Engineering Services Market study 2014
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Engineering Services Market study 2014
Contents Page Management summary 3 A. Technology trends and their impact on engineering service provider 4 B. The market of engineering services 15 C. Authors 26 This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness and accuracy of the statements made in this document. © Roland Berger Strategy Consultants GmbH 2
Management summary
> Automotive OEMs have to deal with an all-time high of technology complexity, driving engineering spend
and creating the necessity to have a clearly defined strategy regarding core competences and
outsourcing of engineering services
> Three areas see a dramatically increasing demand for ESO skills and capacity:
– Powertrain and powertrain electrification as driven by CO2 emissions regulations in Europe and
China
– Weight reduction technologies as driven in the same context, especially on the European market
– Connectivity and IVI-related engineering services as especially driven by customers' "always on"
attitude
> In total, the global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at
approx. EUR 16.5 bn – growth is mainly driven by Chinese market while slowing down in Europe
> Highest share of outsourced work in Europe (approx. 30%) in E/E, also incl. connectivity/In-Vehicle-
Infotainment, in China around power train/powertrain electrification (approx. 25%)
> For ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China or
India) in order to stay competitive in terms of their cost structure and to develop specialized know-how in
the growing ESO areas
Source: Roland Berger 3
A. Technology trends
and their impact on
engineering service
provider
4
Major trends – overview
Three mega trends reshape the automotive industry – the regarding
domains have strong impact on the future ESP landscape
Mega trends in the automotive industry
CO2 reduction ESP-relevant domains
> Oil scarcity and dependency as well
as global warming as initiators
A Powertrain
> Efforts to increase fuel efficiency enforced by electrification
government regulations (penalties or incentives)
and growing environmental awareness
> Increasing importance as buying criterion
B Lightweight
Comfort/mobile web
> Growing wealth/age and increasing time spent C In-Vehicle
in vehicle as initiators
Infotainment
> Expectations for "living room atmosphere" and (IVI)/Connectivity
"always on" attitude getting more and more
important, also as differentiator for OEMs
> One of the key buying criteria
Source: Roland Berger 5A Powertrain electrification – regional specifics
xEV markets EU and China are primarily legislation-driven –
USA primarily driven by customer pull
Push and pull factors xEVs
EU China USA
> Even under optimistic assumptions > Technology penetration is only driven by > CAFE emissions targets can be met by
regarding ICE improvements and light- government targets for PHEVs and EVs utilizing ICE improvements and some
weight measures, all OEMs will need > Segments fuel consumption targets can weight reduction technology
xEVs be met by optimized ICE in all segments > In relation to costs, OEMs also have no
Push
> xEV share depends on CO2 emissions > Fleet emissions are possible, but there incentive to apply xEV technologies on a
regulations (weight-based vs. constant is no clear indication yet large scale
target) > However, if fleet emissions apply, high > However, ZEV mandate and the ability
> From a cost perspective, light hybrid and xEV penetration to be expected to earn credits will lead OEMs to build
PHEVs are most favorable some PHEVs and EVs
> No TCO advantage for FHEV, PHEV, > Almost no customer pull for xEVs – > No TCO advantage for xEV powertrains
BEV powertrains except for the luxury segment due to low fuel costs
> Light hybrids will become TCO neutral, > Light and full hybrids would offer signif- > However, some customers are willing to
but will enable additional functions icant consumption advantages, but TCO pay for xEVs for environmental image
> In larger cars, there will be customer advantage is limited due to low fuel cost reasons
Pull
willingness to pay for stronger hybrids > No willingness to pay for "green" image
> Only niche demand for BEVs – in luxury segment, innovativeness of
xEVs is an important purchase criterion
for customers
Source: Roland Berger 6A Powertrain electrification – regional specifics
In a conservative scenario, xEVs only represent a minor share of
total powertrain in WE, NA and China in 2020
Share of powertrain technologies in major markets in 2020
Western Europe Japan/Korea > Technologies share estimates taking
push and pull factors into account –
3%
EV: 0.4 m ∑ 20.5 m EV: 0.2 m ∑ 12.4 m conservative scenario shown
2% 2%
PHEV: 1.2 m 6% PHEV: 0.7 m 6% 6% > Improved ICEs as dominating concept
1% 15%
21% by 2020, with conventional start/stop
1% 0%
6% more or less standard in WE and JP/KR
– electrification of powertrain at lower
66% 65% speed compared to historic forecasts
> Introduction of 48V micro systems
significantly gaining share by 2020
North America China (particularly in Europe), outperforming
traditional mild hybrid systems due to
EV: 0.3 m ∑ 18.2 m EV: 0.3 m ∑ 30.4 m
cost advantages
PHEV: 0.7 m PHEV: 0.7 m
2% 1% > Hybridization expected to gain ground –
1%
4% 1% 23% 2% at regional differing speed
31% 4% 6% 2%
1% > Full EV vehicles still remaining niche in
2020 (e.g. ~500k units manufactured in
Europe in 2020)
53% 70%
BEV PHEV Full hybrid Mild hybrid Micro (48V) Conventional start/stop ICE
Source: Roland Berger 7A Powertrain electrification – regional specifics – Europe
EU Commission proposes weight-dependent OEM-specific CO2
emissions target – same CO2 reductions are required in all segments
OEM fleet CO2 emissions target 2021, EU [g/km]
CO2 emissions [g/km] > 95 g CO2 per km is the target for the
2021 EU new car fleet, indicative range
175 2025: 68-78 g
CO2 target 2015 > Vehicle weight is the underlying utility
parameter for OEM-specific targets –
150 130 g + (mOEM - mØ ) x 0.0457 the factor used is 0.0333
-27% > Credits for low-emission vehicles ( Eco innovations: As for the 2015
100 regulation, OEM can apply a maximum
CO2 target 20211) of 7 g/km credit for the use of ‘inno-
vative technologies’ which are not
75 95 g + (mOEM - mØ ) x 0.0333 covered by the test cycle – Will com-
pensate higher CO2 emissions in WLTC
0
1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000
Ø fleet weight [kg]
OEMs
20113)
1) EU Commission 2) Cap of 2.5 g per OEM and year 3) Average fleet weight
Source: Roland Berger CO2 Emission Market Model 8A Powertrain electrification – regional specifics – Europe
All OEMs need to reduce their CO2 emissions by 25-30% until 2021
– French manufacturer profit from high Diesel share of their fleet
1) 2)
-29% -27% -29% -30% -29%
-29%
132 138 138 143 133
129
94 101 98 100 92 95
2012 2021 2012 2021 2012 2021 2012 2021 2012 2021 2012 2021
3)
-30% -30% -24% -25% -25% -27%
133 131 122 124 121 120
93 92 93 93 91 88
2012 2021 2012 2021 2012 2021 2012 2021 2012 2021 2012 2021
1) Incl. Mini, Rolls-Royce 2) Incl. Smart 3) Incl. Alfa Romeo, Lancia
Source: Roland Berger CO2 Emission Market Model 9A Powertrain electrification – regional specifics – China
By 2015, China is likely to tighten fuel economy standards – caps
can be met by advanced ICE technology in all curb weight classes
China's fuel economy standard
Permissible fuel consumption by curb weight class [l/100 km] > Chinese fuel economy
standards limit fuel
16
consumption based on
vehicle curb weight
12 > Consumption caps are set for
16 weight classes in 2
categories:
8 – Vehicles with manual
transmission
4 – Vehicles with automatic
transmissions or
SUVs/MPVs
0 > Average fuel consumption is
I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI determined using NEDCsA Powertrain electrification – regional specifics – China
The introduction of a fleet emissions metric on top could be another
measure to trigger efficiency gains – no decision made yet
Potential China fleet emissions limits in comparison to EU limits
> China could also introduce
CO2 emission [g/km] 2008 (stage 2): fleet emissions standard in
8.0 l/100 km addition to category caps
185 g CO2/km (184 g CO2/km) -14%
190
2015 (stage 3):
> Though exact policy
180 6.9 l/100 km formulation and penalties to
170 177 g (159 g CO2/km) -19% be imposed are still unclear,
160 CO2/km standard is likely to put
2020 (stage 4 forecast):
150 140 g CO2/km 5.6 l/100 km international and luxury OEMs
140 (130 g CO2/km) -27% at a disadvantage
130 g CO2/km
130 2008 > However, if a fleet emissions
2025 (stage 5
120 2012 forecast): metric is introduced, strong
110 4.1 l/100 km xEV growth is expected due
100 (95 g CO2/km) to missing diesel technology
90
95 g
80 CO2/km
70
75 g CO2/km
60
1995 2000 2005 2008 2010 2012 2015 2021 2025
Source: FAW; Interviews; Roland Berger 11B Lightweight – regional specifics
The importance of weight reduction technologies varies widely in the
different markets – in China not relevant yet
EU China USA
Regulations > Importance of lightweight > CO2 emissions regulations > CAFE emissions and fuel
depends on weight-based are by no means related to consumption targets do not
CO2 emissions regulations vehicle's weight differentiate between the
> Vehicle weight is the under- > Focus is only on electric drive weight of vehicles
lying utility parameter for > Therefore, the fleet consump-
OEM-specific targets – the tion of a manufacturer is
heavier a car is, the more highly dependent on the
CO2 emissions it can produce weight of each individual
model
Implications > Weight reduction technolo- > Weight reduction technolo- > Weight reduction technolo-
gies will be applied as gies do not play a major role gies can be used in order to
additional measurement to in Chinese car industry meet CAFE targets
meet the CO2 emissions > The concept is relatively new > Weight reduction technolo-
regulation target, but with to OEMs and just seen as a gies are especially relevant
focus on larger/premium future topic for R&D with for SUVs and Trucks
vehicles (lightweight design lower priority than xEV
for volume models)
Source: Roland Berger 12C IVI/connectivity – general OEM directions
IVI solutions with medium to high OEM involvement and medium to
high sophistication provide highest opportunities for ESPs
Overview of global IVI solution scenarios
OEM IVI system development involvement1)
Low Medium High
High 4 > Ford/Lincoln: SYNC with MyFord 5 > Mercedes-Benz: Comand Online with
Level of IVI system sophistication
Touch/MyLincoln Touch media interface (all classes)
> Lexus: Enform > BMW: Connected Drive
> Cadillac: CUE incl. navigation > Audi: MMI and MMI touch with
connect
> Volkswagen: High-end navigation
system
Medium 2 > Renault: R-Link 3 > Ford: SYNC with MyFord
> Chinese/Indian manufacturer > Kia: Kia UVO
> SEAT Media System (v2.2) > Hyundai: Hyundai Bluelink
> Peugeot Connect Navigation > Toyota: Entune
> Citroen: MyWay > Volkswagen: Medium navigation
> Mitsubishi: MMCS system
> Alfa Romeo: Uconnect > Chrysler Uconnect
> Fiat: Blue&Me > Buick, GMC: Intellilink, plus navigation
Low 1 > MB: Drive Kit Plus MB > Mercedes-Benz: Audio 20 (base for
> Chinese/Indian manufacturer Becker® MAP PILOT)
> Skoda: Navigon – PID > Volkswagen: RCD 510 (incl. mobile phone
> Volkswagen: Navigon – PID connectivity)
> Daihatsu: Garmin satnav > Ford: Sync without navigation
> DACIA: Touchscreen navigation system
ESP-relevant scenarios 1) Example OEM solutions
Source: Roland Berger 13Opportunities for ESP can be found in all domains – specialized
know-how as necessity to benefit from automotive trends
Impact for engineering service providers
Powertrain > Increasing demand in powertrain-related engineering services, both conventional and (some)
Electrification hybrid
> With higher share of alternative propulsions and fuels (CNG, xEV) also opportunities for
related engineering services and component business (CNG tanks, battery packs, etc.).
> Sometimes complete engines, but also complete application developments are outsourced
Lightweight > Demand for weight reduction technologies will increase, especially on the US and European
market
> Opportunities for engineering service provider can be divided into lightweight design and
specialized material/process know how:
– Advanced lightweight design and CAE capabilities for sporty volume models
– Specialized material and process know-how for hybrid and composite body structures, relevant
only for premium models
In-Vehicle > Demand for In-Vehicle Infotainment/Connectivity solutions will increase
Infotainment/ > Most outsourced development activities are around software; esp. HMI and integration relevant
Connectivity for ESPs
> With integration of connectivity boxes trend towards consolidation of supply base ("critical size")
Source: Roland Berger 14B. The market of
engineering services
15The market of engineering services is growing by 5-6% CAGR until 2020 – ESPs need to have a best-cost-country footprint Summary market of engineering services > The global automotive ESO market was estimated at approx. EUR 10.7 bn in 2012 – overall growth has been slowing down > Global passenger and light commercial vehicle production is forecast to increase about 4% p.a. until 2020 > Global automotive R&D expenditures are forecast to grow at approx. 6.7% p.a. until 2020 – outsourced share is expected to slightly decrease > The global automotive ESO market is forecast to grow by 5% to 6% p.a. until 2020, totaling at approx. EUR 16.5 bn > Body/Interior will remain the largest domain for ESO, but with a CAGR of 7.2%, E/E market will grow to EUR ~4.5 bn by 2020 > ESPs need to clearly define their USP and have a best-cost-country footprint in order to stay competitive on the ESP market > Especially in Germany, OEMs need to ensure that they are able to outsource engineering services effectively and ensure compliance Source: Roland Berger 16
Historical ESO market development
R&D expenses have been steadily increasing since 2009 –
top-10 OEMs with approx. 75% share
R&D expenses automotive industry, 2009-2012 [EUR bn]1)
Overall development Top-10 OEMs, 2012
CAGR
2009-2012 VW Group 6.9
Toyota 6.7
9.5% 57.0
55.4 GM 5.6
50.3
Honda 4.6
43.4
Daimler 4.2
Ford 4.2
Nissan 4.0
BMW 4.0
PSA 2.0
Renault 1.1
Total Top-10 43.3
2009 2010 2011 2012
1) Passenger Cars OEM – supplier account for approx. add. 40%
Source: Company data; interviews; Thomson Financials; Roland Berger 17Historical ESO market development
The automotive ESO market was estimated at approx. EUR 10.7 bn
in 2012 – overall growth has been slowing down
Automotive ESO market by region, 2009-2012 [EUR bn]
CAGR 2009-12 > Overall ESO market size
approx. EUR 10.7 bn in
10.7 7%
10.4 2012
9.7
8.9 > Europe as the largest
ESO market in the world
5.8 5.8 Europe1) 2%
5.6 > China with highest
5.4 relative growth
18%
> Overall growth of ESO
1.2 1.3 China2)
1.1 market is slowing down
0.8 13%
1.9 2.0 NAFTA3) "We are currently trying
1.4 1.6
0.3 India 9% to insource lost
0.2 0.2 0.2
1.1 1.2 1.3 1.4 RoW 8% competences in certain
technology fields"
2009 2010 2011 2012 European premium OEM
1) Including Russia 2) Including HQ-developed models 3) Including GME, Ford Europe
Source: Company data; interviews; IHS; Thomson Financials; Roland Berger 18Market trends and drivers
The automotive ESO market is influenced by several trends and
market drivers
General automotive ESO market drivers and impact on outsourced volume
Trends and impact EU China Importance Interview insights
1 Number of models
and body types
The number of car models and body types
is expected to remain high or to slightly
"We have launched most
new segment models and
increase, especially in China, which will
increase the R&D demand derivatives. Outsourced
engineering services will
2 Globalization of
OEM engineering
An increasing number of global engineering
locations and growing needs to adapt to
therefore not further
increase"
activities local product requirements offer additional
German Premium OEM
opportunities for ESPs, especially in China
3 Cost pressure of
OEMs
Cost pressure of OEMs is generally passed
through to ESPs "If we source locally (e.g.
> Vehicle features and performance in India), we will gradually
increases while share of customer
spending decreases
transfer the respective
> Especially prices for expert-on-demand engineering activities.
may face some pressure Similar we will outsource
some work locally"
4 Engineering
capacities
Shortage of engineering capacity in
Germany is expected to further decrease
German Premium OEM
High importance Low importance Positive impact Neutral impact Negative impact
Source: Interviews; Roland Berger 19Automotive production
Global passenger and light commercial vehicle production is
forecast to increase about 4% p.a. until 2020
Global production of PVs and LCVs by region, 2012-2020 [m units]
CAGR > Highest absolute growth is expec-
2012-2020 ted in China: Production in China
108 3.9% is expected to grow from 19 m
3.9%
101 103 units in 2012 to 32 m units in
98 2020
95 23 Europe 3.0%
90 22
86 21 22 > Highest relative growth is expec-
79 82 20
19 ted in India: Production in India is
18 expected to grow at approx. 9.1%
18 18
30 32 China 6.7% p.a. from 2012-2020
28 30
27
23 25 > Overall growth rate is expected to
19 21 be about 4% p.a. from 2012 to
19 20 20 NAFTA 1.7% 2020
19 20 20
17 18 19
6 6 7 India 9.1%
4 5 5
3 3 4
22 22 22 23 24 24 25 26 27 RoW 2.6%
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: IHS; Roland Berger 20Market forecast
Global automotive R&D expenditures are forecast to grow at c. 6.7%
p.a. until 2020 – outsourced share is expected to slightly decrease
Global automotive R&D expenses, 2012-2020 [EUR bn]
CAGR > Higher R&D share in emerging
2012-2020 markets and new technologies in
96.0 6.7% alternative propulsion, light-
89.5 weight construction and E/E are
Out- 5.6%
83.5 16.5 main drivers of increasing
79.6 sourced automotive R&D expenses
75.4 15.4
71.6 14.4 > Own OEM engineering capacities
66.8 13.7
62.7 13.1 for key competences and know-
12.9
57.0 12.1 how are expected to remain high
11.4
10.7 > Share of ESO is expected to
Captive 7.0%
decrease until 2020
79.5
69.1 74.1 OEM
62.3 65.9 "Many OEMs are now focusing
54.7 58.7 on core engineering competen-
46.3 51.3
cies for their captive engineers
again, thus the dynamics of ESP
are likely to cool down over the
next years, but still remain on a
2012 2013 2014 2015 2016 2017 2018 2019 2020
high level"
European OEM
Source: Company data; Interviews; IHS; Thomson Financials; Roland Berger 21Market forecast
The global automotive ESO market is forecast to grow by 5% to 6%
p.a. until 2020, totaling at approx. EUR 16.5 bn
Automotive ESO market by region, 2012-2020 [EUR bn]
CAGR > Overall growth rate is expected to
2012-2020 be about 5.5% p.a. from 2012 to
16.5 5.5% 2020
15.4 > Highest absolute growth is expec-
14.4 ted in China: From EUR 1.3 bn in
13.8
12.9 13.1 2012 to EUR 3.2 bn in 2020
12.1 7.4 Europe 3.0%
11.4 7.0 > Includes only "in-vehicle"
10.7 6.6 development work
6.2
6.0
6.5
6.2 "Whatever service cannot be
5.9
5.8 3.2 China 11.9% covered in terms of contracts for
2.9 work and labor anymore will be
2.5 2.7
2.3 shifted to our engineering
1.7 1.9
1.5 3.1 NAFTA 6.0% locations in China and India"
1.3 2.9
2.6 2.8 2.7 European Premium OEM
2.3 2.4 2.5
2.0 0.4 0.4 0.4 India 7.3%
0.3 0.3 0.4 0.4
0.3 0.3 2.3 RoW
1.4 1.4 1.6 1.7 1.9 2.0 2.0 2.2 5.5%
2012 2013 2014 2015 2016 2017 2018 2019 2020
Note: Possible differences from rounding
Source: Company data; interviews; IHS; Thomson Financials; Roland Berger 22ESPs need to clearly define their USP and have a best-cost-country footprint in order to stay competitive on the ESP market Challenges for ESPs > For the ESPs, the main challenge will be to have a best-cost-country footprint (e.g. with a hub in China or India) in order to stay competitive in terms of their cost structure > Opportunities in low-cost countries are also driven by captive engineering centers increasingly being used to develop subsystems and derivates resulting in a lowering of the ESP market esp. in Europe > Project-based service contract will allow that more easily, but at the same time provide an opportunity for especially the large Indian players, who all try to enter the European market with massive efforts > It is therefore also very important for the ESPs to clearly define their USP based on specialized know- how e.g. in the areas of powertrain or material know-how in terms of weight reduction technologies on the highly competitive market as competition, especially from low-cost countries, will increase Source: Roland Berger 23
Especially in Germany, OEMs need to ensure that they are able to
outsource engineering effectively and ensure compliance
Possible standard models for the outsourcing of engineering services – illustrative
1 Outsourcing of clearly
defined work packages in
the V-model/process … 3
(e.g. HIL test) ECU derivative Development
ECU 1st model of first vehi-
cles/systems
… inhouse;
outsourcing of
Department 2
variants/
SD1) SOP2) SM3) Department 1 SD1) SOP2) SP3) derivatives
2 Outsourcing of series
management4)
… 4
Trunk lift (electric) Outsourcing of
… SD1) SOP2) SM3)
… Body component all modules/
components of
a certain type
("non-core
competence")
SD1) SOP2) SM3) SD1) SOP2) SP3)
1) SD: Series development 3) SM: Series management Work package for outsourcing
2) SOP: Start of production 4) Engineering change management after SOP
Source: Roland Berger 24C. Authors
25Authors of the study
Dr. Wolfgang Bernhart Dr. Stefan Gutberlet
Partner Senior Consultant
Competence Center Competence Center
Automotive Automotive
wolfgang.bernhart@rolandberger.com stefan.gutberlet@rolandberger.com
Experience > Global head of Automotive Practice Group – > Over 6 years of consulting and industry
Innovation experience, especially in automotive
> Over 17 years of consulting experience, > In-depth automotive wholesale and retail
especially in automotive industry experience
> Extensive knowledge about automotive, > Several projects in mobility, telematics and
e-mobility and new materials connected vehicles
> Deep knowledge about energy material > Experience in engineering services provider
trends and new e-mobility markets markets
> Expert on connected vehicles
> Strong expertise in diagnostics
Source: Roland Berger 261. This presentation has been compiled for the exclusive, internal use by our client. Within the framework of the engagement, Roland Berger Strategy Consultants
("RBSC") will act solely in the interest of the client. Property rights in favor of third parties will not be constituted and no protective effect shall arise for the benefit of
third parties.
2. The presentation shall be treated as confidential and may not be passed on and/or may not be made available to third parties without prior written consent from
RBSC. It is not complete without the underlying detail analyses and the oral presentation.
3. RBSC does not assume any responsibility for the completeness and accuracy of any documents and information made available to RBSC in the course of the
project. RBSC assumes that the data and documents provided are complete, comprehensive and that the contents are truthful and exact; a detailed examination has
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