Uncategorized Archive - Berylls - making automobility viable

f you look at the current headlines around electric mobility, they are mostly negative. Car rental companies such as Sixt and Hertz are reducing the percentage of electric vehicles in their fleets, Audi wants to bring fewer electric models onto the market, and Mercedes is stopping a complete e-platform.

However, automotive production in China and the USA is also predicted to grow by 2030. The question for suppliers is therefore how they can participate in this growth and whether they need to adapt their focus technologies and the geographical location of their production sites.

Growth in China, the USA, and Mexico, site closures in Germany

If we look at the forecast production site developments of the world’s TOP 20 automotive suppliers, at first glance a positive trend emerges: between January 2022 and February 2024, suppliers announced significantly more expansions and new openings than closures and disposals (see Figure 1).

Figure 1: Number of planned site changes at TOP 20 automotive suppliers worldwide
Announced period of the planned site changes: January 2022 to February 2024

Source: Berylls by AlixPartners

However, this does not apply equally to all countries, especially not to Germany, where sales and closures predominate (see Figure 2) as well as relocations to other regions, for example at Continental. The Babenhausen plant will be closed by 2028, parts of the production there have already been relocated to Eastern Europe and the plant in Gifhorn will be completely closed down by the end of 2027 due to a lack of profitability.

Figure 2: Number of planned site changes at TOP 20 automotive suppliers in selected countries
Announced period of the planned site changes: January 2022 to February 2024

Source: Berylls by AlixPartners

There are also a large number of plant sales and closures in the USA. In contrast to Germany, however, there are no signs of a structural exodus here, as the plant closures are being more than offset by a significantly larger number of new ones being opened and existing capacities expanded. Electric mobility is a key driver of growth in the USA (Figure 3) – the Inflation Reduction Act has the potential to further strengthen this momentum. Apart from the USA, Japan, Canada, Hungary, and China in particular are among the winners in terms of new openings and expansions (Figure 2).

By far the highest growth is expected in China – as in the USA, here too, investments in the production of electric drivetrains clearly dominate at over 40%. German companies play a key role here, accounting for almost 40% of the aforementioned investments in China – and are therefore responsible for more local investments than China’s TOP 20 suppliers.

Figure 3: Percentages of investment priorities od the TOP 20 automotive suppliers in selected countries
Announced period of the planned site changes: January 2022 to February 2024

Source: Berylls by AlixPartners

In Mexico, the investing companies specialize in the electrics and electronics markets. Around 40% of local investments are made in this area, such as for the expansion of three Aptiv sites to increase production capacity, e.g., for low-voltage cable harnesses.

Chinese and US companies investing primarily in domestic markets

In addition to the trends of e-mobility and growth in China, the “home country first” trend stands out in the planned investments (Figure 4): US companies are focusing primarily on the American domestic market and far less on Asia or Europe. Chinese companies are also pursuing this strategy and clearly focusing their investments on the home market. In view of the recently adopted 100% import duty on Chinese electric vehicles in the USA, this is a clear sign of the increasing isolation of the two markets, which is also reflected in the investments of the suppliers under review.

Figure 4: Percentages of investment priorities od the TOP 20 automotive suppliers in selected countries
Announced period of the planned site changes: January 2022 to February 2024

Source: Berylls by AlixPartners

German companies, on the other hand, are showing little interest in new sites within their own country – even though at 27% they are responsible for the largest share of investment among the TOP 20 automotive suppliers. BOSCH is investing in new plants in China to increase production capacity for e-powertrain components, and ZF Friedrichshafen is investing USD 500 million in its existing site in Gray Court, South Carolina, to be able to produce both conventional and electrified drive systems there.

Sites in Germany are being closed – but German suppliers are leading the way in establishing new production capacities

All in all, the view of the future from a German perspective is ambivalent: there will be a significant consolidation of automotive supplier locations in Germany – the expansions planned to drive the e-mobility transformation are mainly taking place in the USA and China. However, German suppliers also benefit indirectly from this development, as they are still strongly represented in these relevant growth markets – and can even expand their positions there.

For globally operating automotive suppliers, it is worthwhile consolidating their presence in growth markets such as the USA and China, as this ensures compliance with local standards and avoids high logistics costs or looming import duties, and critical tier-n suppliers and their resources are easily accessible.

Figure 5: Percentage of countries of origin of investments by the TOP 20 automotive suppliers and target country of planned investments
Announced period of the planned site changes: January 2022 to February 2024

Source: Berylls by AlixPartners

Authors

Dr. Alexander TImmer

Partner

alexander.timmer@berylls.com

Christian Grimmelt

Partner

christian.grimmelt@berylls.com

Stefan Schneeberger

Associate Partner

stefan.schneeberger@berylls.com

Andreas Maihöfner

Project Manager

andreas.maihoefner@berylls.com

Alexander van Woudenberg

Project Manager

alexander.vanwoudenberg@berylls.com

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.

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.

he automotive supply industry is undergoing the greatest transformation in its history.

More than ever, suppliers are compelled to significantly boost their efficiency to remain competitive in the long term.

The industry is responding with proven methods: large-scale cost-cutting programs combined with job cuts and site closures. However, these measures do not always have the desired effect. Companies that cut costs, restructure, change their business model, or alter their strategy can cause themselves long-term damage through poor implementation.

Symptoms and diagnosis of the current crisis

The rise of e-mobility together with the advance of digitalization is changing the face of the automotive industry forever. There are also various market-specific challenges, such as the reorganization of the automotive value chain by OEMs or the emergence of new vehicle manufacturers in China.

By 2030, around a quarter of the approximately 270,000 jobs in the automotive supply industry in Germany could therefore be lost. Over the past ten years, the number of people employed in the sector in Germany alone has decreased by 7.5%. A few years ago, the average return on investment stood at 7 or 8%. Today, however, the figure has fallen to 5 or 6%. Necessary investments are being postponed or delayed and innovation programs largely cut back. R&D, operational excellence, and precision – once supreme disciplines and a competitive advantage – have become a sea anchor that is slowing down urgently needed adjustments.

Therefore, only cost cuts promise to provide sufficient breathing space in the short and medium term. The programsintroduced by well-known suppliers such as Continental, ZF, or BOSCH have long been pointing to tougher times ahead. The common reaction to date: job cuts and the associated efficiency gains. However, the question remains as to whether and to what extent this approach sustainably improves the allocation of resources and whether lower costs and leaner structures can be achieved. In the past, simply cutting costs has generally turned out to have a boomerang effect. Failure often correlated with inadequate integration with the corporate strategy, a lack of involvement of employees and managers, unrealistic goals, or poor implementation.

Functional analysis as an instrument for shaping the future

When used correctly, functional analysis can be an excellent tool for effective, efficient cost structuring. Typically, this method analyzes processes, resources, and interfaces within the organization in a step-by-step sequence with the aim of identifying potential for improvement and boosting efficiency.

Functional analysis is currently experiencing a revival in various industries and fields, such as product development in automotive engineering as well as in the area of digitalization and technology. The results serve to optimize processes and implement positive changes. Which value streams and functions will be important going forward and which effects will their interaction have on the organization as a whole? Functional analysis can provide the answers to these crucial questions. It shows which processes are becoming obsolete and where efficiency can be improved through technologies such as artificial intelligence. A clear vision of the future organization is essential. The aim is to identify both current and future potential for success in order to increase speed and improve adaptability. The centralization and decentralization of processes needs to be carefully considered so that autonomy is guaranteed where it offers the greatest added value. On the one hand, the focus should be on rigorously applying an end-to-end view of value streams. On the other hand, implementation, i.e., the more consistent realization of the identified improvements and the more sustainable monitoring of their effects, is also crucial to achieving the goals that have been set.

Approach – Our blueprint for future-oriented performance improvement considers classical elements such as functional analysis and combines them with organizational transformation elements and a strong execution.

Source: Berylls by AlixPartners

Unused change potential accompanies implementation

Any increase in efficiency is only successful if its goals are sustainably achieved. The fact that the top-down definition of measures and potential does not work should be common knowledge nowadays, but is nonetheless often ignored. Experience shows that the effects achieved in this way regularly fizzle out over time. An efficiency-boosting project is not usually met with applause. Accordingly, it is important for its success and sustainable integration that those involved understand the necessity and the measures and, ideally, have helped to develop them, support them, and thus actively embrace them. A functional analysis offers plenty of opportunities to generate the transparency required to do so and create interactive spaces for dealing with any fears and misunderstandings that may arise within the organization.

Expertise and skills management are the basis for future sustainability

Already today, at many OEMs and suppliers the knowledge and skills of employees are barely keeping pace with the ongoing transformation. The majority of CEOs see this as a threat to their future business and are justifiably concerned about the resulting skills gaps within their company. Moreover, many job profiles on which the competitive advantages of the past were based will have disappeared by 2030. At the same time, completely new job profiles are emerging in areas such as customer experience design, human-machine interaction, and cybersecurity. Many automotive suppliers have just begun to embrace this race against time and established corresponding programs to counteract the decline in the half-life of knowledge. The current situation is hitting them at a bad time. If action is not taken now with a clear idea of future requirements, there is a risk of downsizing in the wrong places or of talented people leaving the company – with fatal consequences. Strategically integrated expertise and skills management is therefore the basis for maintaining future viability and thus another success factor that should be part of a modern efficiency program based on a functional analysis.

Conclusion: shaping a resilient future

Automotive suppliers are at a critical turning point. The short-term answer lies not only in cutting costs, but also in the strategically induced transformation of the company. A holistic functional analysis that combines the approaches of proactive change management and strategically integrated expertise and skills management is an effective tool here.

Authors

Dr. Alexander Timmer

Partner

alexander.timmer@berylls.com

Dr. Frank Heines

Associate Partner

frank.heines@berylls.com

Philipp Stütz

Associate Partner

philipp.stuetz@berylls.com

Frank Strebe

Project Manager

frank.strebe@berylls.com

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.

Dr. Alexander Timmer

Dr. Frank Heines

Dr. Frank Heines (1967) joined Berylls Strategy Advisors as Principal in September 2016, and is based at Berylls’ Swiss office. He started his career at the postal automation division of Siemens AG before changing to a medium-sized electrical and electronics company where, in his position as responsible for the technical department, he soon became member of the board. In 2003, he began his consulting career at the Malik Management Zentrum St. Gallen, becoming Partner and member of the group management board in 2007. The focus of his consulting work lies in strategy development, organizational design, productivity increase as well as in integrated organizational development and transformational management.

Economics at the University of Constance, Germany; business administration at the University of Zurich; Ph.D. at the University of St. Gallen, Switzerland.

ehicles are increasingly defined by software

Any driver of a modern car can easily understand – and experience up close – why there is more and more talk of the future “software defined car”. Display screens are taking the place of analogue instrument panels; switches and buttons on centre consoles are increasingly being converted into large displays and vehicles can move about semi-autonomously in traffic and manoeuvre themselves into parking spaces. Those are just a few examples of how the user experience is increasingly being determined by software. User experience can also be changed by subsequently activating new features or updates/upgrades of existing features. This is clearly reflected in the development of market volumes for software and hardware. If the software portion (on & off-board) of the added value (automotive software and EE hardware) still amounts to 20% according to Berylls’ calculations, there is a projected increase of 43% for 2030. Most growth is generated off-board, referring to software outside the vehicle such as development tools, applications, and cloud services. Despite this, Berylls expects even on-board software such as control devices, infotainment, driving assistance systems etc. to almost double in market volume.

Increased range of functions promotes new EE architectures

The huge increase in range of functionalities and the demands on the updateability of vehicles is leading to high expectations of EE architectures, which have to meet these needs accordingly. This means that classic architectures from about 70-110 control devices in vehicles are constantly being pushed to their limits. During autonomous parking via parking assistance, numerous sensors, cameras and control devices must be arranged to form an efficient overall process. Hardware such as control devices and cameras is frequently obtained from different suppliers and integrated by the OEM. A lack of standards/specifications relating to programming languages, software architectures etc. sometimes creates significant additional outlay and high levels of complexity in the integration process, particularly when altering individual components. Reactions to this include gradually implementing alternative EE architectures involving the centralization and consolidation of control devices. Industrial standards for architectures have not yet been set, despite the existence of various types ranging from zonal architectures to centralised computers. In any event the virtualization and abstraction of hardware layers is increasing, leading to a disengagement of hardware and software and the emergence of a new market dynamic – just when classic tier 1 suppliers are competing with software houses, “big tech” players and other organizations when it comes to software expertise. In order to remain competitive at control device level, numerous suppliers coming from the hardware side tend to see software as a part of the product rather than its core. They are increasingly being confronted with considerable demands on their capacities, skills and resources for software development and they need to find appropriate answers.

New software architectures needed

In order to reduce integration outlay and facilitate remote update/upgrade capacity and new, in particular algorithm-based functionalities (e.g. image processing), new software architecture concepts are being introduced along with new EE architectures. There is often talk of so-called “operating systems”, which are ultimately a mixture of software stacks. Attempts are made to solve the aforementioned issues, namely connection to the cloud, (greater) outsourcing of functionalities into the cloud, remote updates/upgrades, and uniform standards (as well as the existing ones such as classic/adaptive AUTOSAR). OEMs have recognized the value of new software architectures – and especially those induced through Tesla, which, with its thorough ‘Greenfield’ approach, has been able to redefine and apply this issue without the use of ‘Legacy’ systems. Traditional manufacturers have recognized Tesla’s competitive edge and advantage in this respect and are working hard to reduce it. They are relying on various strategies for this, from the development of their own operating system (OS, e.g. Tesla, VW, Daimler) to the integration of third-party solutions – first and foremost Android Automotive (e.g. Polestar).

Strategies for in-house creative development with OS

The meaning of “operating system” is not clearly defined in current discourse. It is often equated with an operating system for infotainments (analogue Android, iOS), which can be equipped with apps etc. and offers one of the most distinctive features to the customer. In-house software stacks and universal software platforms are usually what is meant by OEM operating systems. These in-house developments present OEMs with significant challenges in the face of high costs and often a shortage of software developers. It is easy to understand why many OEMs look for alternatives and (have to) ask themselves what they have to gain from in-house developments. The advantages of strong in-house creative development lie above all in independence from tier 1, particularly big tech players such as Google, who have singled out vehicles as an attractive customer interface and are able to gain a dominant position in the market through an operating system, targeting infotainment in particular. OEMs pay for this with their customer data as well as the licencing fees. But for that they gain a comprehensive and well-integrated infotainment system with low investment costs and high customization potential. Additional Google services can, of course, be easily integrated. According to projections by Berylls, a market share of 17% in the next 2 – 3 years is an entirely realistic prospect. In addition, manufacturers have the opportunity to comply with industrial standards within the framework of partnerships such as the Genivi Allianz, which, as an alliance of automotive manufacturers and suppliers, has developed an infotainment system based on Linux.

The software market remains highly dynamic

As demonstrated, established EE architectures are not designed for current demands (connectivity, function upgrading, remote updates etc.). For this reason (established) OEMs are making an effort to catch up, despite the fact that this presents a sizeable challenge in the face of legacy structures and frequent shortage of in-house software architecture skills/resources. Within the complex field of software architecture and individual domains it is imperative that resources are correctly employed, especially in those areas with direct influence on competitiveness such as cloud connectivity, infotainment or autonomous/assisted driving. OEMs and suppliers can follow various strategies which make use of different approaches in order to set themselves apart, mainly according to degree of in-house creative development and relevant focus:

(Expensive) in-house creative development of an OS with the aim of gaining independence and data sovereignty, facilitating simple cross-domain interfaces and increasing productivity through re-use of basic code

Cooperate with other manufacturers and suppliers to draw up an industry solution in order to position themselves against the big tech players with an “industry standard” and thus make use of economies of scale and lower individual development costs

Cooperate with suppliers/big tech players (such as with Android Automotive in infotainment, and with Waymo in autonomic driving) bringing relevant advantages in cost and integration but also potential risks of being reduced to a hardware supplier for the “smartphone on wheels”

One thing can be said for sure: automotive software market dynamic has only just picked up speed, and is far from the finishing line. How OEMs and suppliers position themselves in this field will in many cases determine their future success.

Berylls Strategy Advisors would be happy to support you in this key decision process.

Arthur Kipferler complements the expertise of the Berylls partner team in the fields of market & customer, technologies, sales, and digitalization, as well as in the development and implementation of corporate, product, and regional strategies.

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Automotive Insights

Automotive suppliers close sites in Europe and focus on electric mobility

Automotive suppliers close sites in Europe and focus on electric mobility

Growth in China, the USA, and Mexico, site closures in Germany

Chinese and US companies investing primarily in domestic markets

Sites in Germany are being closed – but German suppliers are leading the way in establishing new production capacities

Authors

Dr. Alexander TImmer

Christian Grimmelt

Stefan Schneeberger

Andreas Maihöfner

Alexander van Woudenberg

Christian Grimmelt

Dr. Alexander Timmer

Sustainable increase in efficiency during transformation: rethinking functional analysis

Sustainable increase in efficiency during transformation: rethinking functional analysis

Symptoms and diagnosis of the current crisis

Functional analysis as an instrument for shaping the future

Unused change potential accompanies implementation

Expertise and skills management are the basis for future sustainability

Conclusion: shaping a resilient future

Authors

Dr. Alexander Timmer

Dr. Frank Heines

Philipp Stütz

Frank Strebe

Philipp M. Stütz

Dr. Alexander Timmer

Dr. Frank Heines

OEMs caught in a market positioning trap

Author

Dr. Jan Dannenberg

Dr. Jürgen Simon

chapter

1. Vehicles are increasingly defined by software

2. Increased range of functions promotes new EE architectures

3. New software architectures needed

4. Strategies for in-house creative development with OS

5. The software market remains highly dynamic

Increased range of functions promotes new EE architectures

New software architectures needed

Strategies for in-house creative development with OS

The software market remains highly dynamic

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