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7/27/2019 Roland Berger Automotive Engineering 2025 20110430
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Ame Eeer 2025
April 2011
Dr. Wolfgang Bernhart
Dr. Thomas Schlick
Roland Berger Strategy Consultants Automotive Competence Center
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Edra
Dear reader,
In our recently published study, "Automotive 2025", we gave an overview of mega-
trends which will heavily impact the automotive industr y over the next 15 years.
We described ten key findings based on these megatrends, the different scenarios
and the key success factors common to them, to help management define their
long-term strategy for
> Markets, customers and products
> Partnerships, business models and the value chain
> Organizational structures, employees and necessary changes
With this "Automotive Engineering 2025", we take our findings to the next level
and outline approaches for coping with the special challenges automotive engineering
is facing.
We hope you find some time to read through this special edition and would be
happy to discuss our perspectives and approaches with you in greater detail.
Best regards,
Ra Kamba Dr. Wa Berar
Head of Global Partner
Automotive Competence Center Automotive Competence Center
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A. "MoRE With lEss" fivE MAin chAllEngEs foR AutoMotivE EnginEE-Ring ovER thE nExt 15 yEARs
Cars and systems "closely tailored to the demand for low cost and flexible enough
to allow upgrades and personalization" that's how we described future product and
technology trends in our recent "Automotive 2025" study [1]. "R&D will take place
close to the market and local R&D centers will be connected by strong, flexible net-
works. Partnerships will grow in importance as a way of providing timely access to new
technologies, markets and business models." This phenomenon will be independent
from the different scenarios ("budget world", "sustainable world", "high tech world")
that may develop.
Let's first recap the main trends influencing automotive engineering over the
next 15 years.
> Sales and production will shift further to BRIC markets, but triad markets
still account for over 40% of global sales and production
> Clear distinction to other vehicles for individual mobility blurring;
increasing importance of low-budget cars
> Rise of new technologies (materials, electrification, connectivity)
> Shortage of qualified employees, especially in traditional triad markets
These trends will not only increase the complexity and amount of engineering work,
but also call for "deliver y at same cost". Before we discuss the resulting requirements
to engineering organizations in detail, let's have a closer look at the above mentionedtrends first.
1. frer ae ad rd BRic marke
new "ead marke" dee
Sales and production will shift from triad markets especially to the BRIC countries,
which will surpass the triad by between 2020 and 2025 in absolute production
and sales figures (Fig. 1).
Sales Production
CAGR [%]
80%
53%44%
22%31%
11% 14% 11%
Triad
China
BRI
Other
2025
114
14%
2010
69
11%
2000
57
3%6%
CAGR [%]
86%
59%44%
22%
32%
9% 8%
Triad
114
China
BRI
Other
2025
15%
2010
69
11%
2000
57
3%6%
5%2.8
6.8
12.4
0.4
2.8
6.7
12.8
0.2
Fig. 1: Sales and production of light vehicles by region2000-2025 [m units], "Base scenario"
Source: Roland Berger
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The emerging markets also have different product requirements: while emissions andsafety standards are likely to converge, customer requirements remain different. Not
only are they looking for a higher share of low-budget solutions, but car functionality
will also see different requirements.
At the 2011 Shanghai Motor Show, the first Chinese car will be shown featuring
speech/audio-enabled online navigation, web access to stock prices, personalized
points of interests, music stored "in the cloud" and RSS feeds.
In 2025, nearly a quarter of all Chinese car drivers will be younger than thirty, and
only around 10% will be older than sixty. By contrast, only 6-7% of all drivers in Ger-
many will be under thir ty, while the share of elderly drivers (sixty years old or over) will
increase to over a third of all drivers. These distinct groups have completely different
priorities regarding ergonomics, comfort and driver assistance.
Markets like China will therefore not only become more important from a sales and
production perspective, but they will also become lead markets for specific tech-
nologies. Basic technologies are usually available in all markets, but differentiating
know-how is being generated only by applying these technologies in engineering and
production and interacting with the customer "learning by doing" and "learning
by using". As centers of economic growth shift and demographics change, new lead
markets will arise. These lead markets are characterized by increased competit ive
intensity, which leads to better designs and faster cost reduction. Empirical studies
show that companies actively innovating and developing in the lead markets are moresuccessful than those who tr y to innovate from the home market only, usually with
an ever-widening gap to their competition.
Challenge 1: Successful innovation therefore means not only innovation at the right
time, but also at the right place managing a much higher regional complexity.
2. cear d er ee r dda mb brr irea
mrae w-bde ar
Increasing urbanization and the raise of megacities will lead to massive congestion
problems. Coupled with increased environmental awareness, especially in Europe, new
forms of mobility (such as car sharing concepts) as well as new means of individual
transportation will increasingly gain significance.
With new vehicles such as the Renault Twizy ZE (to be launched in 2012) or concept
studies shown by GM at the Shanghai Expo in 2010, the portfolio of most car compa-
nies will be expanded to include very small vehicles blurring the formerly clear line
to single-track vehicles.
At the same time, driven by the increasing share of new vehicle sales in emerging
markets, low-budget solutions will become more important and a major source of
future growth. To participate in that segment, automotive players need to integrate
design effectiveness while leveraging low operating costs with a high share of
localized parts (Fig. 2).
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Challenge 2: Product requirements management will become much more complex
from the market, customer and product portfolio perspectives. Implementing local
or locally adapted solutions will also increase requirements for localization.
3. Re ew ee
Revival of hydrogen fuel cell activities, increasing importance of lightweight materials,
electrification of the powertrain, "always connected, always online" these are just a
few examples of the new technologies to be covered by OEMs in addition to their cur-
rent technology portfolio. At the same time, OEMs need to invest in improving conven-
tional technologies. Figure 3 shows an example of new technologies to be developed
to improve the conventional combustion engine at current cost levels.
Fig. 2: Leveraging cost advantages of local production is a "must" forlow-budget solutions
Local component supply
Cost ofproduction [%]1)
Increasing local content is essential
for optimizing production costs
Transportation cost of selected
components [EUR/unit2)]
84%
79%
74%
Localcontent[value, %]45%
55%
65%
1) Assumption: Cost of production = 100% if local content = 0
2) Assumption: Distance 1,000 km by ship and truck, i ncl. packaging
100
31
19
18
8
7
2
1
Dashboard
Front bumper
Rear door
Trunk
Radiator grill
Drive shaft
Brake cylinder
Radio
Source: Roland Berger
400 200
250
2015+
1,700
-250
2015
1,700-200
2010
1,700
2005
1,300
Turbo Direct inject. VVT Var. pumps
Down-sizing(3 cyl.)
Additionalfunctions
(BiVVT, VVL,2nd gen DI,
etc.)
Lean(3rd gen DI,AGR, etc.)
Necessarycost
reduction
Line4 2.0l 16V Line3 1.2l Direkt,Turbo, BiVVT, VVL
Line4 1.6l Direkt,Turbo, VVT
Line3 1.2l Lean,Turbo
1) Installed costs, excl. R&D
Fig. 3: Cost development1) gasoline engine over time Example: 140 hp engine[EUR]
Source: Roland Berger
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European OEMs alone need to invest another EUR 1.7 billion over the next 5 years todevelop this functionality (Fig. 4). These costs need to be more than offset to free up
budgets for alternative powertrain technologies.
Challenge 3: A much broader technology portfolio needs to be covered at current en-
gineering cost levels new materials, electronics, electro-chemistry, information and
communications technology, etc. At the same time, the understanding of the vehicle
as part of a larger transportation and communications system needs to be improved.
4. srae aed emee eea rada rad marke
As outlined above, regional, market, customer, product portfolio, technology and
supply chain complexity will increase dramatically. This will result in demand for
highly qualified workers not only in t raditional vehicle engineering disciplines, but
also in adjacent skill areas, combined with intercultural skills. But statistics indicate
a growing gap of qualified engineers and developers in mature markets new talent
sources need to be developed and integrated.
Challenge 4: "War for talent" Automotive engineering will need to compete with
other industries for qualified employees, especially those with a strong background
in engineering and other natural sciences. Relative wage levels may increase, and
engineering needs to manage high (cultural) diversity.
5. A e abe, we "deer a ame ee"
While the complexity of automotive engineering will reach unprecedented levels, the
industry as a whole needs to increase its financial performance to remain attractive
to investors. As competition increases, there is lit tle room to push price levels up.
Costs therefore need to come down, and engineering will not be exempt.
This leads us to the fifth, overarching challenge:
Challenge 5: Automotive engineering needs to improve effectiveness and efficiency
to deliver more at the same or better yet, lower cost levels than today's.
5.7
-1.6
-1.68.91.7
7.2
1) Combustion processes, variability, etc.
Developmentexisting enginefamilies (incl.
replacements)
Cumulated basedevelopment
costs1)
Additionaldevelopment
costs2)
Reduction ofOEM engine
families
Common enginefamilies (with
partners)
Targetdevelopment
efforts
-1.5
Fig. 4: Cost of engine development, EU OEMs2011-2016 (w/o application) [EUR bn]
Increasing development costs Countermeasures
Source: Roland Berger
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B. "EffEctivE gloBAl covERAgE" DoMinAnt REquiREMEnt foR thEEnginEERing oRgAnizAtion of toMoRRoW
To cope with these challenges, the engineering organization needs to be transformed
from worldwide presence to worldwide integration. Automotive engineering needs to
become "glocal", adapting a global framework to local particulari ties (Fig. 5).
Local market know-how (both of customer and supply markets) needs to be seam-
lessly integrated with engineering competences in multiple locations. Trend scouting
using dragnet methods such as the lead-user approach as well as tradit ional market
research needs to take place in lead markets. If a specific technology is used broadly
in a specific lead market, concept and prototype development should be done there
as well. Centers of competence need to be defined accordingly, e.g.
> India for low-budget solutions> Japan/East Asia for 3-D (online) navigation solutions
> Brazil for alternative fuels
> China or California for online infotainment solutions, etc.
New products need to be launched nearly simultaneously on a global scale, based
on architectures and construction kits developed and industrialized in the respective
lead markets. To do so, a balanced approach of strong global coordination and local
freedom is necessary.
Multiregional locations
Centralization of development
Sequential launches of new products,
based on centrally developed platforms
Dispersed production network
Local/regional purchasing bases,
limited projects in partnerships with
other OEMs
Multiregional integration
Network of development centers globally integrated
though a competence center approach
Simultaneous launch of models, based on architectures
and construction kits developed in lead markets
Standardized processes, combined with a superior level of out-put coordination and greater use of socialization and networks
Global purchasing base and broad partner network
Regionalcomplexity
Effectiveness:"Delivery at same
cost levels"
Market/customer/product portfolio
complexity
Technology/systems
complexity
"War for talent"(cultural)diversity
Source: Roland Berger
From worldwide presence to worldwide integration
Fig. 5: Requirements for the engineering organization of tomorrow
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Most large automotive companies have already realized the need for global, mul-tinational integration and consequently started to decentralize their development
activities. This geographic dispersion is coupled with significant effor ts to coordinate
development activities. Our recently finished study [3] showed that such coordination
is successful if it is rooted in a combination of two factors. The first is superior levels
of output coordination (focusing on targeted outputs through plans, goals, monitoring
and reporting systems rather than specific employee behavior).
The second key factor is an increased use of social ization and networks. Socialization
refers to encouraging employees to share a corporate culture that encompasses
values, vision and mission. A common corporate cul ture shared by all employees
is the key to managing diversity arising from the different (cultural) backgrounds
of talent recruited from across the globe. Networks are used to promote the (non-
hierarchical) sharing of information through formal relationships such as task forces,
cross-functional teams and management transfers.
And finally, engineering must focus on what is truly essential for the long-term success
of the company. Effective engineering focuses on the aspects of products, accompany-
ing services and technologies that really set the brand apart. This means:
> Developing new in-house competences needed to gain competitive advantage
> Shedding those in-house activities that do not lead to differentiation from
competition, and rather partnering with others to improve economies of scale
or to leverage each partner's specific strengths
Transforming the engineering organization into a more focused globally integrated one,
changing the culture to share a common vision and values, embracing diversity at the
same time and entering into partnerships even with competitors these are enormous
tasks and require a structured approach.
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c. "AutoMotivE EnginEERing 2025" fivE stEps to MAnAgE thE tRAns-foRMAtion into A highly EffEctivE glocAl EnginEERing oRgAnizAtion
Most automotive companies realize that they need more globally integrated deve-
lopment. However, most development employees and hence most development
work are still located in the company's home region. Whereas basic development is
often focused in one region (the home, and not necessarily the lead market), adaptive
development is frequently located in two regions (the home and the largest foreign
market).
The need to cover a broader technology and product portfolio is well understood and
the new skills needed for the future have been defined. However, determining what
areas to shed is much more difficult and not always supported, especially by middle
management, who tend to be skeptical regarding transferring competences to external
partners.
Increased diversity is stated as a goal, but in reality, a single nationality clear ly
dominates at most automotive companies, especially on VP and SVP levels. This
is particularly true for OEMs.
And last but not least, improving engineering effectiveness and efficiency is a clear
objective but how to attain that objective is unclear.
To achieve these goals, we propose a f ive-step framework for managing the trans-formation into a highly effective glocal engineering organization (Fig. 6).
Before beginning with the first step, the company needs to clearly define its vision,
mission, intended strategic position and overall business model.
1 Develop a scenario-based product and technology roadmapand identify potential lead markets
2
Define long-term roadmap (10 years) to close gaps
3
4
Assess current status and identify gaps
5 Create short-term (3-year) action plan and set up animplementation organization to start transformation
Define long-term requirements for the organization
(core competencies/skills, regions, partners needed)
Source: Roland Berger
Fig. 6: Framework for transforming the engineering organization
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Once these have been firmly established, the first step is to develop a scenario-based product and technology roadmap. This roadmap should seek to link automotive
macroscenarios (i.e. scenarios applicable to the entire industry) with company-
specific microscenarios. Companies need to identify potential lead markets based
on the latter's market requirements, trends and economic demand. Once the lead
markets have been identified, designs can be drafted and tailored to meet a market's
unique profile.
The second step is to define requirements for the organization: What will be its core
competence(s)? What areas can be eliminated? In considering these and similar
questions, one must take into account the predicted impact on the brand and/or the
desired strategic position/business model. The target organizational set-up needs to
be defined, e.g. (regional) centers of competence based on lead markets and other
key features, target skills/headcount and ideal partnership structure.
At this point, the company needs to figure out how far it is from the defined "ideal"
organizational set-up. To do so, it must assess its current status, identify gaps and
then derive high-level measures to close them.
The measures for closing the gaps then need to be prioritized by synchronizing them
with roadmaps ( technologies, products, ..). When prioritizing the measures, companies
must take into account uncertainties, impact on competitive position, availability of
resources and economic levers.
In the last step, a detailed improvement plan needs to be developed with a short-term
(3-year) action plan. Finally, all that's left is to start the transformation.
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D. suMMARy AnD conclusion
Over the next 15 years, the automotive industry will undergo the greatest transfor-
mation of its history. Complexity is rising everywhere, putting tremendous pressure on
engineering organizations to become more effective, more efficient and faster. They
also have to become more innovative as they will need to master a broader spectrum
of technologies.
The right setup is crucial but it also takes time. To be prepared for the upcoming
challenges, transformation needs to start now, and with a clear target picture in mind.
Solid and profound know-how of the challenges ahead, a deep understanding of
automotive engineering and hands-on experience in working in the automotive
industry are necessary to add value in this process.
That's what we have at Roland Berger and we would be happy to support you
in meeting these new challenges.
Further reading:
[1] Kalmbach, R.; Bernhart, W.; Grosse Kleimann, P.; Hoffmann, M.:
Automotive landscape 2025: Opportunities and challenges ahead
Study, Roland Berger Strategy Consultants GmbH, Munich 2011
[2] The next wave: Emerging market innovation Threats and opportunities
Study, Roland Berger Strategy Consultants GmbH, Munich 2007
[3] Schmid, S.; Grosche, P.; Bernhart, W.; Schott, S.:
Focus on corporate culture and networks How automotive companies
successfully coordinate their activities across borders.
A survey of the automotive industr y.
ESCP Europe Business School & Roland Berger Strategy Consultants,
Munich 2011
7/27/2019 Roland Berger Automotive Engineering 2025 20110430
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contAct
The authors welcome feedback and will be glad to
address any questions.
Dr. Wa Berar
Partner
Roland Berger Strategy Consultants
Lffelstrae 46
70597 Stuttgart, Germany
Phone: +49 (711) 3275-7421
E-mail: Wolfgang_Bernhart@de.rolandberger.com
Dr. tma sk
Partner
Roland Berger Strategy Consultants
Bockenheimer Landstrae 2-8, OpernTurm
60306 Frankfurt, Germany
Phone: +49 (69) 29924-6202
E-mail: Thomas_Schlick@de.rolandberger.com
Co-authors:
Ma BaePartner
Roland Berger Strategy Consultants
11, rue de Prony
75017 Paris, France
Phone: +33 (1) 53670-907
E-mail: Max_Blanchet@fr.rolandberger.com
Ra Kamba
Partner
Roland Berger Strategy Consultants
Mies-van-der-Rohe-Strae 6
80807 Mnchen, GermanyPhone: +49 (89) 9230-8669
E-mail: Ralf_Kalmbach@de.rolandberger.com
Dr. sa naama
Partner
Roland Berger Strategy Consultants
1-12-32 Akasaka
Tokyo 107-6023, Japan
Phone: +81 (3) 358 76-683
E-mail: Satoshi_Nagashima@jp.rolandberger.com
per M. nPartner
Roland Berger Strategy Consultants
Vasagatan 43 B
41137 Gothenburg, Sweden
Phone: +46 31 75755 - 10
E-mail: Per-m_Nilsson@se.rolandberger.com
Jere Reer
Partner
Roland Berger Strategy Consultants
2401 West Big Beaver Road, Suite 500
Detroit, MI 48084, USAPhone: +1 248 729 - 5115
E-mail: Juergen_Reers@us.rolandberger.com
J se
Partner
Roland Berger Strategy Consultants
23F Shanghai Kerry Center, 1515 Nanjing
Shanghai 200040, China
Phone: +86 (21) 52986677-874
E-mail: Jun_Shen@cn.rolandberger.com
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