Innovation inflection point in the auto industry: suppliers must react<\/h1>\n\n Munich, May 2023<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n\n\n \n \n\n T<\/span>\n 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.<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tIn 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.<\/p>
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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tSuppliers and the need for change<\/strong><\/h2>The automotive industry is experiencing a once-in-an-era transformation. Above all, the industry needs to electrify \u2013 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.<\/p>
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.<\/p>
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.<\/p>
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\u2019s 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.<\/p>
It is unlikely that the EU\u2019s 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.<\/p>
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.<\/p>
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\u2019s vehicles will no longer be required. An expected fall in global sales volumes in the short term \u2013 as the chart below shows, vehicle production forecasts for 2023 have recently dropped by around 6.6 million units \u2013 only make it harder still for small and medium suppliers to plan and finance their transition.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 1:<\/em> Outlook changes for global automotive production<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/Foliefe1.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors, IHS, Data status forecast 11\/2021 & 11\/2022<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tLessons from innovation leaders <\/strong><\/h2>Small and medium-sized automotive suppliers face an innovation and financing crisis.<\/p>
Large automotive suppliers are innovative companies in their own right, but the rate of innovation falls markedly for smaller companies. Using Berylls\u2019 capital markets analysis and data from Berylls\u2019 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. \u00a0(For more information on Berylls capital markets intelligence, please visit <\/em>AUTOMOBILITY INDEX<\/em><\/a>).<\/p>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).<\/p>
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<\/em>). 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 2: Key IP metrics for top 10 and bottom 10 of Top 100 suppliers<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tPATENT COUNT IN CONVENTIONAL AND CASE AREAS FOR AUTOMOTIVE SUPPLIERS<\/strong><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/frgrg.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: 1) Data from CY2021 2) Estimated values based on patient filings data<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tThere 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFinding the right niche<\/strong><\/h2>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.<\/p>
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.<\/p>
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\u2019s 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.<\/p>
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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFor suppliers, it is change or die<\/strong><\/span><\/h2>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.<\/span><\/p>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:<\/span><\/p>- The smaller the supplier, the greater the importance of differentiation and speed of innovation.<\/span><\/li>
- SME suppliers should seek to occupy niches where low complexity can be leveraged for speed and technological leadership.<\/span><\/li>
- Maximum commercial transparency on internal processes and margins will be necessary to attract investor support.<\/span><\/li>
- 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.<\/span><\/li>
- Strategic acquisitions, merger consolidations and partnerships with software specialists and centers of research excellence will be vital.<\/span><\/li>
- Heightened risk management is called for as software-defined technology programs and launches have a higher potential for failure.<\/span><\/li><\/ul>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t
How Berylls can help<\/strong><\/h2>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!<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\n \n \n <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\tInsight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n \n\n\t Authors<\/h2> <\/div>\n \n \n \n Christian Grimmelt<\/p>\n
Partner<\/p>\n
christian.grimmelt@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Felix Scheb<\/p>\n
Project Manager<\/p>\n
felix.scheb@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n
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.<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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.<\/p>
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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
Suppliers and the need for change<\/strong><\/h2>The automotive industry is experiencing a once-in-an-era transformation. Above all, the industry needs to electrify \u2013 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.<\/p>
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.<\/p>
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.<\/p>
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\u2019s 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.<\/p>
It is unlikely that the EU\u2019s 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.<\/p>
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.<\/p>
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\u2019s vehicles will no longer be required. An expected fall in global sales volumes in the short term \u2013 as the chart below shows, vehicle production forecasts for 2023 have recently dropped by around 6.6 million units \u2013 only make it harder still for small and medium suppliers to plan and finance their transition.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 1:<\/em> Outlook changes for global automotive production<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors, IHS, Data status forecast 11\/2021 & 11\/2022<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tLessons from innovation leaders <\/strong><\/h2>Small and medium-sized automotive suppliers face an innovation and financing crisis.<\/p>
Large automotive suppliers are innovative companies in their own right, but the rate of innovation falls markedly for smaller companies. Using Berylls\u2019 capital markets analysis and data from Berylls\u2019 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. \u00a0(For more information on Berylls capital markets intelligence, please visit <\/em>AUTOMOBILITY INDEX<\/em><\/a>).<\/p>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).<\/p>
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<\/em>). 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 2: Key IP metrics for top 10 and bottom 10 of Top 100 suppliers<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tPATENT COUNT IN CONVENTIONAL AND CASE AREAS FOR AUTOMOTIVE SUPPLIERS<\/strong><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: 1) Data from CY2021 2) Estimated values based on patient filings data<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tThere 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFinding the right niche<\/strong><\/h2>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.<\/p>
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.<\/p>
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\u2019s 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.<\/p>
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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFor suppliers, it is change or die<\/strong><\/span><\/h2>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.<\/span><\/p>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:<\/span><\/p>- The smaller the supplier, the greater the importance of differentiation and speed of innovation.<\/span><\/li>
- SME suppliers should seek to occupy niches where low complexity can be leveraged for speed and technological leadership.<\/span><\/li>
- Maximum commercial transparency on internal processes and margins will be necessary to attract investor support.<\/span><\/li>
- 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.<\/span><\/li>
- Strategic acquisitions, merger consolidations and partnerships with software specialists and centers of research excellence will be vital.<\/span><\/li>
- Heightened risk management is called for as software-defined technology programs and launches have a higher potential for failure.<\/span><\/li><\/ul>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t
How Berylls can help<\/strong><\/h2>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!<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\n \n \n <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\tInsight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n \n\n\t Authors<\/h2> <\/div>\n \n \n \n Christian Grimmelt<\/p>\n
Partner<\/p>\n
christian.grimmelt@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Felix Scheb<\/p>\n
Project Manager<\/p>\n
felix.scheb@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n
Figure 1:<\/em> Outlook changes for global automotive production<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Source: Berylls Strategy Advisors, IHS, Data status forecast 11\/2021 & 11\/2022<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Small and medium-sized automotive suppliers face an innovation and financing crisis.<\/p> Large automotive suppliers are innovative companies in their own right, but the rate of innovation falls markedly for smaller companies. Using Berylls\u2019 capital markets analysis and data from Berylls\u2019 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. \u00a0(For more information on Berylls capital markets intelligence, please visit <\/em>AUTOMOBILITY INDEX<\/em><\/a>).<\/p> 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).<\/p> 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<\/em>). 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Figure 2: Key IP metrics for top 10 and bottom 10 of Top 100 suppliers<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t PATENT COUNT IN CONVENTIONAL AND CASE AREAS FOR AUTOMOTIVE SUPPLIERS<\/strong><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Source: 1) Data from CY2021 2) Estimated values based on patient filings data<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t 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.<\/p> 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.<\/p> 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\u2019s 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.<\/p> 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.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t 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.<\/span><\/p> 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:<\/span><\/p> 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!<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Christian Grimmelt<\/p>\n Partner<\/p>\n christian.grimmelt@berylls.com<\/p>\n <\/div>\n Felix Scheb<\/p>\n Project Manager<\/p>\n felix.scheb@berylls.com<\/p>\n <\/div>\n \t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\tLessons from innovation leaders <\/strong><\/h2>
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\tFinding the right niche<\/strong><\/h2>
For suppliers, it is change or die<\/strong><\/span><\/h2>
How Berylls can help<\/strong><\/h2>
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