Edición 18 

* This article is based on an investigative report prepared by the author for ECLAC: La industria de autopartes en México: Retos frente a las tecnologías exponenciales, Colef, Tijuana, April 6, 2018.

 

The automotive industry is at a real crossroads. The technological revolution; changes to concepts of mobility; consumption patterns –where there is rising interest in protecting the environment–; energy efficiency, and infotainment are some of the disruptive forces transforming the automotive industry ecosystem both globally and regionally where companies are located. Mexico is no exception. Although the proportion of electric vehicles, for example, is still fairly limited (1.3% of 97.3 million vehicles produced worldwide in 2017), the key question is not if these technologies (included in the concept of Industry 4.0) will become dominant, but rather how fast they will do so. [1]

The megatrends driving the automotive industry focus on three central concepts: (1) the rapid pace of digitalization (connectivity, autonomous driving, artificial intelligence, new players from the digital economy), (2) new standards (electromobility, sweeping changes in the traditional supply chain) and (3) changes in the concept of mobility and in consumption patterns (extension of the supply chain, the collaborative economy, vehicle use versus purchase, and the erosion of brand loyalty).

In particular, the digital trend of incorporating more electronics and software in automotive vehicles, and in mobility systems in general, is a key element today. For example, the average car currently has 60 microprocessors, four times more than 10 years ago.[2] Although the added value of a smartphone, measured in Euros per kilogram, is 66 times greater than an economy car, that proportion will change radically with the incorporation of proprietary technologies of electrification, connectivity, autonomous driving and diverse mobility. Estimates are that in less than two years (2020), about 75% of automotive manufacturing will be for connected vehicles, and in the next 10 years, almost all cars (95%) in mature markets (North America, Europe, Japan, South Korea and China) will have some type of connectivity.[3] Likewise, the share of autonomous vehicles (level 4-5) is expected to grow between 5% (conservative estimate) and 26% (liberal estimate); depending on the extent to which consumers accept shared mobility.[4]

 Impactful technologies. 

Connected cars, in essence, enable intelligent movement based on the internet of things. This connectivity will increase driver safety and efficiency, alleviate urban congestion and provide services for commercial vehicles, such as entertainment, navigation, rescue and management. As technologies evolve (including the 5G network), the operation of cars will move from assistance systems to fully autonomous driving systems.

Predictions are that there will be more and more hybrid electric, electric and fuel cell powertrains as technologies mature and their prices become more accessible.

Automobile usage will also change. Today, the same light vehicle is used for activities as diverse as work, vacation and shopping; but in the next ten years it t is expected that different vehicles will be used for each activity, such as using Uber to move about in urban areas, ride sharing to go to work, drones for the delivery of goods, and so forth. As the collaborative economy expands and consumer preferences change, we will leave the current model of individual purchases behind and adopt one of rentals or shared vehicles (car-sharing, carpooling, autonomous vehicles, cellular vehicle-to-everything, car-to-x connectivity). The firm Lazard and Roland Berger predict that by 2025, the share of new vehicle sales for application in the field of new mobility may range between 10% and 15% in the United States and Europe, and up to 35% in China.[5]

 

In the 1960s, many assembly and manufacturing operations began to relocate from advanced economies to developing countries, to reduce costs and boost their competitiveness.[6] Although this trend continues, the situation is becoming more complex now. As ECLAC points out,[7]some multinationals and governments have reevaluated the role of manufacturing in the creation of supply chains and scientific-technological capacities as well as in the dynamic of innovation in national economies. This has led to less polarized markets in terms of production and technological capabilities: China, the United States, Germany, Japan and South Korea maintain their dominance over production, vehicle manufacturing, supply and especially technological development.[8]

For reasons of space, I will omit certain topics and instead highlight a technological trend that presents challenges for the different links that comprise the automotive sector value chain: digitalization.

It can be argued that in this highly technological market, “there is no, nor could there be any” automotive assembly company that does not prioritize the creation of strategic inter-industry relationships with companies at the forefront of connectivity and software development. The Figure above shows several examples of intra and inter-industrial relationships for the development of new technologies and connectivity and autonomous driving solutions between original equipment manufacturers (OEM) and information and communication companies (ICT), between global suppliers and ICT, and between various ICT companies, to name the most obvious. The technological convergence between the auto industry and other sectors, such as consumer electronics, ICT, nanotechnology and biotechnology, will grow.[9]

Although inter-industrial relationships are nothing new, the speed, magnitude and experimentation associated with this transformation are. Manufacturers of German and Japanese autos announced well in advance the automation technologies they will offer in 2020. The Americans are also betting on this market.[10] Furthermore, companies such as Apple, Google, Uber, Intel and Samsung are venturing into the development of vehicles, components and services related to connectivity and autonomous driving.[11]

The use of technology in the automotive industry has advanced significantly, thanks to tools such as artificial intelligence, voice recognition, automated driving systems and language translation.[12]

Software will play a key role in connected and autonomous cars. A Boeing 787 aircraft uses 18 million lines of code. A modern premium car, between 100 and 150 million. Autonomous cars are expected to use approximately 300 million lines.[13] International competition for “talent,” as expected, is intensifying, particularly in the area of new technologies (sensors, electronics and software). In 2018, I visited several companies in Mexico, both multinationals (Continental and Bosch in Guadalajara Huawei in Mexico City and Samsung in Tijuana) and Mexican SMEs (Servicios, Integraciones y Manufactura; Repinel; Cluster Mach; Mecatronics; Technology Hub Each one is in a "frenetic" search for talent.

Although well positioned overall, automotive companies in Mexico —corporations, subsidiaries, branches or independent companies— are no strangers to this predicament. Whether they are Mexican multinationals (such as Nemak and Metalsa), global leaders (such as Delphi, Bosch and Magna), or even Tier II companies and smaller, direct service providers at the next levels (III and IV), they all need to raise their technological and human capabilities, reduce costs, become more efficient and, especially, leverage the local environment (regional innovation ecosystems). But, as is often the case, the options are many and the decisions diverse. The opportunities, challenges and uncertainty have to do not only with disruptive technologies but also with other factors such as regional trade policy (the USMCA, in the case of North America) and labor policy. All these elements add complexity and make it difficult to make predictions.

 

 

[1] Christian Berggren y Per Kågeson, “Speeding-Up European Electro-Mobility: How to Electrify Half of New Car Sales by 2030”, Transport and Environment, septiembre de 2017, y Tommaso Pardi, “Speeding the European Electro-Mobility. How to electrify half of new car sales by 2030”, Discussion Paper. Journée du GERPISA, núm. 237, Mini Conference What future for the automobiles sector in industrialised counrties?, CCFA, Paris, enero 12, 2018. 

[2]  ECLAC, Foreign Direct Investment in Latin America and the Caribbean, United Nations, 2017.

[3] ECLAC, op. cit.; Lazard and Roland Berger, Global Automotive Supplier Study 2018: Transformation in Light of Automotive Disruption, December 2017.ation in Light of Automotive Disruption, diciembre de 2017.

[4] Lazard and Roland Berger, op. cit.

[5] Ibid.

[6] Folker Fröebel, Jürgen Heinrich and Otto Kreye, La nueva división internacional del trabajo. Paro estructural en los países desarrollados e industrialización de

los países subdesarrollados, Mexico, Siglo XXI, 1980.

[7] ECLAC, op. cit

[8] Ibid

[9] Mónica Casalet (coord.), El paradigma de la convergencia del conocimiento: Alternativa de trabajo colaborativo y multidisciplinario, Flacso, Mexico, 2017

[10] ECLAC, op. cit.

[11] Ibid.

[12] “Los automóviles completamente automatizados requieren unos 150 millones de kilómetros de pruebas, lo que equivale a más de 3 mil 600 vueltas a la

Tierra, en comparación con los 5 millones de kilómetros para los sistemas de asistencia convencionales,” (Klaus Froehlich, Director of Development at BMW, Autosef, September 14, 2017). In 2017, an autonomous vehicle belonging to Uber had an accident in which one person died.

[13] Lazard and Roland Berger, op. cit.