Innovation inflection point in the auto industry: suppliers must react

Munich, May 2023

Featured Insights

Innovation inflection point in the auto industry: suppliers must react

Munich, May 2023
T

here is a crisis developing in the automotive supplier industry, caused by too much change and too little innovation. Companies will need to pivot, restructure, and refocus to stay in business beyond the medium term.

In the transition to electromobility that is already underway, traditional automotive suppliers are among the businesses most at risk from disruptive change. With limited resources, they must engage with new technologies. They must prepare for some specialist component manufacturing to become vertically integrated in OEM operations. And they must cope with a new business model where much of the value in automotive manufacturing moves away from hardware to software.

All of these challenges demand proactive approaches to their relationships with capital markets, considered cost-reduction strategies, and a new emphasis on partnership for innovation.

Suppliers and the need for change

The automotive industry is experiencing a once-in-an-era transformation. Above all, the industry needs to electrify – but it must also respond to customer demand for new Vehicle-as-a-Service business models, set within a true circular economy. These forces of change demand new operational models at every level in the auto value chain.

For some companies, the threat is existential. Auto suppliers that fail to embed innovation in their business models – and to demonstrate this to capital markets and wider stakeholders in the automotive ecosystem – will run out of customers and run out of money long before the automobility revolution is complete.

Many automotive companies have been surprised not only at the depth of change brought about by the pivot to connected, autonomous, shared and electrified mobility, but also by its speed. In addition to the widely forecast increase in demand for sustainable mobility, government requirements – and in some cases possible outright sales bans – are forcing automakers to adopt electric-vehicle technology much faster than they were anticipating only a few years ago.

Consider the fact that in 2022, sales of electric vehicles rose 60% year-on-year. The majority of those sales were in China, the world’s largest EV market, but sales in Europe and the US are set to grow fast. We forecast that sales in the US will rise tenfold between 2021 and 2030 to 6.3 million units a year, and the US will be the fastest-growing EV market in the world, with 34% growth to 2030, compared with 33% in Europe and 22% in China.

It is unlikely that the EU’s proposed exemption of e-fueled vehicles from the 2035 phaseout of combustion-engine cars will significantly impact investment in electric vehicle components; most auto suppliers are already committed to transitioning their product portfolios to electric technologies. This became more than clear at this year’s AUTO Shanghai recently held in China.

However, the growth in electromobility masks the fact that in the shorter term both OEMs and supplier companies remain heavily dependent on conventional internal-combustion technology for revenues. In 2022, just over 81 million road vehicles were manufactured, of which 8.7 million were pure EVs and 13.08 million were hybrids.

This leaves small and medium-sized supplier companies with an acute challenge. Unlike large OEMs or large suppliers, they are typically highly specialized, and lack a broad span of technology competence. They cannot afford to make multiple technology bets as they prepare for a future in which many of the critical components of today’s vehicles will no longer be required. An expected fall in global sales volumes in the short term – as the chart below shows, vehicle production forecasts for 2023 have recently dropped by around 6.6 million units – only make it harder still for small and medium suppliers to plan and finance their transition.

Figure 1: Outlook changes for global automotive production

Source: Berylls Strategy Advisors, IHS, Data status forecast 11/2021 & 11/2022

Lessons from innovation leaders

Small and medium-sized automotive suppliers face an innovation and financing crisis.

Large automotive suppliers are innovative companies in their own right, but the rate of innovation falls markedly for smaller companies. Using Berylls’ capital markets analysis and data from Berylls’ WCAR ETF and our Top 100 supplier study, we have characterized the supplier innovation rate by company type and size, to show the extent of the auto supplier challenge.  (For more information on Berylls capital markets intelligence, please visit AUTOMOBILITY INDEX).

We compared the top 10 and bottom 10 automotive suppliers to gauge both the intensity and the direction of innovation in the supplier industry. Perhaps unsurprisingly the top 10 automotive suppliers are also the most prolific creators of intellectual property, with an average of 2,600 published patent filings compared with an average of only 400 for the bottom 10 suppliers. The top 10 suppliers also spend nine times as much as the bottom 10 suppliers on R&D (spending $3.5bn on average over the last 18 months, versus an average of $400 million for the bottom 10 suppliers).

Perhaps more significant is the actual direction of supplier innovation: the largest suppliers are markedly more likely to pursue innovation related to automobility transformation. For both groups of suppliers, around 30% of innovation activity is related to conventional automotive technology including engines, powertrains and car bodies. For the top 10 suppliers another 50% or more of patent filings relate to new mobility areas of development defined as connected, autonomous, shared, and electric, but for the bottom 10 companies fewer than 10% relate to these emerging technologies (see graphic below). It appears that smaller automotive suppliers remain wedded to the technologies they are familiar with, while large suppliers are much more likely to invest in the future.

Figure 2: Key IP metrics for top 10 and bottom 10 of Top 100 suppliers

PATENT COUNT IN CONVENTIONAL AND CASE AREAS FOR AUTOMOTIVE SUPPLIERS

Source: 1) Data from CY2021 2) Estimated values based on patient filings data

There are also sharp differences between supplier companies in terms of the range of their innovation initiatives. Larger companies typically innovate broadly across both conventional and emerging technologies, filing new patents on issues ranging from software to electronics, alternative engine technologies, EV technologies and combustion-engine improvements. Such broad innovation strategies help companies to keep their strategic options open, but they are also expensive.

Finding the right niche

However, some companies prefer to concentrate innovation in chosen areas of specialization. Some like CATL are pursuing innovation in battery technologies first, with electric drivetrains as a subsidiary area of focus. Others like Aptiv, Tokai Rika and Valeo are concentrating on software innovations in driver assistance and automated driving.

A third category of supplier businesses is the category most at risk: these are the companies that are neither innovating on a broad front nor specializing in new mobility technologies. Many of these companies have a history of manufacturing mechanical components, but little experience of digital technology or software. These are the businesses that need to find a strategic pathway to survive in the electromobility era.

In particular, these small and medium suppliers need to identify a niche that will not be consumed by OEMs responding to the relative simplicity of the EV product by integrating a larger proportion of the automotive value chain in their in-house operations (companies such as China’s BYD have demonstrated the commercial power of this model). They also need to avoid the trap of strategic overcrowding, where many companies decide to specialize in the same product area.

Furthermore, they need to finance their transition to the world of software-defined electromobility and still maintain their capital market credibility. Whatever the path to adequate financing (e.g., ESG-linked investment propositions), smaller suppliers will find the cost and complexity of funding exceptional innovation needs will add yet another layer of complexity to the challenge of transition to the electromobility era.

For suppliers, it is change or die

It is clear that SME auto suppliers must find a strategic path that de-risks the automobility revolution for their businesses. They need to identify new products and markets that fit with their existing capabilities or their capacity for adding new capabilities, and they must make a critical assessment of how far and how long existing technologies and product lines will be financially viable in the transition to new EV and autonomous driving technologies.

This will require a clear vision of what both the company and its portfolio must become to be compelling for investors. The transition has many dimensions:

  • The smaller the supplier, the greater the importance of differentiation and speed of innovation.
  • SME suppliers should seek to occupy niches where low complexity can be leveraged for speed and technological leadership.
  • Maximum commercial transparency on internal processes and margins will be necessary to attract investor support.
  • Cost savings in conventional business lines through Industry 4.0 solutions, efficient purchasing and footprint redesign will be needed to offset the expected extended period of negative return on new technologies.
  • Strategic acquisitions, merger consolidations and partnerships with software specialists and centers of research excellence will be vital.
  • Heightened risk management is called for as software-defined technology programs and launches have a higher potential for failure.

How Berylls can help

Berylls has extensive real-world experience in helping companies understand and master the transition to electric, shared and more autonomous vehicles. We can support companies in strategy formation and execution, in operations including R&D efficiency, purchasing and production excellence, and in financial optimization. Reach out to us!

Authors
Christian Grimmelt

Partner

Felix Scheb

Project Manager

Eren Duygun

Senior Consultant

Christian Grimmelt

Christian Grimmelt has been an integral member of the Berylls by AlixPartners (formerly Berylls Strategy Advisors) team since February 2021. Previously, he gained extensive professional experience in top management consultancies and in the automotive supplier industry.

During his time at the world’s largest automotive supplier, he drove the establishment of a central unit to optimize the company’s global logistics and production network.

Christian Grimmelt’s consulting focus is logistics and production network optimization, purchasing and (digital) operations including launch and turnaround management for OEMs and especially suppliers.

Christian Grimmelt holds a university diploma in industrial engineering from the Karlsruhe Institute of Technology.

What ChatGPT can do for automotive operations

Munich, May 2023

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What ChatGPT can do for automotive operations

Munich, May 2023
T

he AI tool everyone is talking about can code websites, write articles and pass exams. But what does the technology offer to the operations teams of automotive OEMs and suppliers?

“ChatGPT is a large language model developed by OpenAI, capable of generating human-like responses to natural language input. It is trained on a vast amount of data and can be used for a variety of applications, such as chatbots, language translation, and text completion.”​

This is how ChatGPT describes itself when you ask the artificial intelligence (AI) chatbot “what is ChatGPT?” It’s pretty accurate – although the description covers only a limited part of the tool’s range of uses. It is also out of date – it doesn’t mention, for example, that the latest version, which uses the GPT-4 language-processing model, can also extract information from images to produce answers.

Without a doubt, ChatGPT exemplifies the potential that AI has to revolutionize the way we live and work. But what specifically does this type of generative AI has to offer the operations teams of automotive OEMs?

Our view is that there are at least two big advantages: firstly, the language model can be trained with huge amounts of information, identify trends invisible to the human eye, and can “interpret“ the results, to make recommendations or draw conclusions on its own.

Secondly, it has an easy-to-use interface because it deals with natural language. ​It can therefore be used by engineers and operations specialists with no background in AI to make informed decisions in real-time. In addition, the ability of newer versions to analyze information in the form of images as well as text, offers limitless potential in automotive operations.

In this article we will look at six potential Operations use cases for generative AI tools. However, it is also important to sound a note of caution about the risks posed by using machine learning algorithms. Like all forms of artificial intelligence, the quality of the information provided, or decisions made, relies on the quality of the data it is trained on. And even if every single piece of training data is correct, the AI could still come to the wrong conclusions because of the way it combines them. Currently ChatGPT, for example, does not highlight different levels of assurance in the results it delivers.

Complex production issues will therefore still require human expertise and intuition. Knowing the cases in which such human expertise is required is unfortunately not easy, as it needs precisely the subject matter expertise that a user of ChatGPT may not have.

Another disadvantage is the potential security risk – we would not recommend integrating sensitive product and production data with generative AI on a public cloud service.

As a result, OEMs and suppliers must ensure that employees are aware of the risks involved in leveraging the technology, and have the appropriate data classifications, security measures and usage rules in place to protect confidential information.

However, we assume that technical solutions will become available to address these challenges, and so it makes sense for operations teams to start looking at potential use cases now. We have identified seven areas of operations where generative AI could offer significant benefits:

 

1. Concept phase: how can we learn more about what the customer thinks?

OEMs spend millions learning about how customers perceive a car and its features. In the development stage, potential customers are brought in to carry out interior design reviews and test drives. Nevertheless, errors often seem to fall through the cracks. Think of the mockery German car manufacturers had to endure when they first introduced cupholders in their cars for the US market: they were much too small and the wrong shape for customers there.

A generative AI tool could be used to assess large volumes of customer test drive and review responses, spoken or texted directly into an app. A very accurate survey of customer sentiment could be generated based on this. A developer could then feed their latest drawings into the software and ask the generative AI whether the design would be appreciated by customers, based on its assessment of the responses.

2. Requirements engineering: can generative AI streamline supplier interactions?

When OEMs buy parts from suppliers, they start by transferring a list of requirements. In practice, the requirements are often taken from the previous version of the module or system, and adapted for the new order. This means that in most cases, that number of requirements increases from one generation of cars to the next, as engineers add more requirements but rarely delete any of the old ones.

The sheer number of requirements, and the limited relevance of some of the older ones, leads to situations where suppliers don’t actually read and understand the full list before they start developing a product. For a part such as a battery inverter, a generative AI application could be used to crosscheck which requirements actually apply to the specifications for the new version, and to highlight the legacy items which can be cut. Both OEMs and suppliers would benefit from more precise requirements and more focus in the development stage.

3. Quality improvement: how can we really access lessons learned?

All automotive OEMs and most suppliers have databases in which they document faults and problems over the lifecycle of a product, as well as the measures taken to solve those issues.

These databases contain tens of thousands of line items, with lessons learned from many engineering projects. However, this valuable knowledge is buried in not very user-friendly programs and cumbersome to use. The result is that during both the development phase and series production, engineers often don’t have the right information to hand, despite the fact it is held by the OEM. This leads to avoidable design faults, and fault resolution during series production takes longer than necessary.

Generative AI applications could be a user-friendly interface between the engineer and those vast databases. It would be hugely valuable for OEMs if AI could quickly find the “right“ lessons learned and provide them to the engineer. However, this is a prime example of a task where keeping a “human in the loop” is essential, to make sure the right questions are being asked and that the results coming back are addressing the specific quality issue. 

4. Maintenance: how can automation reduce stock levels and speed up repairs?

Generative AI can compare the specifications of parts against existing in-stock parts or search for alternative spares, to prevent downtime in out-of-stock situations or find cheaper solutions. In addition, AI could be used to quickly analyze maintenance and past damage reports to identify the most frequently ordered spares that need to be in stock at all times.

When it comes to repairs, we see a number of ways that such an AI tool could be useful. Its language processing capability could be used to filter through past damage reports, manuals, and the history of a part to quickly find the right solution for replacing and maintaining it on the shop floor, as well as in the factory.

One of the main potential uses for ChatGPT specifically is as a chatbot, and it could be used for troubleshooting during a repair, comparing the machine manual to damage reports and documented repair procedures, to identify promising solutions and minimize downtime. In the near future, AI chatbots might also be capable of providing first and second level support for customer and service personnel during a repair.

5. OEE: how can generative AI increase factory productivity and profitability?

AI could be used to analyze shift handbooks, maintenance logs and quality reports and link the information to certain events, such as shut downs, quality problems and setup-times. By working in combination with a data analytics solution that identifies patterns in process parameters, a generative AI tool could identify and suggest optimal set-ups and schedule preventive maintenance to prevent potential equipment failures.

Armed with this information, production managers can make more informed decisions and take corrective actions to improve OEE, and increase factory productivity and profitability as a result.

6. Supply chain: where can AI cut the burden of paperwork?

Generative AI could be used in supply chain operations to analyze and interpret the complex legal texts linked to deliveries, including tariff laws and regulations from different countries. These are subject to frequent changes that can be challenging for supply chain managers to keep up with. By processing vast amounts of legal data quickly, generative AI can identify the relevant new changes in legislation and provide actionable insights.

The AI could also be trained to identify opportunities for companies to leverage differences in tariff laws and regulations from country to country, in order to reduce tax costs and speed up the operation of their supply chain. Both examples will help supply chain managers to design more efficient and cost-effective networks.

7. On the road: how can generative AI lead to significantly higher customer satisfaction?

Despite all the automotive industry’s quality management processes, there are still occasionally problems with cars once they are on the road. We have written in the past about the potential for OEMs to make better use of field data to catch and address such issues early, and with the advances in AI, potential solutions to help them do so have moved closer. Today, a customer with a problem while driving phones the OEM’s call center. But with a chatbot powered by generative AI, instead of working through the possible reasons for failure together on the phone, the customer support worker could ask the chatbot what the most likely problem was, feeding in the customer’s report of the fault and the car’s over-the-air-failure codes.

One of the next steps in connected vehicle development is likely to be to integrate AI functionality into the car itself so the driver can ask for help directly via voice commands. For example: Driver: “Why is the rear camera not working?” Car: “The camera is not working because the trunk is open.“

As automotive operations experts, we are thrilled to consider these possibilities and to work with clients to assess the questions and bring solutions to life. Yet undoubtedly, the impact of using generative AI tools in automotive operations extends beyond the factory floor and into society as a whole. As with all technologies, vast language processing capabilities can be abused as well as used for their intended purpose.

Concerns about data privacy and security remain, and as the technology becomes mainstream, it is almost certain to replace jobs. Developers, quality engineers, production planners and maintenance workers – every role that is dependent on experience and gathering knowledge to find new solutions could be at risk. ​However, while the AI remains generative – fed with data in order to produce outputs and make decisions, rather than having original thoughts – there will be still be a need for human experience and expertise alongside.

And what will the future bring ? Generative AI is here to stay. That is certain for us. It’s hard to predict what specific applications will emerge from the new tools that appear almost daily. They will significantly transform life on the shopfloor and development departments. The efficiency of indirect processes will increase drastically. Ultimately, vehicles and production processes will be completely developed by AI. And probably more flawlessly than by humans. We will stay tuned.

Authors
Heiko Weber

Partner

Fritz Metzger

Partner

Christian Grimmelt

Partner

Timo Kronen

Partner

Philipp Stütz

Associate Partner

Bolko von Hochberg

Consultant

Heiko Weber

Heiko Weber (1972), Partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors), is an automotive expert in operations.

He started his career at the former DaimlerChrysler AG, where he worked for seven years and was most recently responsible for quality assurance and production of an engine line. Since moving to Management Engineers in 2006, he has been contributing his experience and expertise to projects for automotive manufacturers as well as suppliers in development, purchasing, production and supply chain. Heiko Weber has extensive experience in the development of functional strategies in these areas and also possesses the operational management expertise to promptly catch critical situations in the supply chain through task force operations or to prevent them from occurring in the first place.

As a partner of Management Engineers, he accompanied the firm’s integration first into Booz & Co. and later into PwC Strategy&, where he was most recently responsible for the European automotive business until 2020.

Weber holds a degree in industrial engineering from the Technical University of Berlin and completed semesters abroad at Dublin City University in Marketing and Languages.

Fritz Metzger

Fritz Metzger (1986) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry, in February 2021. He is an expert on automotive operations.

Since 2011, his focus has been on strategic alignment and operational efficiency improvement of automotive manufacturers and suppliers. He also advises top management in critical situations, including R&D and industrialization task forces and relocation and restructuring initiatives of plants and complete suppliers. The challenges of e-mobility are always in focus.

Before joining Berylls, he was a director at international strategy consultants PwC Strategy&, as well as a sales and project manager at a medium-sized supplier and mechanical engineering company.

Fritz Metzger is a trained industrial engineer with a degree from ESB Business School Reutlingen. He also holds an MBA from the University of Salzburg.

Christian Grimmelt

Christian Grimmelt has been an integral member of the Berylls by AlixPartners (formerly Berylls Strategy Advisors) team since February 2021. Previously, he gained extensive professional experience in top management consultancies and in the automotive supplier industry.

During his time at the world’s largest automotive supplier, he drove the establishment of a central unit to optimize the company’s global logistics and production network.

Christian Grimmelt’s consulting focus is logistics and production network optimization, purchasing and (digital) operations including launch and turnaround management for OEMs and especially suppliers.

Christian Grimmelt holds a university diploma in industrial engineering from the Karlsruhe Institute of Technology.

Timo Kronen

Timo Kronen (1979) is partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors) with focus on operations. He brings 19 years of industry and consulting experience in the automotive industry. His focus is on production, development and purchasing as well as supplier management. Some of his recent projects include:
• Restructuring of the Procurement Function (German Sports Car OEM)
• Supplier Task Force for a HV battery cell (German Premium OEM)
• Strategy Development for the Component Production (German Premium OEM)
Before joining Berylls, Timo Kronen worked at PwC Strategy&, Porsche Consulting Group and Dr. Ing. h.c. F. Porsche AG. He holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT).

Philipp M. Stütz

Philipp M. Stuetz (1981) joined Berylls at the beginning of 2021. He has over fifteen years of experience in the automotive industry. Thereof he spent seven years at an international automotive supplier with assignments in Spain, the USA and Mexico and over eight years in consulting. His focus is in operations excellence, especially in large transformation programs, process optimizations and efficiency improvements in administrative functions and indirect operations areas. He counts suppliers and OEMs to his clients alike.

Philipp M. Stuetz graduated in business administration from the universities of Stuttgart and Strasbourg.

Time to recalibrate: The balance of power has changed in the automotive value chain

Munich, May 2023

Featured Insights

Time to recalibrate: The balance of power has changed in the automotive value chain

Munich, May 2023
F

uture-ready OEMs know that suppliers are in control of the technologies they need, and true collaboration is the only way to manage risk and drive innovation.  

The transformation of the automotive industry from the internal combustion engine to electric, connected and more autonomous vehicles is a huge technical challenge. That is undeniable. But focusing only on the new manufacturing techniques that need to be mastered overlooks a broader issue:
we are witnessing a tremendous shift in the balance of power in the industry; from OEMs to suppliers, from western regions to Asia, from hardware to software.

The logic of the way the auto industry has organized itself for decades no longer works.
 
As the chart below (Figure 1) shows, traditionally OEMs have kept the manufacturing of components that are of high strategic and customer value in-house. Those included the ICE powertrain. However, for the new high-value technologies such as batteries for electric vehicles and autonomous driving systems, the old model has broken down. Massive investments are necessary and are already being made to counteract this development.

Figure 1: Where value is created: old vs. new

VALUE GENERATION

In a traditional setup the OEM produced the parts of high strategic values for their customers inhouse. In the last years this changed dramatically. Immense efforts are necessary to regain power over key-characteristics of the product

Curious? Download the full article now!

Berylls Insight
Time to recalibrate: The balance of power has changed in the automotive value chain
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Authors
Heiko Weber

Partner

Christian Grimmelt

Partner

Fritz Metzger

Partner

Timo Kronen

Partner

Dr. Alexander Timmer

Partner

Hendryk Pausch

Associate Partner

Dr. Christina Granitz

Project Manager

Heiko Weber

Heiko Weber (1972), Partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors), is an automotive expert in operations.

He started his career at the former DaimlerChrysler AG, where he worked for seven years and was most recently responsible for quality assurance and production of an engine line. Since moving to Management Engineers in 2006, he has been contributing his experience and expertise to projects for automotive manufacturers as well as suppliers in development, purchasing, production and supply chain. Heiko Weber has extensive experience in the development of functional strategies in these areas and also possesses the operational management expertise to promptly catch critical situations in the supply chain through task force operations or to prevent them from occurring in the first place.

As a partner of Management Engineers, he accompanied the firm’s integration first into Booz & Co. and later into PwC Strategy&, where he was most recently responsible for the European automotive business until 2020.

Weber holds a degree in industrial engineering from the Technical University of Berlin and completed semesters abroad at Dublin City University in Marketing and Languages.

Christian Grimmelt

Christian Grimmelt has been an integral member of the Berylls by AlixPartners (formerly Berylls Strategy Advisors) team since February 2021. Previously, he gained extensive professional experience in top management consultancies and in the automotive supplier industry.

During his time at the world’s largest automotive supplier, he drove the establishment of a central unit to optimize the company’s global logistics and production network.

Christian Grimmelt’s consulting focus is logistics and production network optimization, purchasing and (digital) operations including launch and turnaround management for OEMs and especially suppliers.

Christian Grimmelt holds a university diploma in industrial engineering from the Karlsruhe Institute of Technology.

Fritz Metzger

Fritz Metzger (1986) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry, in February 2021. He is an expert on automotive operations.

Since 2011, his focus has been on strategic alignment and operational efficiency improvement of automotive manufacturers and suppliers. He also advises top management in critical situations, including R&D and industrialization task forces and relocation and restructuring initiatives of plants and complete suppliers. The challenges of e-mobility are always in focus.

Before joining Berylls, he was a director at international strategy consultants PwC Strategy&, as well as a sales and project manager at a medium-sized supplier and mechanical engineering company.

Fritz Metzger is a trained industrial engineer with a degree from ESB Business School Reutlingen. He also holds an MBA from the University of Salzburg.

Timo Kronen

Timo Kronen (1979) is partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors) with focus on operations. He brings 19 years of industry and consulting experience in the automotive industry. His focus is on production, development and purchasing as well as supplier management. Some of his recent projects include:
• Restructuring of the Procurement Function (German Sports Car OEM)
• Supplier Task Force for a HV battery cell (German Premium OEM)
• Strategy Development for the Component Production (German Premium OEM)
Before joining Berylls, Timo Kronen worked at PwC Strategy&, Porsche Consulting Group and Dr. Ing. h.c. F. Porsche AG. He holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT).

Dr. Alexander Timmer

Dr. Alexander Timmer (1981) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry, as a partner in May 2021. He is an expert in market entry and growth strategies, M&A and can look back on many years of experience in the operations environment. Dr. Alexander Timmer has been advising automotive manufacturers and suppliers in a global context since 2012. He has in-depth expert knowledge in the areas of portfolio planning, development and production. His other areas of expertise include digitalization and the complex of topics surrounding electromobility.
Prior to joining Berylls Strategy Advisors, he worked for Booz & Company and PwC Strategy&, among others, as a member of the management team in North America, Asia and Europe.
After studying mechanical engineering at RWTH Aachen University and Chalmers University in Gothenburg, he earned his doctorate in manufacturing technologies at the Machine Tool Laboratory of RWTH Aachen University.

Electric vehicles in the US: Another gold rush for everyone?

Detroit, April 2023

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Electric vehicles in the US: Another gold rush for everyone?

Detroit, April 2023
F

rom today’s 6% EV market share to the single biggest EV opportunity after China. More than 30 million EVs sold cumulatively in the US by 2030. Higher growth rate than any other geography. In this second part of the EV study, we shed light on whether US EV actually constitutes a ‘gold rush’ opportunity for everyone. 

The race is on: Competition in the US EV market is quickly intensifying, but can anyone still unseat Tesla? 

NET PROFIT/ LOSS MARGIN

(2018-2022, %)

1) VW earnings through Q3, 2022
Source: Tesla, Volkswagen AG, Ford, Berylls

Judging by today’s metrics, Tesla is well positioned to take advantage of the US’ EV growth potential. Tesla currently has a 63% share of the EV market including EV SUVs and displays superior profitability – the second biggest player (Ford) has a 6% share1. Tesla’s profit margin over the past 5 years has increased significantly, and now exceeds Ford’s and VW Groups’. This can be attributed to the growing economies of scale, new manufacturing technology (e.g., use of large castings), and smart insourcing of selected supply chain elements (e.g., battery manufacturing)15. Most importantly these margins now provide Tesla with breathing room for tactical price movements (e.g., see Tesla’s movements in China16). 

With the shared mission of unseating Tesla, OEMs are tripling the total number of EV models by 2025 and the number of OEMs offering EVs is set to double by 2030. The ICE leaders GM, Ford, Stellantis are also expected to grow massively in EVs. Volkswagen has bet the farm on them. And even EV-laggard Toyota is expected to play a key role with a projected EV market share in the 10 to 15% range. For all these contestants navigation of the specific needs of the US EV customer and geographical landscape is key to enhance EV profitability and unseat Tesla as the US EV leader.1 

Clinging to California is not enough: Do the easy part first

California is the market model: More EVs sold than in any other state, 34% of all 2022 US EV sales1,17, second highest charging point density of 128 points per 100,000 licensed drivers and the first state to introduce clean vehicle legislation in 1990. California’s success in the EV game can be attributed to early and continuous adoption of EV-forward policies and regulations18, public and private purchase incentives, and a vast charging infrastructure. To scale EV, manufacturers need to identify regions that follow the Californian model in optimizing the subsidy, infrastructure, and policy triangle. 

OEMs should focus on areas where the triangle is complete, which is rarely found at the state level so OEMs ought to go deeper to a regional level. When applying the triangle principle, OEMs should assess population density as it skews the charge point per population metrics. For example, the state of Washington has a small number of public chargers per licensed driver and limited state subsidies, but a high EV penetration rate, primarily due to a high density of chargers around Seattle and limited infrastructure throughout the rest of the state. The state of Colorado has higher number of chargers per licensed driver and more subsidies than Washington, but significantly lower EV market share, due to a smaller number of residents throughout the state and more dispersed pockets of EV infrastructure. In addition, city-level incentives like charging infrastructure subsidies and access to parking discounts (e.g., Sacramento)19 play a role at the municipality level. OEMs should also weigh the consumer demographic and psychographic differences within regions. For example, Chicagoland (Cook County plus surrounding counties) residents live in more densely populated areas and, on average, have a higher income than downstate Illinois20. OEM’s segmentation of target markets needs to go deeper than state level to reflect local particularities in population make-up and public support. 

EV PENETRATION AND NUMBER OF PUBLIC CHARGERS

(2021, by state)

Source: Alliance for Automotive Innovation, WLRN, Berylls 

Made in America: The Inflation Reduction Act will further amplify the local-for-local US EV market. 

Looking beyond cities and regions, both the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) will have a profound effect on the EV landscape nationwide with over $100bn in total investment – nearly 30x more than government investment to date21. While the BIL will significantly boost nationwide EV infrastructure and grid upgrades, the IRA has more direct implications for OEMs and consumers. With the IRA, OEMs have access to both consumer and production-related incentives, which are conditional on their supply chain and production setup as well as pricing policy. For consumer tax credits, incentive eligibility is conditional on vehicle price, battery mineral sourcing, and battery production and vehicle assembly location. For production incentives22, eligibility is based on production profile for each individual project (e.g., for the Advanced Manufacturing Production Credit, eligibility hinges on production of battery cells or modules with a capacity-to-power ratio not to exceed 100:1)23. 

IRA CONDITIONS

(by affected value chain element)

1) Lithium iron phosphate batteries; an alternative battery chemistry option for customers to in addition to Ford’s existing nickel cobalt manganese (NCM) battery option
Source: The Inflation Reduction Act of 2022, US Department of Energy, Reuters, Alliance for Automotive Innovation, Ford, Berylls

The IRA has an impact on the automotive landscape on the macro and micro level. At the micro level, players will need to make a choice whether to increasingly focus on the US market to access funding (e.g., Hyundai has announced acceleration of EV plant construction in Georgia and reconfigured its battery supply chain). At the macro level, other countries (especially the EU) will need to compete with the US to attract local production (e.g., Tesla scaled down plans for Berlin production in favor of the US because of IRA incentives24; VW announced the ramp-up of a battery plant in Canada)25. The IRA is expected to necessitate stronger local and regional presence and OEMs will need to reevaluate their global production value chain. 

Network of networks: New players in the US EV market need a strong [dealer] partner in the US to survive. 

The US automotive market is dealer-dominated. Franchise law protects dealer access to the market. Although Tesla has managed to implement its direct sales model in some states, realization of direct sales will continue to be contested (see e.g., Tesla v. the State of Louisiana), more cumbersome for new entrants (e.g., entry needed to happen before 2015 in Georgia) and allow a ‘patchwork footprint’ at best. Direct sales regulation will also continue to evolve – with the regulation of EV infrastructure and connected services sales still to be defined. 

Considering customers’ education and perception gap, the complexity of the regional US landscape and the vast (aftersales) footprint to be serviced, OEMs need to closely examine the tradeoff between going fully direct and being able to depend on a strong (dealer) partner to really cover a market and bridge the gap to the customer.

FRANCHISE LAWS

(2021, extent to which direct sales are permitted in the respective state)

Source: National Conference of State Legislatures, Berylls

So what? Now what?

The question for OEMs, suppliers, dealers and other automobility players is one of how not if to participate in the US EV market. The US will become the second biggest single EV market by 2030 and will be growing faster than any other region. The specific demands of US customers (e.g., emphasis on fuel economy, residual value, TCO) will necessitate a US-centric (SUV) product strategy, which goes beyond derivatives of Europe/Asia-focused platforms.

New entrants and niche manufacturers face the additional complexity of having to realize sufficient volumes of such local products for scale economies, while keeping the costs of ramping-up the supporting sales/after-sales footprint to a minimum. The price sensitivity of US customers coupled with the superior profitability of the current market leader Tesla and stringent localization requirements for securing IRA subsidies will make demystifying the IRA and the configuration of EV value chains a key success factor. The heterogenous regional policy, infrastructure and customer regional US landscape favor the cooperation with a strong local partner. The Inflation Reduction Act is the United States’ holistic answer to other nations’ industrial policy. Succeeding in the US EV market beyond its niche existence will necessitate similarly holistic strategies of new and incumbent players alike.

Source: Berylls

You missed the first part of the blog article? Click here to read part 1.

Sources:

1 Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022.

15 Lienert, P., & White, J. (2023, January 19). Analysis: Tesla uses its profits as a weapon in an EV price war. Reuters.

16 Reuters. (2023, February 16). Tesla raises prices of some Model Y versions in China. Reuters. 

17 Sales figure from Source 1, State sales share from: Alliance for Automotive Innovation. (2022, December 21). Electric Vehicle Sales Dashboard. Retrieved from Alliance for Automotive Innovation: https://www.autosinnovate.org/resources/electric-vehicle-sales-dashboard.

18 1990 Low Vehicle Emissions regulation to 2022 Advanced Clean Cars regulation 

19 City of Sacramento. (n.d.). Electric Vehicle Parking. Retrieved from City of Sacramento: https://www.cityofsacramento.org/Public-Works/Parking-Services/Discount-Programs/Electric-Vehicle 

20 Chicago Metropolitan Agency for Planning. (2022). Cook County Community Data Snapshot. Retrieved from https://www.cmap.illinois.gov/documents/10180/102881/Cook%2B-%2BALL.pdf/02b2d251-63e3-bcec-fe0f-4788f681d4af?t=1659382994909 

21 Burget, S. (2022, September 2). EV eligible funding in IIJA and IRA represents nearly 30 times the total EV funding awarded by U.S. government to date. Atlas Public Policy EV Hub. 

22 E.g., Advanced Manufacturing Production tax credit, Advanced Energy Project Credit, Advanced Technology Vehicle Manufacturing DOE loans, and Domestic Manufacturing Conversion Grants 

23 Bloomberg Tax. (2022). Sec. 45X. Advanced Manufacturing Production Credit. Internal Revenue Code.  

24 Reuters, Automotive News. (2023, February 21). Tesla scales back German battery plans, won over by U.S. incentives. Retrieved from Automotive News: https://www.autonews.com/automakers-suppliers/tesla-scales-back-german-battery-plant.

25 Schwartz, J., & Waldersee, V. (2023, March 13). Volkswagen picks Canada for first battery cell plant outside Europe. Retrieved from Reuters: https://www.reuters.com/business/autos-transportation/volkswagen-build-first-north-american-battery-cell-plant-canada-2023-03-13/.

Authors
Andreas Radics

Executive Partner

Arthur Kipferler

Partner

Martin French

Managing Director US

Henning Ludes

Associate Partner

Cameron Gormley

Senior Consultant

Samuel Schramm

Research

Henning Ludes

Henning joined Berylls in 2018, is an Associate Partner at the Berylls Group and is currently completing a regional assignment in Detroit to further expand our local footprint. Henning particularly focuses on topics at the interface of new business development, go-to-market strategies, sales as well as organizational transformation. He has advised automotive manufacturers, suppliers and investors on a global scale.

As an MSc. Management graduate, Henning has completed his education at WHU – Otto Beisheim School of Management (Germany), Kellogg School of Management, Northwestern University (United States) and Warwick Business School (United Kingdom).

Cameron Gormley

Cameron Gormley joined Berylls Strategy Advisors US in July 2022 as a Senior Consultant. Cameron has deep knowledge of the US electric vehicle (EV) infrastructure, policy, and regulatory landscape and its role as a key driver of EV penetration.  He advises clients on topics of electrification strategy and business model development across all vehicle segments. Other areas of expertise include market analysis, go-to-market strategy, strategic planning, customer strategy, and PMO.

Cameron received a Bachelor of Science in Mechanical Engineering at Western New England University (2015) and holds a Project Management Professional (PMP) certification (2021).

Martin French

Martin French has over 25 years of experience in automotive OEM, Tier 1 suppliers & mobility startups with various high-profile international leadership, product development, operational, program management, strategic & business development roles. In 2012, after holding various senior management positions, he was appointed Global Vice President Customer Group at Webasto where he led the global business transformation for their US based customers with over $1bn in revenue.
Martin joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) as Managing Director in 2019 and leads the Berylls office in Metro Detroit, USA. His consulting focus is Automotive Suppliers & OEMs, Corporate Strategy & Business models, M&A, Restructuring & New Business Development & Go to Market.
Martin studied Production & Mechanical Engineering at Oxford Brookes University. He has lived in Michigan, USA, since 2012.

Global Truck Players: FY 2022 Review

Munich, April 2023

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Global Truck Players: FY 2022 Review

Munich, April 2023
B

ig 4 Global Truck Manufacturers with record sales, revenues and profits in 2022 

The global truck manufacturers Daimler, Traton, Volvo and Paccar have achieved record sales, revenues and profits in 2022. They have earned cumulated 12.3 bn Euro in 2022 – more than ever before. This equals an average return on sales (RoS) of 8.5%. Main drivers were substantial price increases, excellent after sales revenues as well as favorable exchange rates. 

There is a clear benchmark in performance and profitability: U.S. based Paccar group with its subsidiary DAF in Europe. The German players Daimler and Traton are well above pre-crisis level, but still far less profitable than their peers. While Daimler suffers from below average profitability of their Asian business, Traton still has homework to do regarding the turnaround of MAN. 

Market outlook for 2023 is positive, but ongoing industry transformation requires significant cash flow from the operative business. Focus must be on portfolio management of the increasing zero-emission product offering including comprehensive e-mobility services. 

Check our FY 2022 Review and reach out to the team for more details. 

 

Curious? Download the full article now!

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Global Truck Players: FY 2022 Review
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Authors
Steffen Stumpp

Associate Partner

Lukas Auchter

Consultant

Steffen Stumpp

Steffen Stumpp (1970) joined the Berylls Group in October 2020 as Head of Business Unit Commercial Vehicles. At this point, he already looked back on extensive professional and leadership experience in the commercial vehicle industry. Stumpp started his career in an OEM and went through different roles in research, marketing, product planning and after-sales service. When he switched to the automotive supplier industry, he took over the responsibility for worldwide sales and marketing of a medium-sized tier 1 supplier. After another step as head of sales he decided to join Berylls, where he is now responsible for the commercial vehicle business.

Stumpp is a graduate engineer and has studied industrial engineering at the KIT in Karlsruhe and the Technical University of Berlin with focus on logistics.

Electric vehicles in the US: Out of the shadows

Detroit, March 2023

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Electric vehicles in the US: Out of the shadows

Detroit, March 2023
T

he time in which electric cars had been a phenomenon limited to the west coast tech community is over – in a market where a V8-powered pickup truck has long epitomized people’s perception of a car, electric vehicles (or EVs) made up 6% of US light vehicle sales in 2022. And more than 30 million EVs will have been sold cumulatively in the US by 2030 , when the country will likely be the biggest single EV market after China.

The US EV customer: They say it’s all about the money – but is it really?

TOP 3 CUSTOMER PURCHASE CRITERIA 

(by country, general customer)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

Incumbents and new entrants face a US EV customer that is significantly different from its European and Chinese counterparts. An international survey of customers shows that while US customers only cite ‘economic’ reasons as their top three purchase criteria, Chinese customers also place a premium on safety and sustainability while German customers love the thrill of driving. While US customers generally have an affinity for digital channels during the research and vehicle configuration stages of the customer journey, they still have a stronger preference for dealership visits when interacting with salespeople and completing the purchase or leasing of a vehicle; Only 58% of US customers are interested in contacting salespeople online2.

TOP 3 CUSTOMER PURCHASE CRITERIA 

(by US customer persona compared to US general customer)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

Beyond international differences, there are also three distinct attitudinal groups among US car buyers. Early EV adopters (current EV owners), EV considerers (those strongly considering EVs as the next purchase) and EV skeptics (currently not considering an EV) differ significantly in terms of their socio-demographics and top three purchase criteria. While EV adopters care about CO2 emissions and environmental sustainability, EV skeptics and EV considerers put a stronger weight on functional and economic aspects when evaluating EVs.

Yet, US buyers (especially skeptics) are contradictory. In the Ipsos 2022 Mobility Navigator EV survey, US buyers cited good fuel economy, maximizing residual value, and low total cost of ownership (TCO) as their top three vehicle features. However, in reality the F-150 – the top-selling vehicle in the US – is among the lowest of any car sold in the US3 in terms of fuel efficiency (range of EPA-estimated combined fuel efficiency of 12-25 MPG depending on trim)4. It becomes clear that beyond economic factors the size and versatility of vehicles are clear purchase drivers for the US population. Fortunately, it is not an absolute necessity to convince the skeptics in the next few years – the segment of considerers is large enough to fuel the EV growth until 2030 and will certainly expand as EV technology shifts toward mainstream prominence.

What is in it for me? Mass EV adoption will accelerate with cheaper EVs and customer education

Today, even EV considerers see a gap between their willingness to pay and current EV prices. 36% of US customers said vehicle sticker price is a top three purchase factor, and 48% of customers say they are not willing to pay a premium for an EV2. Yet the December 2022 average transaction price of an EV was $12,0005 more than an ICE vehicle6While Tesla and Ford (among others) have recently cut MSRPs on the Model Y (up to 20%)7 and the Mach-e (up to 9%)respectively, the ‘price-willingness to pay delta’ coupled with slim profit margins will require OEMs to move beyond the tactical (pricing) level. A sustainable EV business model will benefit from significant advances in OEMs’ supply chain and production (e.g., EV vs. ICE price competitiveness is expected when battery cost falls below $100/ kWh9) and smart exploitation of purchase and production incentives (see the second part of our series for further details).

Considering the high share of vehicles financed or leased in the US (above 80% over the last three years)10, monthly payments may play an even stronger role than list prices. Narrowing the current delta between gasoline and EV leases ($337) and loans ($210)7 requires OEMs to increase residual values of vehicles – e.g., through advancements in battery durability, parts quality and vehicle certification. In addition, creative expansion of their businesses along the vehicle’s life will further contribute to attractive BEV economics.

MINIMUM ACCEPTABLE RANGE

(% of respondents, by US consumer persona)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

While price deltas between ICE and EV are (still) factual, other differences are (only) perceived by customers – particularly in terms of driving range and cost benefits. Customers’ minimum range requirements differ by persona. Unsurprisingly, BEV skeptics have the highest range requirement while BEV considerers have the lowest. Most early adopters state a requirement of under 300 miles. As so often in car buying, buyers’ stated requirements are based on the exceptional use, considering the average daily driving distance in the US is only 25 miles2. While the evolution of battery technology (and thus increase of range and reduced charging time) may narrow parts of this gap, customer education and practical experience will be paramount in addressing customers’ greatest EV concerns around range and charging anxiety, affordability and product availability to turn skeptics into adopters. While OEMs have to carry customers to the brink of consideration, dealers will be key in familiarizing customers with the practicalities of EV infrastructure and pros and cons against their gasoline counterparts. Federal and state governments can play a supporting role reassuring customers around EV incentives and infrastructure.

Communication to customers will similarly help to underline EVs (potential) TCO advantages. 40% of BEV skeptics say that a concern about owning an EV is higher TCO. Yet, for two models of similar segment and size, an ICE vehicle can be more than 20% more expensive to run depending on the length of ownership11.

The gaps in perceptions and buying preferences are narrowing fast in the US. Over the last three years, the proportion of US buyers contemplating an EV for their next purchase is up to 49% (up 19 points) compared to both Chinese buyers (72%, up 7 points) and German buyers (37%, up 14 points)2. The race is on.

Out of the shadows: A dedicated US EV (product) strategy is no longer optional

EV SALES FORECAST BY COUNTRY (US, CHINA, EU5)

(2021-2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

While the current US EV share cannot compete with Europe, the US will battle the EU5 for the runner up position behind China in volume terms – with both regions forecasted to show annual EV sales above 6mn units by 2030. With the Inflation Reduction Act aiming to provide an answer to China’s Made in China 2025 initiative and the Detroit Three announcing investments of more than $115bn in electrification by 202612, the US is positioning itself to move from EV niche to necessity. EVs are forecasted to grow quicker in the USA than in any other market (34% CAGR 2021-2030) vs. China (22%) and EU5 (33%)1. Considering this growth and the substantial size of the US EV opportunity combined with US customers’ explicit and implicit product requirements, OEMs can no longer treat the States as another platform to sell their Europe/China-centric vehicles – a dedicated (product) strategy is required.

The pickup truck, America’s sweetheart? Or will SUVs dominate the US EV landscape?

While the (outside) perception may be that US customers drive pickup trucks above all else, EV growth has had different sources so far. Customers rated their top three vehicle classes when shopping for a new vehicle (irrespective of powertrain/ fuel type) as a mid-sized car (41%), mid-sized SUV (37%), and a small SUV (31%)2. By the end of the decade, electric SUVs are expected to make up 60% of the EV market1. While the pickup market will remain dominated by only three US brands, the SUV landscape is significantly more fragmented. The US EV game will be decided here.
US EV VS. ICE SALES BY SUB-SEGMENT


(2021 vs. 2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

Melting ICE: US electrification will make a third of ICE capacities redundant by 2030

By the end of the decade, EVs will have taken around a third of the US market. That also means that the US market for internal combustion engine (ICE) vehicles is set to shrink, and fast. In parallel a substantial part of the EV capacity will come from newly constructed EV plants – Tesla, Polestar, Lucid and VW, among others, have all announced or begun large capacity EV projects in America. Legacy ICE capabilities across the value chain therefore face a tremendous transformation challenge; the majority of automotive CEOs are concerned about capability gaps in their organization13. Upstream EVs will require new chassis, body-in-white, E/E and e-drive capabilities (among others). The ramp-up and holistic industrialization of these capabilities will be the deciding factor: From the shopfloor to the board room and back again.

SALES FORECAST BY POWERTRAINS

(2021-2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

Also, downstream the impact is already visible: the reactions by dealers range from going all into electric to leaving the party (e.g., GM). OEMs have begun dealer EV certification levels (e.g., Ford) and more fundamental (online) shifts to the sales process (e.g., Acura).

So what? Now what?

The question for OEMs, suppliers, dealers and other automobility players is not if and when, but how to participate in the US EV market now. The US will become the second biggest single EV market by 2030 and will be growing faster than any other region1. The specific demands of US customers will necessitate a US-centric product strategy, which goes beyond derivatives of Europe/Asia-focused platforms. New entrants and niche manufacturers face the additional complexity of having to realize sufficient volumes of such local products for scale economies, while keeping the costs of ramping-up the supporting sales/after-sales footprint to a minimum.

Look forward to part two of our US EV study: We will discuss various market factors that OEMs will need to pay attention to in the race to electrification including competition, policy, infrastructure, funding, and dealership laws.

Sources:

Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022.

Ipsos. (2022, June 2). Ipsos Mobility Navigator Module 1: Electrification. Ipsos.

Oak Ridge National Laboratory for the U.S. Department of Energy and the U.S. Environmental Protection Agency. (2023, 03 17). 2023 Best and Worst Fuel Economy Vehicles. Retrieved from www.fueleconomy.gov: https://www.fueleconomy.gov/feg/best-worst.shtml. Retrieved from U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy.

Oak Ridge National Laboratory for the U.S. Department of Energy and the U.S. Environmental Protection Agency. (2023). 2023 Ford F150. Retrieved from U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy: https://www.fueleconomy.gov/feg/bymodel/2023_Ford_F150.shtml.

As of July 2022.

Experian Information Solutions, Inc. (2023). Auto Finance Year-in-Review Electric Vehicles & Affordability.

Reuters. (2023, March 6). Tesla cuts U.S. Model S and Model X prices between 4% and 9%. Retrieved from Reuters: https://www.reuters.com/business/autos-transportation/tesla-cuts-prices-model-y-model-x-variants-us-website-2023-03-06/.

8 Eckert, N., & Feuer, W. (2023, January 30). Ford Cuts Prices of EV Mustang Mach-E. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/ford-cuts-prices-of-ev-mustang-mach-e-11675090387.

9 Baker, D. R. (2022, December 6). EV Transition Threatened as Battery Prices Rise for First Time. Bloomberg.

10 Experian Information Solutions, Inc. (2022). State of the Automotive Finance Market Report.

11 Burnham, A., Gohlke, D., Rush, L., Stephens, T., Zhou, Y., Delucchi, M. A., . . . Boloor, M. (2021). Comprehensive Total Cost of Ownership Quantification for Vehicles with Different Size Classes and Powertrains. USDOE Office of Energy Efficiency and Renewable Energy, Argonne National Lab.

12 GM, Stellantis, Ford.

13 Heines, D. F. (2022, December). Digital Capability Building: Solving the key Transformation Bottleneck. Berylls Strategy Advisors. Munich, Germany.

Authors
Andreas Radics

Executive Partner

Arthur Kipferler

Partner

Martin French

Managing Director US

Henning Ludes

Associate Partner

Cameron Gormley

Senior Consultant

Samuel Schramm

Research

Henning Ludes

Henning joined Berylls in 2018, is an Associate Partner at the Berylls Group and is currently completing a regional assignment in Detroit to further expand our local footprint. Henning particularly focuses on topics at the interface of new business development, go-to-market strategies, sales as well as organizational transformation. He has advised automotive manufacturers, suppliers and investors on a global scale.

As an MSc. Management graduate, Henning has completed his education at WHU – Otto Beisheim School of Management (Germany), Kellogg School of Management, Northwestern University (United States) and Warwick Business School (United Kingdom).

Cameron Gormley

Cameron Gormley joined Berylls Strategy Advisors US in July 2022 as a Senior Consultant. Cameron has deep knowledge of the US electric vehicle (EV) infrastructure, policy, and regulatory landscape and its role as a key driver of EV penetration.  He advises clients on topics of electrification strategy and business model development across all vehicle segments. Other areas of expertise include market analysis, go-to-market strategy, strategic planning, customer strategy, and PMO.

Cameron received a Bachelor of Science in Mechanical Engineering at Western New England University (2015) and holds a Project Management Professional (PMP) certification (2021).

Martin French

Martin French has over 25 years of experience in automotive OEM, Tier 1 suppliers & mobility startups with various high-profile international leadership, product development, operational, program management, strategic & business development roles. In 2012, after holding various senior management positions, he was appointed Global Vice President Customer Group at Webasto where he led the global business transformation for their US based customers with over $1bn in revenue.
Martin joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) as Managing Director in 2019 and leads the Berylls office in Metro Detroit, USA. His consulting focus is Automotive Suppliers & OEMs, Corporate Strategy & Business models, M&A, Restructuring & New Business Development & Go to Market.
Martin studied Production & Mechanical Engineering at Oxford Brookes University. He has lived in Michigan, USA, since 2012.

Battery Lifetime Value: How energy storage will determine the life cycle of electric trucks

Munich, March 2023

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Battery Lifetime Value: How energy storage will determine the life cycle of electric trucks

Munich, March 2023
T

he transformation of trucking in Europe towards zero-emission vehicles is accelerating and must be accomplished within two decades.

Never since the switch from horse-drawn carriages to Diesel-powered trucks, has there been such fundamental change for the industry. Technologies are being replaced and value pools are being reallocated. But also, the daily use of trucks by their operators is changing: battery charging and range limitations heavily affect the usage and scheduling of electric vehicle fleets.

Batteries replace Diesel engines as being the most valuable single component of a truck. On a long-haul tractor with 600 kWh battery capacity, the energy storage
accounts for 60% of the total product costs. Even though this share will gradually
decrease because of improving economies of scale and evolving battery technology, batteries have a massive influence on the value of electric trucks throughout their life cycle. And here another difference to Diesel trucks comes into play: lifespans of vehicles and major components like the battery will increasingly be out of sync.

Curious? Download the full article now!

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Battery Lifetime Value: How energy storage will determine the life cycle of electric trucks
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Authors
Steffen Stumpp

Associate Partner

Florian Müller

Consultant

Lukas Auchter

Consultant

Steffen Stumpp

Steffen Stumpp (1970) joined the Berylls Group in October 2020 as Head of Business Unit Commercial Vehicles. At this point, he already looked back on extensive professional and leadership experience in the commercial vehicle industry. Stumpp started his career in an OEM and went through different roles in research, marketing, product planning and after-sales service. When he switched to the automotive supplier industry, he took over the responsibility for worldwide sales and marketing of a medium-sized tier 1 supplier. After another step as head of sales he decided to join Berylls, where he is now responsible for the commercial vehicle business.

Stumpp is a graduate engineer and has studied industrial engineering at the KIT in Karlsruhe and the Technical University of Berlin with focus on logistics.

Strategic importance of refurbishment for 4R concepts and mulit-cycle sales models

Munich, February 2023

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Strategic importance of refurbishment for 4R concepts and mulit-cycle sales models

Munich, February 2023
O

EMs face increasing pressure to cut their environmental impact.

This means reducing their carbon footprint, but also their raw material and resources consumption, and making their operations and business model more sustainable (not focused solely on selling more and more cars). In response, OEMs are starting to put in place Refurbish, Remanufacture, Reuse, and Recycle (R4 or the “4Rs”) strategies to maximize their reuse of valuable materials.

Increasing focus on sustainability brings refurbish, remanufacture, reuse and recycle strategies to the forefront

Source: Berylls Strategy Advisors

However, their strategies are at the moment neither comprehensive nor consistent. On the one hand, they usually focus on end-of-life applications, such as recycling and reuse of vehicles and battery modules. Recycling and reuse are the “2Rs” that appear to be the most profitable at present (if you want to learn more, please also have a look on Berylls’ Battery Re-X study. On the other hand they tend not to consider an important prerequisite for their strategies: Being the legal owner of the vehicle throughout and particularly at the end of its lifetime (around 8-10 years).

During the 8-10 year period, OEMs will need to redeploy the car to different end customers for different types of contract, as part of a multi-cycle Vehicle-as-a-Service (VaaS) sales model, rather than selling the car outright when it is new (if you want to learn more about the Berylls point-of-view on VaaS, please have a look on our dedicated website.

This multi-cycle sales model will put vehicle condition in the spotlight, as it will be essential to maintain a certain standard of quality so the car is available for as many types of business models as possible.

Vehicle condition becomes an essential part to ensure it can be used in as many types of offerings as possible, reducing the turnaround time between customers

Source: Berylls Strategy Advisors

Efficient refurbishment operations to maintain the quality of vehicles between different use cycles will therefore become a strategic enabler for both multi-cycle sales models and for OEMs’ holistic 4R strategies.

BERYLLS’ VISION FOR REFURBISH, REMANUFACTURE, REUSE, AND RECYCLE

We believe that taking a lifetime view of vehicles and components has significant strategic and commercial benefits

Source: Berylls Strategy Advisors

THE IMPORTANCE OF 4R STRATEGIES in the context of business model and sustainability transformation is increasing rapidly and only few players are starting to get prepared. Now is the time to decide whether to bea pioneer or a laggard in two of the most relevant future fields of action!

Curious? Download the full article now!

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Strategic importance of refurbishment for 4R concepts and multi-cycle sales models
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Authors
Christopher Ley

Partner

Heiko Weber

Partner

Florian Tauschek

Associate Partner

Tobias Detzler

Project Manager

Christopher Ley

Christopher Ley joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) in October 2021 as Partner. He has over 14 years of top management consulting experience with focus on new business models and market expansions within the automotive & mobility industry. He is an expert around Vehicle-as-a-Service, comprising vehicle finance & leasing, fleet management and mobility services. Christopher Ley is advising OEMs, Captives, Financial Services Companies, PE & VC Investors, Leasing & Rental Companies, Fleet Managers and Mobility Startups around the transformation from one-time sales towards use-based multi-cycle business models on a global level.

Prior to joining Berylls, Christopher Ley has been working for other international management consulting firms, amongst others Monitor Deloitte and Alvarez & Marsal. He holds a diploma degree in business administration from Johannes Gutenberg-Universität in Mainz and an MBA from Colorado State University.

Heiko Weber

Heiko Weber (1972), Partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors), is an automotive expert in operations.

He started his career at the former DaimlerChrysler AG, where he worked for seven years and was most recently responsible for quality assurance and production of an engine line. Since moving to Management Engineers in 2006, he has been contributing his experience and expertise to projects for automotive manufacturers as well as suppliers in development, purchasing, production and supply chain. Heiko Weber has extensive experience in the development of functional strategies in these areas and also possesses the operational management expertise to promptly catch critical situations in the supply chain through task force operations or to prevent them from occurring in the first place.

As a partner of Management Engineers, he accompanied the firm’s integration first into Booz & Co. and later into PwC Strategy&, where he was most recently responsible for the European automotive business until 2020.

Weber holds a degree in industrial engineering from the Technical University of Berlin and completed semesters abroad at Dublin City University in Marketing and Languages.

Florian Tauschek

Florian Tauschek has 8 years of experience in strategy consulting. He focuses on business & sales model strategies for flexible Vehicle-as-a-Service (VaaS) offers.

He is an expert in topics such as customer & vehicle lifetime value optimization, the transformation of the underlying automotive sales model from one-time asset sales towards multicycle models generating recurring revenues as well as market entry strategies for various VaaS products such as operating lease or subscriptions. Furthermore he is the author of several market leading studies around VaaS.

He holds a Master of Science degree in management from HHL – Leipzig Graduate School of Management.

Navigating the inflation-driven slowdown while seizing opportunities on the horizon

Munich, February 2023

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Navigating the inflation-driven slowdown while seizing opportunities on the horizon

Munich, February 2023
A

s the transition to electric mobility accelerates, Berylls’ six-point action plan will help OEMs and suppliers ride out the economic headwinds and improve digital customer engagement

This year could see the first inflation-driven global economic crisis for 40 years, as the combined impact of the COVID-19 pandemic and the war in Ukraine continues to disrupt supply chains and force up prices. The hopeful news is that most economists expect inflation rates worldwide to fall during 2023, as bottlenecks ease and energy prices come down. Nonetheless, even if a global recession is avoided, the cost of living will still be far higher for billions of consumers than before the pandemic struck.

Against this background, the automotive industry confronts a series of formidable challenges, all of which are exacerbated by inflation. Manufacturers and suppliers must cope with raw material shortages and price rises as they implement ambitious restructuring programs to keep pace with the transition to electric mobility. At the same time, the massive boost to online shopping triggered by COVID-19 lockdowns has created a new breed of digitally savvy but financially hard-pressed car buyers who are far choosier and less loyal to brands than before the pandemic.

Our report sets out how industry players can turn the current inflationary storm into an opportunity to gain a lead over competitors that cannot navigate the headwinds. The last global financial meltdown in 2008 and its aftermath offered agile, imaginative automotive companies precisely this kind of opening to seize the advantage. Consider, for instance, how Korea’s Hyundai Motor Group increased its North American market share from 5.3 percent in 2008 to 9.1 percent in 2011 by targeting customers who would not have considered buying a Hyundai or a Kia before the US subprime mortgage crisis.

The challenge today is to apply the same creative thinking in a market buffeted by inflation, where both consumer behavior and the automotive industry are evolving at unprecedented speed. After analyzing the industry’s response so far to the current inflation-driven slowdown, we make the following key recommendations for 2023 and beyond:

  • Increase supply chain and manufacturing flexibility
  • Adapt value propositions at speed to keep pace with changing customer expectations
  • Enhance digital customer experience journeys and “moments”
  • Review products against EV transformation and software-defined vehicle trends
  • Recruit digital software talent, taking advantage of the ICT industry’s current attrition
  • Develop M&A strategies to capitalize on higher valuations and lower financing costs after 2023


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Berylls Insight
Navigating the inflation-driven slowdown while seizing opportunities on the horizon
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Authors
Michael Bang

Managing Director Korea

Sunju Kim

Associate

Hwasun Choi

Consultant

Michael Bang

Michael Bang (1971) has more than 20 years of management consulting experiences, with 15 years of which dedicated to automotive consulting. His focus is brand/marketing, EV strategies, software defined vehicle and M&As in automotive sector. He joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) in January 2018 and has been leading its office in Seoul, Korea. Among 100+ projects with OEMs and suppliers, he helped a Korean automaker to successfully enter Indian market and to develop its SDV strategies, and a major Korean tier-1 to acquire the market leader in thermal management systems. Prior to business school, he was a suspension system engineer at Mando.
BS/MS in mechanical engineering from Yonsei University, Seoul/Korea, and MBA from MIT Sloan School of Management, Cambridge/USA.