Engineering Services. Market study

Transcription

1 Engineering Services Market study 2014

2 Contents Page Management summary 3 A. Technology trends and their impact on engineering service provider 4 B. The market of engineering services 15 C. Authors 26 This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness and accuracy of the statements made in this document. Roland Berger Strategy Consultants GmbH 2

3 Management summary > Automotive OEMs have to deal with an all-time high of technology complexity, driving engineering spend and creating the necessity to have a clearly defined strategy regarding core competences and outsourcing of engineering services > Three areas see a dramatically increasing demand for ESO skills and capacity: Powertrain and powertrain electrification as driven by CO 2 emissions regulations in Europe and China Weight reduction technologies as driven in the same context, especially on the European market Connectivity and IVI-related engineering services as especially driven by customers' "always on" attitude > In total, the global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at approx. EUR 16.5 bn growth is mainly driven by Chinese market while slowing down in Europe > Highest share of outsourced work in Europe (approx. 30%) in E/E, also incl. connectivity/in-vehicle- Infotainment, in China around power train/powertrain electrification (approx. 25%) > For ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China or India) in order to stay competitive in terms of their cost structure and to develop specialized know-how in the growing ESO areas Source: Roland Berger 3

4 A. Technology trends and their impact on engineering service provider 4

5 Major trends overview Three mega trends reshape the automotive industry the regarding domains have strong impact on the future ESP landscape Mega trends in the automotive industry CO 2 reduction > Oil scarcity and dependency as well as global warming as initiators > Efforts to increase fuel efficiency enforced by government regulations (penalties or incentives) and growing environmental awareness > Increasing importance as buying criterion ESP-relevant domains A B Powertrain electrification Lightweight Comfort/mobile web > Growing wealth/age and increasing time spent in vehicle as initiators > Expectations for "living room atmosphere" and "always on" attitude getting more and more important, also as differentiator for OEMs > One of the key buying criteria C In-Vehicle Infotainment (IVI)/Connectivity Source: Roland Berger 5

6 A Powertrain electrification regional specifics xev markets EU and China are primarily legislation-driven USA primarily driven by customer pull Push and pull factors xevs EU China USA Push > Even under optimistic assumptions regarding ICE improvements and lightweight measures, all OEMs will need xevs > xev share depends on CO 2 emissions regulations (weight-based vs. constant target) > From a cost perspective, light hybrid and PHEVs are most favorable > Technology penetration is only driven by government targets for PHEVs and EVs > Segments fuel consumption targets can be met by optimized ICE in all segments > Fleet emissions are possible, but there is no clear indication yet > However, if fleet emissions apply, high xev penetration to be expected > CAFE emissions targets can be met by utilizing ICE improvements and some weight reduction technology > In relation to costs, OEMs also have no incentive to apply xev technologies on a large scale > However, ZEV mandate and the ability to earn credits will lead OEMs to build some PHEVs and EVs Pull > No TCO advantage for FHEV, PHEV, BEV powertrains > Light hybrids will become TCO neutral, but will enable additional functions > In larger cars, there will be customer willingness to pay for stronger hybrids > Only niche demand for BEVs > Almost no customer pull for xevs except for the luxury segment > Light and full hybrids would offer significant consumption advantages, but TCO advantage is limited due to low fuel cost > No willingness to pay for "green" image in luxury segment, innovativeness of xevs is an important purchase criterion for customers > No TCO advantage for xev powertrains due to low fuel costs > However, some customers are willing to pay for xevs for environmental image reasons Source: Roland Berger 6

7 A Powertrain electrification regional specifics In a conservative scenario, xevs only represent a minor share of total powertrain in WE, NA and China in 2020 Share of powertrain technologies in major markets in 2020 Western Europe EV: 0.4 m PHEV: 1.2 m North America EV: 0.3 m PHEV: 0.7 m 66% 31% 3% 2% 6% 1% 1% 2% 4% 1% 4% 6% 53% 21% 20.5 m 18.2 m Japan/Korea EV: 0.2 m PHEV: 0.7 m China EV: 0.3 m PHEV: 0.7 m 65% 23% 2% 6% 6% 15% 1% 1% 2% 2% 1% 70% 6% 0% 12.4 m 30.4 m > Technologies share estimates taking push and pull factors into account conservative scenario shown > Improved ICEs as dominating concept by 2020, with conventional start/stop more or less standard in WE and JP/KR electrification of powertrain at lower speed compared to historic forecasts > Introduction of 48V micro systems significantly gaining share by 2020 (particularly in Europe), outperforming traditional mild hybrid systems due to cost advantages > Hybridization expected to gain ground at regional differing speed > Full EV vehicles still remaining niche in 2020 (e.g. ~500k units manufactured in Europe in 2020) BEV PHEV Full hybrid Mild hybrid Micro (48V) Conventional start/stop ICE Source: Roland Berger 7

8 A Powertrain electrification regional specifics Europe EU Commission proposes weight-dependent OEM-specific CO 2 emissions target same CO 2 reductions are required in all segments OEM fleet CO 2 emissions target 2021, EU [g/km] CO 2 emissions [g/km] ,000 CO 2 target g + (m OEM - m Ø ) x ,100-27% 1,200 1,300 1,400 1,500 1,600 1,700 1,800-27% CO 2 target ) 95 g + (m OEM - m Ø ) x ,900 2,000 Ø fleet weight [kg] > 95 g CO 2 per km is the target for the 2021 EU new car fleet, indicative range 2025: g > Vehicle weight is the underlying utility parameter for OEM-specific targets the factor used is > Credits for low-emission vehicles (<50 g): Between 2016 and 2023 every car will be counted as 1.5 cars 2) > Eco innovations: As for the 2015 regulation, OEM can apply a maximum of 7 g/km credit for the use of innovative technologies which are not covered by the test cycle Will compensate higher CO 2 emissions in WLTC OEMs ) 1) EU Commission 2) Cap of 2.5 g per OEM and year 3) Average fleet weight Source: Roland Berger CO 2 Emission Market Model 8

9 A Powertrain electrification regional specifics Europe All OEMs need to reduce their CO 2 emissions by 25-30% until 2021 French manufacturer profit from high Diesel share of their fleet 1) 2) % % % % % % ) % % % % % % ) Incl. Mini, Rolls-Royce 2) Incl. Smart 3) Incl. Alfa Romeo, Lancia Source: Roland Berger CO 2 Emission Market Model 9

10 A Powertrain electrification regional specifics China By 2015, China is likely to tighten fuel economy standards caps can be met by advanced ICE technology in all curb weight classes China's fuel economy standard Permissible fuel consumption by curb weight class [l/100 km] I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI <0.75 <0.87 <0.98 <1.09 <1.21 <1.32 <1.43 <1.54 <1.66 <1.77 <1.88 <2.00 <2.11 <2.28 <2.51 >2.51 Curb weight [t] Today - Manual Manual Today - Automatic or SUV/MPV Automatic or SUV/MPV > Chinese fuel economy standards limit fuel consumption based on vehicle curb weight > Consumption caps are set for 16 weight classes in 2 categories: Vehicles with manual transmission Vehicles with automatic transmissions or SUVs/MPVs > Average fuel consumption is determined using NEDCs > Average fuel consumption is to be 7 l/100 km by 2015 Source: UNEP; Roland Berger 10

11 A Powertrain electrification regional specifics China The introduction of a fleet emissions metric on top could be another measure to trigger efficiency gains no decision made yet Potential China fleet emissions limits in comparison to EU limits CO 2 emission [g/km] g CO 2 /km 177 g CO 2 /km 2008 (stage 2): 8.0 l/100 km (184 g CO 2 /km) 140 g CO 2 /km % 130 g CO 2 /km 2015 (stage 3): 6.9 l/100 km (159 g CO 2 /km) 95 g CO 2 /km -19% 2020 (stage 4 forecast): 5.6 l/100 km (130 g CO 2 /km) -27% 2025 (stage 5 forecast): 4.1 l/100 km (95 g CO 2 /km) 75 g CO 2 /km > China could also introduce fleet emissions standard in addition to category caps > Though exact policy formulation and penalties to be imposed are still unclear, standard is likely to put international and luxury OEMs at a disadvantage > However, if a fleet emissions metric is introduced, strong xev growth is expected due to missing diesel technology Source: FAW; Interviews; Roland Berger 11

12 B Lightweight regional specifics The importance of weight reduction technologies varies widely in the different markets in China not relevant yet EU China USA Regulations > Importance of lightweight depends on weight-based CO 2 emissions regulations > Vehicle weight is the underlying utility parameter for OEM-specific targets the heavier a car is, the more CO 2 emissions it can produce > CO 2 emissions regulations are by no means related to vehicle's weight > Focus is only on electric drive > CAFE emissions and fuel consumption targets do not differentiate between the weight of vehicles > Therefore, the fleet consumption of a manufacturer is highly dependent on the weight of each individual model Implications > Weight reduction technologies will be applied as additional measurement to meet the CO 2 emissions regulation target, but with focus on larger/premium vehicles (lightweight design for volume models) > Weight reduction technologies do not play a major role in Chinese car industry > The concept is relatively new to OEMs and just seen as a future topic for R&D with lower priority than xev > Weight reduction technologies can be used in order to meet CAFE targets > Weight reduction technologies are especially relevant for SUVs and Trucks Source: Roland Berger 12

13 C IVI/connectivity general OEM directions IVI solutions with medium to high OEM involvement and medium to high sophistication provide highest opportunities for ESPs Overview of global IVI solution scenarios OEM IVI system development involvement 1) Low Medium High Level of IVI system sophistication High Medium Low 2 1 > Renault: R-Link > Chinese/Indian manufacturer > SEAT Media System (v2.2) > Peugeot Connect Navigation > Citroen: MyWay > Mitsubishi: MMCS > Alfa Romeo: Uconnect > Fiat: Blue&Me > MB: Drive Kit Plus MB > Chinese/Indian manufacturer > Skoda: Navigon PID > Volkswagen: Navigon PID > Daihatsu: Garmin satnav > DACIA: Touchscreen navigation system 4 3 > Ford/Lincoln: SYNC with MyFord Touch/MyLincoln Touch > Lexus: Enform > Cadillac: CUE incl. navigation > Ford: SYNC with MyFord > Kia: Kia UVO > Hyundai: Hyundai Bluelink > Toyota: Entune > Volkswagen: Medium navigation system > Chrysler Uconnect > Buick, GMC: Intellilink, plus navigation > Mercedes-Benz: Audio 20 (base for Becker MAP PILOT) > Volkswagen: RCD 510 (incl. mobile phone connectivity) > Ford: Sync without navigation 5 > Mercedes-Benz: Comand Online with media interface (all classes) > BMW: Connected Drive > Audi: MMI and MMI touch with connect > Volkswagen: High-end navigation system ESP-relevant scenarios Source: Roland Berger 1) Example OEM solutions 13

14 Opportunities for ESP can be found in all domains specialized know-how as necessity to benefit from automotive trends Impact for engineering service providers Powertrain Electrification Lightweight In-Vehicle Infotainment/ Connectivity > Increasing demand in powertrain-related engineering services, both conventional and (some) hybrid > With higher share of alternative propulsions and fuels (CNG, xev) also opportunities for related engineering services and component business (CNG tanks, battery packs, etc.). > Sometimes complete engines, but also complete application developments are outsourced > Demand for weight reduction technologies will increase, especially on the US and European market > Opportunities for engineering service provider can be divided into lightweight design and specialized material/process know how: Advanced lightweight design and CAE capabilities for sporty volume models Specialized material and process know-how for hybrid and composite body structures, relevant only for premium models > Demand for In-Vehicle Infotainment/Connectivity solutions will increase > Most outsourced development activities are around software; esp. HMI and integration relevant for ESPs > With integration of connectivity boxes trend towards consolidation of supply base ("critical size") Source: Roland Berger 14

15 B. The market of engineering services 15

16 The market of engineering services is growing by 5-6% CAGR until 2020 ESPs need to have a best-cost-country footprint Summary market of engineering services > The global automotive ESO market was estimated at approx. EUR 10.7 bn in overall growth has been slowing down > Global passenger and light commercial vehicle production is forecast to increase about 4% p.a. until 2020 > Global automotive R&D expenditures are forecast to grow at approx. 6.7% p.a. until 2020 outsourced share is expected to slightly decrease > The global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at approx. EUR 16.5 bn > Body/Interior will remain the largest domain for ESO, but with a CAGR of 7.2%, E/E market will grow to EUR ~4.5 bn by 2020 > ESPs need to clearly define their USP and have a best-cost-country footprint in order to stay competitive on the ESP market > Especially in Germany, OEMs need to ensure that they are able to outsource engineering services effectively and ensure compliance Source: Roland Berger 16

17 Historical ESO market development R&D expenses have been steadily increasing since 2009 top-10 OEMs with approx. 75% share R&D expenses automotive industry, [EUR bn] 1) Overall development Top-10 OEMs, CAGR % VW Group 6.9 Toyota 6.7 GM 5.6 Honda 4.6 Daimler 4.2 Ford 4.2 Nissan 4.0 BMW 4.0 PSA 2.0 Renault 1.1 Total Top ) Passenger Cars OEM supplier account for approx. add. 40% Source: Company data; interviews; Thomson Financials; Roland Berger 17

18 Historical ESO market development The automotive ESO market was estimated at approx. EUR 10.7 bn in overall growth has been slowing down Automotive ESO market by region, [EUR bn] CAGR % Europe 1) 2% > Overall ESO market size approx. EUR 10.7 bn in > Europe as the largest ESO market in the world > China with highest relative growth China 2) NAFTA 3) India RoW 18% 13% 9% 8% > Overall growth of ESO market is slowing down "We are currently trying to insource lost competences in certain technology fields" European premium OEM 1) Including Russia 2) Including HQ-developed models 3) Including GME, Ford Europe Source: Company data; interviews; IHS; Thomson Financials; Roland Berger 18

19 Market trends and drivers The automotive ESO market is influenced by several trends and market drivers General automotive ESO market drivers and impact on outsourced volume Trends and impact EU China Importance Interview insights 1 Number of models and body types The number of car models and body types is expected to remain high or to slightly increase, especially in China, which will increase the R&D demand Globalization of An increasing number of global engineering 2 OEM engineering locations and growing needs to adapt to activities local product requirements offer additional opportunities for ESPs, especially in China 3 Cost pressure of OEMs Cost pressure of OEMs is generally passed through to ESPs > Vehicle features and performance increases while share of customer spending decreases > Especially prices for expert-on-demand may face some pressure Engineering Shortage of engineering capacity in 4 capacities Germany is expected to further decrease "We have launched most new segment models and derivatives. Outsourced engineering services will therefore not further increase" German Premium OEM "If we source locally (e.g. in India), we will gradually transfer the respective engineering activities. Similar we will outsource some work locally" German Premium OEM High importance Low importance Positive impact Neutral impact Negative impact Source: Interviews; Roland Berger 19

20 Automotive production Global passenger and light commercial vehicle production is forecast to increase about 4% p.a. until 2020 Global production of PVs and LCVs by region, [m units] 3.9% Europe China NAFTA India CAGR % 3.0% 6.7% 1.7% 9.1% > Highest absolute growth is expected in China: Production in China is expected to grow from 19 m units in to 32 m units in 2020 > Highest relative growth is expected in India: Production in India is expected to grow at approx. 9.1% p.a. from > Overall growth rate is expected to be about 4% p.a. from to RoW 2.6% Source: IHS; Roland Berger 20

21 Market forecast Global automotive R&D expenditures are forecast to grow at c. 6.7% p.a. until 2020 outsourced share is expected to slightly decrease Global automotive R&D expenses, [EUR bn] Outsourced Captive OEM CAGR % 5.6% 7.0% > Higher R&D share in emerging markets and new technologies in alternative propulsion, lightweight construction and E/E are main drivers of increasing automotive R&D expenses > Own OEM engineering capacities for key competences and knowhow are expected to remain high > Share of ESO is expected to decrease until 2020 "Many OEMs are now focusing on core engineering competencies for their captive engineers again, thus the dynamics of ESP are likely to cool down over the next years, but still remain on a high level" European OEM Source: Company data; Interviews; IHS; Thomson Financials; Roland Berger 21

22 Market forecast The global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at approx. EUR 16.5 bn Automotive ESO market by region, [EUR bn] Europe 3.2 China NAFTA India RoW CAGR % 3.0% 11.9% 6.0% 7.3% 5.5% > Overall growth rate is expected to be about 5.5% p.a. from to 2020 > Highest absolute growth is expected in China: From EUR 1.3 bn in to EUR 3.2 bn in 2020 > Includes only "in-vehicle" development work "Whatever service cannot be covered in terms of contracts for work and labor anymore will be shifted to our engineering locations in China and India" European Premium OEM Note: Possible differences from rounding Source: Company data; interviews; IHS; Thomson Financials; Roland Berger 22

23 ESPs need to clearly define their USP and have a best-cost-country footprint in order to stay competitive on the ESP market Challenges for ESPs > For the ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China or India) in order to stay competitive in terms of their cost structure > Opportunities in low-cost countries are also driven by captive engineering centers increasingly being used to develop subsystems and derivates resulting in a lowering of the ESP market esp. in Europe > Project-based service contract will allow that more easily, but at the same time provide an opportunity for especially the large Indian players, who all try to enter the European market with massive efforts > It is therefore also very important for the ESPs to clearly define their USP based on specialized knowhow e.g. in the areas of powertrain or material know-how in terms of weight reduction technologies on the highly competitive market as competition, especially from low-cost countries, will increase Source: Roland Berger 23

24 Especially in Germany, OEMs need to ensure that they are able to outsource engineering effectively and ensure compliance Possible standard models for the outsourcing of engineering services illustrative 1 Outsourcing of clearly defined work packages in the V-model/process (e.g. HIL test) SD 1) SOP 2) SM 3) Department 2 Department 1 ECU derivative ECU 1 st model SD 1) SOP 2) SP 3) 3 Development of first vehicles/systems inhouse; outsourcing of variants/ derivatives 2 Outsourcing of series management 4) SD 1) SOP 2) SM 3) Trunk lift (electric) Body component 4 Outsourcing of all modules/ components of a certain type ("non-core competence") SD 1) SOP 2) SM 3) SD 1) SOP 2) SP 3) 1) SD: Series development 2) SOP: Start of production 3) SM: Series management 4) Engineering change management after SOP Work package for outsourcing Source: Roland Berger 24

25 C. Authors 25

26 Authors of the study Dr. Wolfgang Bernhart Dr. Stefan Gutberlet Partner Competence Center Automotive Senior Consultant Competence Center Automotive Experience > Global head of Automotive Practice Group Innovation > Over 17 years of consulting experience, especially in automotive industry > Extensive knowledge about automotive, e-mobility and new materials > Deep knowledge about energy material trends and new e-mobility markets > Expert on connected vehicles > Strong expertise in diagnostics > Over 6 years of consulting and industry experience, especially in automotive > In-depth automotive wholesale and retail experience > Several projects in mobility, telematics and connected vehicles > Experience in engineering services provider markets Source: Roland Berger 26

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