

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By James Hodgson | 2Q 2018 | IN-5098

As the automotive industry continues its transformation from selling products to providing mobility services based on driverless vehicles, the impact reverberates across the supply chain, with Tier Ones being notably affected. Tier Ones face an enormous challenge in maintaining their traditional role as system integrators, given the range of technologies (high-performance computing platforms, new sensor types, high bandwidth networking protocols, and a host of connected services vital to maintaining the vehicle throughout its life cycle) that are required to enable level 4 and 5 autonomous driving. This is exacerbated by the ambitious deadlines their traditional original equipment manufacturer (OEM) customers are setting for commercial implementation of fully autonomous driving.

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A  Challenging Environment 

NEWS


As the automotive industry continues its transformation from selling products to providing mobility services based on driverless vehicles, the impact reverberates across the supply chain, with Tier Ones being notably affected. Tier Ones face an enormous challenge in maintaining their traditional role as system integrators, given the range of technologies (high-performance computing platforms, new sensor types, high bandwidth networking protocols, and a host of connected services vital to maintaining the vehicle throughout its life cycle) that are required to enable level 4 and 5 autonomous driving. This is exacerbated by the ambitious deadlines their traditional original equipment manufacturer (OEM) customers are setting for commercial implementation of fully autonomous driving.

Furthermore, Tier One suppliers are finding themselves in a shifting ecosystem, with many of the critical components for autonomous driving being developed by lean startups and vendors outside of the traditional automotive supply chain—particularly in the areas of sensors, artificial intelligence (AI), and high-performance computing platforms. Further up the value chain, Tier One suppliers must engage with new customers beyond the traditional automotive OEMs, as rideshare operators compete with OEMs to deliver shared mobility services built on driverless vehicles.

Finally, Tier Ones must effectively counter the biggest competitor facing any supplier in the automotive ecosystem: in-house development and manufacture by OEMs or other implementers. One example of such competition is GM’s acquisition of and autonomous technology development with Cruise Automation, whose autonomous platform will underpin a commercial ride-sharing service set for implementation in 2019 with at least 200 vehicles already manufactured.

Consolidation of Position Means Consolidation of Tech

IMPACT


In recent years, Tier One suppliers have already made strides to reinforce their existing position as essential integrators of automotive technologies and systems through a combination of investments and partnerships. Standout players include Aptiv and Continental, both of whom have made significant investments in new sensor types, such as LiDAR. Aptiv has previously made investments in Quanergy and later hedged their bets with investments in Innoviz and LeddarTech, while Continental acquired flash LiDAR specialist ASC in 2014. Both brands have also acquired specialists in autonomous driving software (Nutonomy and Elektrobit, respectively).

As well as the hardware and software components required to enable autonomous driving, numerous Tier Ones have added technologies necessary to maintain a vehicle through its life cycle. For example, Aptiv—through their acquisition of Movimento—and Harman—through their acquisition of Redbend and Symphony Teleca—have secured over-the-air (OTA) updating technologies. Harman’s Ignite platform adds critical competencies such as remote diagnostics and prognostics.

In order to capitalize on the trend for connected and autonomous driving, some Tier Ones (such as Autoliv and Delphi) took the decision to spin off their other product lines in favor of a streamlined organization dedicated to supporting smart mobility, creating brand-new Tier One suppliers Veoneer and Aptivin the process.

Therefore, Tier Ones continue to expand their competence through investment or acquisition in key technologies in order to support the development and maintenance of connected and autonomous vehicles. However, this must be complemented by a solid go to market strategy that will reflect the impact that smart mobility will have on the whole automotive ecosystem.

Dealing with New Partners

RECOMMENDATIONS


Magna recently announced a partnership with Lyft. The two companies will collaborate on the development of an autonomous driving platform; Lyft will then use this platform to retroactively enable autonomous driving on nonautonomous vehicles. This deal is comparable to Deutsche Post DHL’s partnership with NVIDIA and ZF. As OEM rideshare subbrands begin to compete directly with such players as Uber and Lyft, rideshare operators must be prepared to develop their own driverless systems; they cannot depend on OEMs selling level 5 vehicles to their competitors, as such vehicles will be the catalyst for widespread adoption of low-cost shared mobility services.

Magna brings experience in systems integration, and they gain access to data from operation vehicles—the bedrock of AI systems trained on real-world experience. Furthermore, both companies will share the intellectual property (IP) from their development efforts. This means that Magna will be able to take the platform to other rideshare operators or even to OEMs.

Magna has made it quite clear that they do not intend to manufacture full vehicles for Lyft; they are confining themselves to the development of an aftermarket autonomous platform. However, Continental has created a fleet of CUbE autonomous shuttles, which deliver level 5 operation and which are being tested in Frankfurt. One key aspect of a successful smart mobility offering is a powerful, global consumer brand—a factor which has been central to the success of Uber and others. Most Tier Ones are unknown entities to consumers, making it difficult for Tier Ones to move up the smart mobility supply chain, irrespective of the completeness of their driverless platform.

As a result, there is increasing promise in symbiotic relationships between Tier One suppliers and rideshare operators. Tier Ones are expanding the market opportunity for their integration services and engaging with brands in the consumer consciousness, while rideshare operators are guaranteeing access to critical driverless technology—whatever the OEM strategies may be to the selling of fully driverless vehicles.

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