Global automotive industry awaits perfect storm

Dominant global vehicle assemblers such as Toyota and Volkswagen may have annual research and development (R&D) budgets

Justin Barnes, chairperson of B&M Analysts and Executive Director of the Toyota Wessels Institute for Manufacturing Studies

The automotive industry’s technology direction is the focus of huge attention. Factors such as tightening environmental legislation in core global markets and the rapid emergence of disruptive technologies with the ability to fundamentally transform the nature of mobility markets and associated vehicle (and automotive component) production are combining to create a “perfect once in a 100-year storm” that will fundamentally re-shape the destiny of the industry. The stakes for the established vehicle industry have never been greater.

For example, will battery electric vehicles (BEVs) replace internal combustion engines (ICEs) in the next five, 10, or 25 years? Will the replacement be universal, or will it concentrate on small passenger vehicles first? What of hydrogen fuel cell vehicles? The hydrogen-based Toyota Mira is, for example, presently being tested alongside BEV models. What if this technology surges forward? What then happens to the billions of dollars being spent on BEVs?

These questions are non-trivial. Each power train alternative has entirely different component requirements that fundamentally change the nature of economic activity within individual vehicle model supply chains, creating new winners and losers, displacing incumbents and shifting the entire structure of the automotive value chain.

While global warming, and a range of other environmental concerns, will likely influence the formulation of government legislation across the globe, and raise the pressure on vehicle assemblers to produce increasingly fuel-efficient vehicles, mounting energy costs are likely to have an analogous impact. Vehicle assemblers able to place highly fuel efficient and/or low environmental impact vehicles in the market will steal a march on their competitors, opening the way for improved financial returns, and major improvements in their market position.

If this was the only challenge facing the vehicle industry, it would be daunting enough: How to shift vehicle production from their dominant powertrain (and associated drivetrain) technologies for the first time in over a century?

At the same time as the industry is confronting one major dramatic shift in its development trajectory, it has been tasked with confronting another, potentially even more existential threat: How to deal with the swathe of technology disruptions fostered by Industry 4.0 – the digital revolution.

At the most “basic” level vehicle assemblers and their component manufacturers are needing to explore the emerging role of additive manufacturing, nano-technologies and other new material developments, and the use of “big data” and advanced computing power that has fostered machine learning and Artificial Intelligence capabilities that are powering entirely new intra- and inter-firm process technologies with the ability to re-frame entire automotive value chains.

The consequences of these disruptions are potentially huge, but only existential when combined with the impact of the Internet of Things. In combination they challenge the nature of automotive markets. This is the first in a series of thought pieces contextualising the five major challenges faced by the South African automotive industry, namely, the future of manufacturing and the automobile; new entrant development and best practice; youth employment and skills development; increasing local content in priority sectors; and regional trade dynamics.

These are also the core themes for the The National Association of Automotive Component and Allied Manufacturers (Naacam) Show 2019 to be held from March 12 to 14. See

Rapidly advancing automotive telemetry, which effectively plugs vehicles into the Internet of Things, while also allowing vehicles to “see” their immediate environment – for example, through light detection and ranging or Lidar systems – has provided the basis for the development of Autonomous Vehicles (AVs). Presently being tested in a variety of locations, AVs are potentially the global automotive industry’s most substantial ever disruptor.

This is not an exaggeration. Once AVs have proven their safety, they will not need steering wheels (no driver), air bags, side-impact bars, or seatbelts (no chance of crashing), or powerful engines and associated componentry, such as large brake discs (they will drive at exactly the speeds specified by law). Perhaps AVs will not need to be made of steel or aluminium. If they cannot crash, biodegradable textile skins may be the future. What then of vehicle assembly operations? Will they still have body shops, paint shops, and complex assembly lines? Will they still employ the many thousands of skilled people that they do today?

Even more fundamentally, if AV passengers are supremely comfortable in the cabin, moving from Point A to Point B rapidly and being either entertained or educated with IoT-enabled technology, the technical dimensions of the AV may become superfluous to them. So superfluous in fact, that vehicle ownership no longer remains important.

And herein lies the real existential crisis: Will the world’s middle-class population buy AVs in the future, or use “robo-taxi” service providers, such as Uber or Lyft, or any range of potential future competitors? If it is the former, then the disruption will “only” relate to vehicle technologies, platform configurations and associated production activity within automotive value chains.

If it is the latter, then the disruption will be much more fundamental: The power of individual vehicle brands will shift dramatically if “robo-taxi” platforms and their differentiated service packages displace private vehicle ownership.

Global vehicle demand aggregates could shift dramatically, while the dominant position of vehicle assemblers with complex global supply chains could be fundamentally altered as large-scale robo-taxi platform providers increasingly dominate the interface with final users. Such a shift in human and merchandise mobility would be the ultimate disruptor. Everything about the modern global automotive industry would potentially change.

Combine this dramatic development with other disruptors, such as additive manufacturing, the increased use of smart materials, nano-technology, machine learning, artificial intelligence and robotics and the impact becomes even more profound.

Provided these changes are good for the environment and reduce energy consumption, government legislation will further encourage the shift. Key questions relate to how rapidly these changes will occur? Will their combination accelerate or slow down the speed of disruption? Does the automotive industry have another five, 10, or 25 years making ICE vehicles for mainly private owners that are acutely brand conscious?

How rapidly will South Africa, and the broader African market, follow these dramatic disruptions? These are the critical issues that lie at the heart of any long-term automotive strategy discussion.

With 112 000 employees, R74bn of gross value added annually, seven major vehicle assembly plants around the country, sizeable export programmes, major technology spillover effects, and a considerable contribution to the distressed South African tax basket, these are also discussion points that should be of paramount importance to the senior private and public sector leadership of the country.

The stakes are not only high for the global vehicle assemblers and their component manufacturers, but for every country with a major automotive industry.


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