The Future of the Automotive Value Chain - Supplier industry outlook 2025 - Deloitte
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The Future of the Automotive Value Chain Supplier industry outlook 2025
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Preface 05
Unprecedented change in the automotive world
and its potential impact on the supplier industry 06
Four plausible scenarios for the automotive value
chain and their implications for the supplier industry 12
The Deloitte Automotive Value Chain Industry Model 20
Investigating specific material cost developments:
Selected model deep dives 30
Overall model result overview 45
Transformation paths towards 2025 for the
automotive supplier industry 46
From integrated material cost projections to tailor-made
transformation strategies for automotive suppliers 63
Conclusion 67
Contacts 68
03% 04
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Preface
Automotive players are facing disruptive We worked towards validating all these confident that we are bringing valuable
times. Many insights, opinions, and rec- hypotheses by developing the Deloitte support to the table for automotive de-
ommendations have been voiced on this. Automotive Value Chain (AVC) Industry cision makers when it comes to tackling
Earlier in 2017, we published our views on Model, a comprehensive material cost some of the most burning strategic deci-
the drivers that will likely shape the auto- forecasting tool, which gives volume sions.
motive industry over the next decade. We predictions broken down into a vehicle's
ranked and fused these into four scenario component clusters. The model shows that We hope you enjoy reading our insights
narratives, giving an outline of what the 15 out of 19 vehicle component clusters and thoughts on the future of the automo-
automotive value chain might look like in will likely see a decline in market volume tive value chain and the related supplier
2025. Our previous issue primarily high- (in Germany, NAFTA and China; not con- markets.
lighted implications for car manufacturers sidering effects from general inflation or
(OEMs). In this next piece we move further spare parts demand). The biggest losers
down the value chain, in an attempt to shed will be components related to conventional Joe Vitale
light on supplier market implications. combustion engines, e.g. transmissions Global Automotive Lead
dropping up to -36% in volume. Likely at Deloitte Consulting
We defined a set of four hypotheses as a winners, especially suppliers with stakes in
starting point to our investigation: the fields of electric drivetrains and battery Dr. Thomas Schiller
technology, as well as autonomous driving Global Automotive Consulting Lead
•• Commonly discussed automotive feature development, on the other hand, at Deloitte Consulting
mega-trends, like connected and auton- must prepare to manage and cater for
omous drive or electrification, will lead to growing demand of up to 15 times their
significant change in demand for specific current volume. Regional projections show
vehicle component clusters that while material cost volumes in Germa-
ny are facing a general decline, volumes in
•• As a result (some) suppliers will face dras- China will increase due to general strong
tically shrinking market volumes, whereas vehicle sales forecasts.
others must be able to manage massive
demand increases Our core premise, however, is that scenar-
io-based thinking is the best preparation
•• This will result in significant, strategic, for dealing with the uncertainties the future
operational, financial, transformation automotive industry developments hold.
demand for many suppliers Therefore, we split each of our volume pro-
jections along our four scenarios for 2025
•• Portfolio and localization strategy defini- and beyond.
tion processes should be supported by
a solid market volume projection model By presenting the Deloitte AVC Industry
taking all these drivers and megatrends Model now to the broader public, we are
into account
05Unprecedented change in the automotive world and its potential impact on the supplier industry More than ever before, the auto- motive industry today is in a state of constant pressure: From cus- tomers demanding new and costly connect features – often without showing additional willingness to pay. From regulators rightfully demanding strictest adherence to environ- mental and safety standards. And also from major tech players with pockets full of cash pushing investment in mobility business models and threatening traditional OEM dominance. 06
The Future of the Automotive Value Chain | Supplier industry outlook 2025
20%
07Context It is well known that the n-tier automotive supply chain is strongly interlinked and ul- timately depends heavily on today’s seem- ingly almighty OEMs. The burning question for many decision-makers in the automo- tive supplier industry is how to REACT to these, potentially existential, changes and threats in the industry landscape. Or, more importantly: How to ACT, with vigor and strategic foresight, and be in a position not only to survive, but to come out on top of the disruptions facing the automotive value chain until 2025 and beyond. This study focuses on possible develop- ments in supplier market volumes, their un- derlying trends as well as their implications for decision makers: In the economic and political sphere, at automotive suppliers as well as in OEM development, purchasing, and manufacturing departments. We aim to support automotive leaders in times of great uncertainty by highlighting four quan- tified scenarios of what the automotive ecosystem might look like in 2025. Study approach Following up on our previous issue on the The methodical base for this differentiated future of the automotive value chain, we analysis was the breakdown of a vehicle based all our considerations on one simple into its modules and components: What will assumption: Future industry develop electrification, connected and autonomous ments are hardly ever one-dimensional. driving or other user trends change in Rather, they are based on a multitude of components used in the car of the future? drivers, which almost never develop in a What are the material cost implications straightforward way. When uncertainty is from these trends? And consequently, what high, thinking in scenarios can help. So we impact will all of this have on supplier mar- reviewed the four scenario narratives de- ket volumes and industry structures? scribing possible states of the automotive We developed an integrated calculation value chain in 2025, which were developed model, summarizing all our thinking and as- for the previous study – together with sumptions on future material cost trends – several top automotive managers, mobility distinguished along the four scenarios entrepreneurs, researchers, lobbyists, outlined above. From this Deloitte AVC as well as IT and battery developers. We Industry Model we derived differentiated enhanced these scenario narratives with material cost market volume forecasts more in-depth insights and discussions 2025 for vehicles in Germany, China and around the future of the automotive supplier NAFTA (in chapter III). industry, so we were able to specifically tack- le supplier-related concerns (in chapter II). 08
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 1 – Questions from selected interviews with automotive suppliers and other industry experts
Which drivetrain technology will prevail What will the
in the future and how does it impact supplier
my portfolio strategy? landscape look
like in 2025?
How fast will customers
What will cars accept autonomous
look like in driving once the safety
2025? issues are solved?
Should suppliers set up partnerships to work
How will the together on new technologies, and with whom?
changing require-
ments shift
capacities and
demand work-
force transfor-
mation?
How can suppliers with shrinking market
volumes compensate these negative
effects?
We exemplify our reasoning and model These and further results from the Deloitte
outputs (in chapter IV) along four selected AVC 2025 Industry Model (summarized
vehicle component clusters where we in chapter V) shed light on substantial,
might see the biggest material cost impact in some cases even burning, needs for
until 2025 – and also face the greatest change. This study therefore concludes (in
uncertainty: Interior & infotainment sys- chapters VI and VII) with a discussion of im-
tems, drivetrain technologies (incl. internal plications and recommendations for three
combustion engines, transmission and spheres of the automotive ecosystem:
alternative drivetrains), high voltage (HV) Political actors and lobby groups when it
batteries & fuel cells, and driver assistance comes to future industry and employment
systems. We provide an outline of the key structures. OEM executives responsible
technology trends that are expected to for purchasing, research & development
determine the long-term material cost de- as well as manufacturing. And most im-
velopment for each component cluster. In portantly: Decision-makers at automotive
each case, however, we stress the different suppliers facing questions around strate-
specifications these technology trends can gically reassessing product portfolios and
have, depending on the overall scenario of potentially restructuring operations.
the automotive world we anticipate.
09Joint venture by Valeo and
Siemens dedicated to high
voltage powertrains starts
operation
finanzen.net
ZF: Electric cars could
destroy over
100,000 jobs
Handelsblatt
Baidu forges alliances
with German auto
suppliers
Financial Times
For automakers and
suppliers, Silicon Valley
is as much a shift in
mindset as a location
The Deloitte Forbes
AVC 2025 Industry
Model sheds light on Supplier Brose sees
the future of electric
the substantial, in some cars in China
cases burning, need for
Süddeutsche Zeitung
change at automotive
suppliers
10The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 2 – Signposts to the automotive future
Bosch invents new
Hella and ZF electric car battery to
form strategic double mileage
partnership The Telegraph
Automobilwoche
AI: 30,000,000,000,000
"Bad banks" supposed computational
to save German processes in one
automotive supplier second
business
Frankfurter Allgemeine
Die Welt Zeitung
Continental: Supplier
Musk's electric car Continental buys sees no future for
vision doubted by sensor technology diesel and gasoline
major parts suppliers for self-driving cars
Spiegel Online
Bloomberg Technology WSJ
Continental
partners with BMW
and Intel
manager magazin
11Four plausible scenarios for the automotive value chain and their implications for the supplier industry Scenario-based thinking can support decision-making under circumstances of high uncertainty. We created four plausible scenarios for automotive suppliers as part of the automotive value chain in 2025. 12
The Future of the Automotive Value Chain | Supplier industry outlook 2025
2+
13Distinct and meaningful
scenarios unfold from drivers
where high impact and high
uncertainty coincide
In our previous piece "The Future of for their degree of uncertainty and their
the Automotive Value Chain – 2025 and impact on the future automotive value
beyond" we laid out four quintessential chain, focusing on the upstream links of
scenarios to describe the future of the the value chain such as R&D, procure-
automotive industry. Coming from this ment, and manufacturing, and based on
base, the core assumptions underlying the extensive research as well as validation
scenarios were adopted and transferred interviews and workshops with experts
to the supplier landscape. But before we in the respective driver topics. Grouping
get to that, a brief recap of the overall 2025 the drivers according to their impact (on
value chain scenarios. the y-axis) and degree of uncertainty (on
the x-axis) highlights the zone of highest
High-influence drivers for the automo- interest for scenario building: Distinct and
tive value chain meaningful scenarios always unfold from
We analyzed a wide variety of drivers from drivers where high impact and high uncer-
the areas of social change, technological tainty coincide (figure 3). Finally, applying
advancement, economic shifts, environ- the Deloitte Center for the Long View's
mental trends, and political development. proven methods helped formulate four
These 60+ drivers were in turn assessed quintessential scenarios:
14The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 3 – 6
0+ drivers that will shape the future automotive value chain clustered by
impact on the upstream value chain and uncertainty
High
Zone of interest
Connectedness
Predominant of Cars
Powertrain Tech Alternative
Lightweight Powertrains
Power Charging Technology
Artificial Market Control
by New Players Source of Auto-
Intelligence mot. Innovation
Autonomous
Driving
Re-manufacturing
Updatable Car Environmental
Processes
Regulations Competition for
Degree of Talent
Man-machine Customization
Dialogue
3D Printing
Place of
Role of Suppliers
Growth in Asian Consumer Power Production
Markets Power of
E-mobility Suppliers
Availability of Future Standing Business Models
Degree of Impact
Capability of Cars Batteries of Driving
Medium
Autonomous Environmental White-Label Cars Trust in OEMs
Safety Awareness
Production Networks Concern
Protection of
Freedom of Trade Sales Channels Personal Info
Urbanization
Pollutant-free Strength of IP
Lifecycle Artificial/Organic Production Laws
Components
Form of
Energy Storage Data Ownership
Location Monetization
End-to-End Infrastructure Telecommuni- Adaptive Cars
Mobility Services cation Grid
Spending
Ride Sharing
Corporate
Polluter Pays Cost Pressure on Valuations
Principle Suppliers
Oil Price
Pay-per-use Energy Storage
Shareholder Models
Interest Vehicle Structure
Public Transport
Cost of Capital Infrastructure
Stringency of Cyber
Data Storage Security Standards
Buying vs. Leasing Financing Options
Importance of
Material Wealth
Low
Low Medium High
Degree of Uncertainty
15Fig. 4 – Four scenarios for 2025
To the full
extent
2+
Hardware Data and mobility
platform provider manager
Capabilities of Cars
Suppliers OEMs
and dominate
outsiders Balance of Power Balance of Power the auto-
set the motive
rules world
The fallen Below technological Stagnant
giant possibilities car maker
16The Future of the Automotive Value Chain | Supplier industry outlook 2025
2+
Scenario 4 – Scenario 1 –
Hardware platform provider Data and mobility manager
IT players have disrupted the automotive In this world, connectivity has become a
value chain. OEMs are now primarily the differentiator. E-mobility (including battery
suppliers of white-label cars to the internet as well as plug-in hybrid electric vehicles,
giants. In this world, OEMs can play a range extenders and fuel cell), autonomous
relevant role only if they provide a superior driving, and integrated mobility are a
platform for ‘infotainment’ and mobility ser- common reality for the broad public. OEMs
vices and/or retain a strong brand image. are able to set the standards and are the
Since OEMs are not able to fully cash in the dominant players in the automotive indus-
revenue potential, the margin per vehicle try, offering a rich portfolio of products and
decreases. services. Innovative automotive outsiders
have to play according to the rules set by
OEMs. In particular, premium brands and
status play a decisive role in consumers’
buying behavior. OEMs offer an attractive
workplace for talent.
Scenario 3 – Scenario 2 –
The fallen giant Stagnant car maker
The car is a mere means of transportation Massive lobbying by OEMs has prevented
and brand attractiveness has diminished. potential new high-tech players from en-
The technology hype has cooled down, tering the market. However, this defensive
which has put an end to the rise of the strategy has also slowed down technical
high-tech car. As mobility has become a development, with the result that many
commodity, profit margins have decreased potential innovations have not been rolled
and OEMs are focusing on improving out to the market, with regulations, for
processes and cost efficiency. Industry example, limiting the deployment of tech-
outsiders such as Uber have entered the nology. Dramatic accidents with immature
market and are forging exclusive alliances autonomous cars have also resulted in a
with suppliers to provide affordable mass loss of consumer acceptance.
mobility. Since private car ownership has
decreased, fleet management has become
of significant importance for OEMs. New
talent is hard to come by, due to the loss in
the attractiveness of OEMs.
Source: Deloitte – "The Future of the Automotive Value Chain – 2025 and beyond" 17How will these value
Specific scenario implications for the
supplier industry
Based on these broad scenario narratives,
chain scenarios
the guiding question for the following
chapters is: How will the scenarios
impact automotive supplier markets?
impact today's
In the course of multiple interviews and
workshops with automotive experts and
researchers, the following supplier-specific
automotive suppliers?
considerations were added to each scenar-
io for the automotive value chain in 2025:
In the first scenario, the “Data and mobility
manager”, premium suppliers dominate
through alliances with OEMs and their soft-
ware solutions. They will take over a higher
number of OEM tasks, e.g. data analysis to
improve products and features. Further-
more, through massive investments, sup-
pliers help OEMs to set standards for con- In the third scenario, “The fallen giant”,
nected services while ensuring premium industry outsiders like Uber enter the
quality, which plays a decisive role in this market and forge exclusive alliances with
scenario. OEMs demand further services suppliers to provide affordable mass
based on platform solutions provided by mobility. Suppliers support mass mobility
suppliers. Research and development as by expanding their service portfolio, e.g.
well as innovation activities are still driven by introducing usage-based pricing
by rules set by the OEMs. schemes for certain components. This also
applies to traditional OEM customers, who
In the second scenario, the “Stagnant increasingly focus on fleet management
car maker”, the automotive value chain operations and ask for highly durable but
remains mostly unchanged and suppliers affordable spare parts.
keep their traditional role. The hype
around connected and autonomous drive In the fourth scenario, the “Hardware plat-
technologies is gone and suppliers focus form provider”, suppliers support and form
on what they were good at, i.e. incremental alliances with tech players designing new
innovation along today’s vehicle features. automotive services/platforms alongside
As today, suppliers are challenged by OEMs the classic parts supply for OEMs. They
to provide high quality at competitive pric- become providers of innovative software
es. E-Mobility emerges as an independent solutions. The coordination effort between
business model among OEMs, which leads suppliers and third party service providers
to a high spend in R&D for this sector increases drastically (e.g. for Google traffic
among suppliers. In any case, suppliers control systems). Due to even stronger
who focus on innovation in drivetrain interlinkage of provided software function-
technologies are the “winners” in their alities, data, and conventional hardware,
competitive fields. suppliers gain significant bargaining power.
18The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 5 – Four scenarios for the automotive value chain in 2025 – adjusted with supplier focus
To the full extent
2+
Scenario 4 – Scenario 1 –
Hardware platform provider Data and mobility manager
Large tech giants manage all services OEMs dominate the automotive value chain
around the mobility experience. OEMs are through gated platforms supported by
pushed out to become mere hardware situational alliances with tech players.
manufacturers. Incumbent suppliers have Winning suppliers influence these stan-
the opportunity to form development dards (esp. alternative drivetrains and
alliances with the new market players (e.g. connected & autonomous drive) via close
from the group of tech giants), leapfrogging co-development with OEMs. Market entry
OEMs in terms of product and service of large technology players as new automo-
innovation. tive suppliers is limited.
Capabilities of Cars
Suppliers and OEMs dominate
outsiders set Balance of Power Balance of Power the automotive
the rules world
Scenario 3 – Scenario 2 –
The fallen giant Stagnant car maker
The entrance of new mobility players OEMs keep their dominant role in the value
forces OEMs into strong displacement chain, while only incremental innovation
competition. Selected suppliers forge ex- is accepted in the markets. Supplier roles
clusive alliances with new mobility players remain largely unchanged compared to to-
to provide mass mobility based on large day. A focus on components for alternative
fleets. Providing durable and affordable drivetrains provides growth potential.
(spare) parts is key.
Below technological
possibilities
19The Deloitte Automotive Value Chain Industry Model Coming from the overall scenario nar- ratives, we go one step further and use expert assessments and project experience to explore what specific material cost implications might result from these trends and how the mar- ket volume for the individual vehicle components will develop until 2025. 20
The Future of the Automotive Value Chain | Supplier industry outlook 2025
21Modelling approach As a first step, the Deloitte AVC Industry
We started by breaking down a conven- Model takes the expected material cost
tional vehicle into its components along 19 development for an average vehicle into ac-
clusters. Based on project experience and count: What is the material cost baseline as
expert interviews, we set up an average per today for an average mid-sized vehicle
material cost baseline for 2016 of €16k per equipped with an internal combustion en-
vehicle (figure 6). This baseline includes ma- gine and limited driver assistance features
terial costs for pure hardware components (level 1 according to the classification of
as well as embedded software systems. autonomous driving features) [step 1]?
Fig. 6 – Breakdown of vehicle component clusters as a basis for the Deloitte AVC Industry Model
Infotainment &
Climate communications Interior
Control
Advanced driver Electronics
assistance systems & Wheels & tires
Electric
sensors
drivetrain Exhaust
system
Transmission
Internal
combustion
engine
Frame
Steering
Fuel system
Brakes Seats Body
Axles
High voltage
Suspension battery / fuel cell
22The Future of the Automotive Value Chain | Supplier industry outlook 2025
Several sources helped us to model the Fig. 7 – Modelling approach for the Deloitte Automotive Value Chain
material cost development of this baseline Industry model
car towards the year 2025, from extensive
research into component-specific technol-
ogy trends to discussions with industry Steps Vehicle split into 19 component clusters
stakeholders. The guiding questions be-
hind this assessment were: How will tech- 1 € Material cost baseline 2016 (average vehicle)
nology trends and/or substitution effects
x
of certain materials and parts influence the
value of the respective components in the 2 % Material cost development (technology trends)
car (not considering effects from general =
inflation) [step 2]?
€ Material cost baseline 2025 (average vehicle)
As a next step, we distinguished different x
configuration factors regarding material 3 € Vehicle configuration factors
cost impacts for different types of drive-
trains, vehicle segments and levels of
Drivetrain ICE PHEV REX BEV FCEV
autonomous driving. We considered a dif- Vehicle segment Micro Compact Medium Premium Luxury
ferentiation between ICE, PHEV, REX, BEV, Autonomous
drive level 1 2 3 4 5
and FC1 in terms of drivetrains and adapted
x
the material costs relative to the 2025
baseline car (as mentioned above), e.g. 4 % Sales volume forecast 2025
the cost for electronics in a vehicle with a =
range extender can be around 1.6x higher
than in a vehicle with an ICE. The same logic
€ Material cost market volumes 2016 & 2025
was applied to the vehicle segment config- x
uration factor (micro, compact, medium, 5 % Scenario-specific factors
premium, luxury) as well as “autonomous
=
drive level” (1–5). In conclusion, each vehicle
configuration has its individual material Material cost market volumes:
cost calculation [step 3]. € per component cluster, region, drivetrain, vehicle segment,
level of AD features, and scenario
As in our previous issue on the future of
the automotive value chain, we utilized Configuration of baseline vehicle
our Deloitte E-Mobility Model to forecast
general vehicle sales until 2025. It provides
a scenario-specific forecast distinguishing
annual sales of alternative drivetrains Using a last set of assumptions, we distin-
and vehicle segments for China, NAFTA, guished market volume developments for
and Germany. Additionally, we included the four scenarios, as highlighted in chapter
assumptions regarding negative sales II. The key question is:
impacts from a scenario-specific increase
in the sharing economy, i.e. car and ride How does the varying degree to which
sharing [step 4]. The multiplication of these available technological capabilities are
vehicle sales forecasts with the above utilized in cars change the material cost
described material cost developments outlook? These scenario factors consider,
[steps 1–3] provides a first estimation of for example, that there will be a higher de-
likely overall market volume developments mand for power supply due to “Electronics”
for each of the 19 component clusters and “Infotainment” in the scenario “Data
between 2016 and 2025. and Mobility Manager”, as highly connected
vehicles are the norm here [step 5]. As
an overview, the general approach to the
industry model is visualized in figure 7.
ICE: Internal Combustion Engine | PHEV: Plugin Hybrid Electric Vehicle |REX: Range Extender | BEV: Battery
1
Electric Vehicle | FC: Fuel Cell 23The Deloitte AVC Industry Model fuses and computes all these stated effects and provides a detailed material cost forecast per vehicle component cluster 24
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Model outputs generally show the impact Fig. 8 – Schematic material cost volume development 2016–2025
of the stated factors on material cost
market volumes for each of the 19 vehicle
component clusters, for different regions
Market volume 2016
(Germany, NAFTA, China), powertrains,
vehicle segments as well as levels of auton-
Material cost down General cost improvements
omous drive features – for each of the four
Automotive Value Chain scenarios for 2025.
E-Mobility
This is shown in figure 8 as an example for
the sum of all vehicle modules across key Autonomous drive features Cost of innovation
markets (Germany, NAFTA, and China):
Further technological
innovations (scenario-specific)
•• Across all scenarios, efforts to keep
material costs down generally lead to a Vehicle sales development
decrease in market volumes. A specific Volume effects
split into winning and losing component Sharing economy effects
clusters in terms of market volume will be
provided at the end of this chapter.
Market volume 2025
•• The second, third and fourth pillars show
the influence of customer preferences
in terms of drivetrain, vehicle segment/
size, average level of autonomous driving
features as well as other (scenario-spe- Fig. 9 – Model assumptions regarding potential impact of sharing economy on
cific) sources of vehicle innovation (e.g. vehicle sales 2025
in the field of infotainment) assumed per
scenario.
On-demand and pay-per-use mobility models might increasingly
•• Pillars five and six indicate material cost replace conventional car ownership, especially in urban areas
effects from general vehicle sales devel-
opments, with special consideration of
negative sales effects from sharing econ- Sales impact 2025 in
markets analyzed
omy, i.e. car and ride sharing. See figure
9 for our specific assumptions for the OEMs establish positioning as overall
sharing economy impacts in the markets mobility provider, incl. strong car & ride
sharing offerings
-19%
analyzed.
New (mass) mobility competitors are largely
locked out by OEMs and individual mobility
remains dominant
-8%
-20%
Affordable mass mobility is the norm,
private car ownership decreases
New mobility players like Uber have
2+ strong control of mass and individual
mobility alike
-19%
25Infotainment &
U
(spread
Fuel System Communications
Transmission
Steering
Brakes Axles Electronics
Suspension
Interior
Wheels&Tires
Engine ICE Body
Exhaust System Frame
10
- 25 - 20 - 15 - 10 -5 0 5 10 15 20 25 30 800 805 965 970 1,200 1,205
Impact 2025
(average material cost volume development 2016-2025 across scenarios in %)
Fig. 10 – Impact versus uncertainty of material cost volume developments (2016–2025) across all scenarios2
10,000
(spread across scenarios in %)
1,000
ADAS & sensors Electric drivetrain
HV battery/
Uncertainty 2025
Fuel cell
Infotainment &
communications
100
ICE exhaust system Electronics
Frame
Brakes Seats
Fuel system Interior
10 Transmission Steering
Climate control
Axles Body
Wheels&tires
Suspension
1
- 30 - 25 - 20 - 15 - 10 -5 0 5 10 15 20 25 605 610 920 1,135 1,140
Impact 2025
(average material cost market volume development 2016-2025 across scenarios in %)
Bubble sizes indicate the overall market volumes 2016 (Germany, NAFTA, China)
Overarching model results (in %). Please note that all numbers exclude •• vehicle modules related to electric driv-
Modeling four different scenarios for the inflation effects within the given time frame. etrain technologies and innovative areas
automotive value chain in 2025 indicates What stands out is that like ADAS and sensors will see a further
that exponential developments are ex- increase.
pected, especially in the areas of electric •• 15 out of 19 vehicle component clusters
drivetrain technologies, advanced driver will likely see a decline in market volume Regional differences are reflected in figure
assistance systems as well as high voltage (not considering effects from general 11 (illustrative). While Germany’s material
batteries. Stagnating or declining develop- inflation) across the entire scenario cost volumes are facing a general decline
ments can be seen across scenarios and landscape. until 2025 across the scenarios, Chinese
independent of the regional environment in material cost volumes will increase due to
the conventional component clusters, such •• the winners will experience a noticeable the generally strong development in vehicle
as ICE, transmission, suspension, fuel and impact on their business while most of sales.
exhaust systems. the suppliers in the lower left quadrant
will face high (displacement) competition
Model outcomes can best be summarized and constant cost pressure. A fast strat-
in an overview highlighting both impact egy assessment and adaption to future
and uncertainty of expected material needs are indispensable.
cost volume shifts (figure 10). Uncertainty
describes the average market volume •• vehicle component clusters related to
spread within each vehicle component the classic ICE vehicle, like transmission,
cluster across the four scenarios. Impact combustion engine or fuel system, have
describes the average material cost volume to deal with the biggest challenges due
development 2016–2025 across scenarios to decreasing sales and smaller engines
used in hybrid vehicles.
26 2
Note: Excluding inflationThe Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 11 – Regional differences in an illustrative scenario
Data and mobility manager Data and mobility manager
GER CHN
Market volume 2016 €47.2 bn € 317.7 bn
Material cost down -€8.9 bn -€60.0 bn General cost improvements
E-Mobility €5.8 bn €30.3 bn
Autonomous drive features €4.7 bn €30.1 bn Cost of innovation
Further technological
€3.5 bn -€22.6 bn
innovations (scenario-specific)
Vehicle sales development -€3.0 bn €181.2 bn
Volume effects
Sharing economy effects -€9.2 bn -€97.8 bn
Market volume 2025 -€40.1 bn €424.1 bn
Data and mobility manager
NAFTA
Market volume 2016 €289.0 bn
Material cost down -€54.4 bn General cost improvements
E-Mobility €27.3 bn
Autonomous drive features €32.9 bn Cost of innovation
Further technological
€21.4 bn
innovations (scenario-specific)
Vehicle sales development €30.9 bn
Volume effects
Sharing economy effects
-€65.0 bn
Market volume 2025
€282.1 bn
27Taking another look at the global develop- •• The fallen giant In 2025, changes in market structures
ment across the four scenarios shows: Due to the fact that affordable mass and technology developments will likely
mobility dominates the markets, the lead to significant adjustments regarding
•• Data and mobility manager negative vehicle sales effect from sharing product portfolios, business models, and
Due to the increasing importance of con- economy is even stronger than in the organizational structures. Comparing all 19
nected services and further successes other scenarios. Furthermore, the high clusters in several categories, we identified
in autonomous driving, ADAS & sensor market penetration of autonomous drive four deep dive topics (chapter IV) that are
technology and the market for electron- level 3 vehicles pushes demand for ADAS of particular interest.
ics are on the winning side. High voltage & sensors. By contrast, Infotainment &
batteries grow strongly because of Communications decrease because the The results from the Deloitte AVC Industry
increasing e-mobility market penetration. general technology hype cools down. Model can be sliced by vehicle module
On the other hand, ICE-related clusters ICE-related clusters decrease just slightly. and influence factor, making deep analysis
like the transmission or exhaust system possible and showing significant differ-
and conventional hardware components •• Hardware platform provider ences for each vehicle module and region.
lose market share. The ICE engine itself Autonomous driving plays a decisive We continuously update and discuss our
keeps a relatively high volume but is in role, thus the ADAS & sensors market as modelling assumptions, so the model can
strong decline. well as the market for electronics see a be customized and used for client-specific
huge growth development. Tech players challenges.
•• Stagnant car maker designing new automotive services and
High voltage batteries and fuel cells grow platforms demand innovative software
far less while the ICE cluster sees only a solutions. ICE-related clusters like
moderate decline. Autonomous driving transmission face a decline due to an in-
is not a promising field for suppliers. creasing number of alternative drivetrain
Conventional automotive hardware parts vehicles. Consequently, the demand for
face constant cost pressure. On average, high voltage batteries related to electric
growth developments are less strong drivetrains grows rapidly and reaches a
than in other scenarios. significant market volume in this scenario.
Fig. 12 – Deloitte Industry Model: Available data splits
3
regional sales
5
vehicle segments:
6
levels of
forecasts: Luxury, Premium, autonomous
Germany, NAFTA, Medium, Small, drive features:
China Micro Levels 0–5
19
vehicle component
5
drivetrain types:
4
automotive value
clusters: ICE, BEV, PHEV, chain scenarios:
Engine, Transmission, REX, FC Data and mobility
Body, Interior, … manager, Stagnant
car maker, The fallen
giant, Hardware
platform provider
28The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 13 – Winning and losing vehicle component clusters per scenario (Germany, NAFTA, China)
To the full extent
Scenario 4 – Scenario 1 –
2+ Hardware platform provider Data and mobility manager
Highest decline in Highest growth in market Highest decline in Highest growth in market
market volume volume market volume volume
HV Battery/ HV Battery/
Transmission -36% 1,380% Transmission -35% 1,359%
Fuel Cell Fuel Cell
Electric Electric
ICE -35% 1,231% ICE -34% 1,116%
Drivetrain Drivetrain
Exhaust System -30% ADAS & Sensors 989% Exhaust System -29% ADAS & Sensors 995%
Capabilities of Cars
Suppliers and OEMs dominate
outsiders set Balance of Power Balance of Power the automotive
the rules world
Scenario 3 – Scenario 2 –
The fallen giant Stagnant car maker
Highest decline in Highest growth in market Highest decline in Highest growth in market
market volume volume market volume volume
Infotainment & HV Battery/ HV Battery/
-59% 925% Transmission -16% 892%
Communications Fuel Cell Fuel Cell
Electric Electric
Transmission -28% 666% ICE -13% 670%
Drivetrain Drivetrain
ICE -26% ADAS & Sensors 457% Exhaust System -6% ADAS & Sensors 6%
Below technological
possibilities
29Investigating specific material cost developments: Selected model deep dives In order to illustrate highly significant material cost developments towards 2025, this chapter will explore specific technology trends that fed into our modelling assump- tions. As highlighted in figure 10, the most affected vehicle component clusters in terms of impact and uncertainty will likely be: •• Interior & infotainment systems •• Drivetrain technologies (incl. ICE, transmission and alternative drive- trains) •• HV batteries & fuel cells •• Driver assistance systems The following illustrative deep dives demonstrate the capabilities of the Deloitte AVC Industry Model. 30
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Deep Dive 1:
Interior & infotainment systems
Among all vehicle component clusters, in- However, the car of the future will not nec-
fotainment, communications & interior will essarily have more displays in total: Smart
probably be the ones with the strongest in- surface integration solutions allow, for
fluence on the customer experience in the example, for read-outs to be displayed on
upcoming years and will therefore shape various surfaces like windows or armrests.
the view of customers on cars as a means LED lighting can be integrated directly on
of transport. If and when fully autonomous textile surfaces. All interior surfaces might
vehicles become the norm, passengers will have a second or a third purpose. Buttons,
not only want to arrive at their destination, switches and knobs will be made increas-
but also want to be entertained during the ingly redundant.
ride. Levels of cost efficiency are improving
rapidly, but they will not be able to com- Customized intelligent seats detect stress
pensate for additional costs due to higher levels and notify the driver accordingly,
customer demands. while biometric sensing systems monitor a
passenger’s health and well-being. Seating
All aspects of the human-machine interface in general will gain higher attention in
in vehicles will gain importance in the increasingly self-driving cars: Rotating seats
upcoming years. For example, strong pro- are already a regular feature in future vehi-
gress will likely be seen in the realization of cle prototypes.
head-up displays and touch technologies.
This gives customers better usability of new However, in our material cost forecasts
in-vehicle services such as predictive main- we do not expect highly autonomous cars
tenance or app usage. Rear seat displays (levels 4 and above) to be the norm on the
can be equipped with interactive city maps, roads by 2025, so rotating seats will likely
information about the surroundings (e.g. not have a strong overall volume impact by
local sights), and other forms of entertain- then.
ment.
31Fig. 14 – Market volume forecast 2025: Infotainment & communications
2+ Hardware platform provider Data and mobility manager
bn € bn €
+25%
60 +8% 60
+49%
40 -8% +28% 40
+6%
20 -20% 20 -7%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
The fallen giant Stagnant car maker
bn € bn €
-59% -5%
60 60
40 - 65% -51% 40 -19% +12%
20 -70% 20 -30%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
2016 2025
Depending on the scenario for 2025, V2X communication is another cost driver, For 2016, we calculate a total material cost
vehicles will have plenty of connectivity as it requires specific equipment such volume (Germany, NAFTA and China) for
features: Customers demand media as additional wireless technology. Based these vehicle component clusters of €46.9
technologies, making internet access a e.g. on ITS G5, it enables various safety bn (Infotainment & Communications), re-
must-have for future passenger cars. This applications like forward collision or hazard spectively €122.9 bn (Interior, incl. seats and
enables a wide spectrum of opportunities warning. climate control). Due to a strong depend-
like 5G - based music streaming and access ence on how technological possibilities
to social networks, just to name a few (al- All of these trends will likely lead to strongly are used and integrated in the vehicle of
ready existing) examples. But on the other increasing material cost levels in the vehicle the future, total volume forecasts for 2025
hand, connectivity leads to higher demands of the future. One significant counter-effect show a wide spread over the four scenarios.
on electronic controller units (ECU) and – potentially lowering cost – might be the
sensors, causing cost increases for which use of smartphone mirroring: Connecting
customers are not necessarily willing to pay. a passenger’s smartphone to the vehicle
makes the phone’s applications available
for display in the car’s head-unit. GPS
systems or other comparable software and
data services would, therefore, become ob-
solete and lead to material cost reductions.
32The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 15 – Market volume forecast 2025: Interior (incl. seats and climate control)
2+ Hardware platform provider Data and mobility manager
bn € bn €
-4% -4%
100 100
-18% -18%
50 +14% 50 +14%
-29% -28%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
The fallen giant Stagnant car maker
bn € bn €
100 -9% 100
+0%
-22% -14% +19%
50 +8% 50
-32% -25%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
2016 2025
2+
Hardware platform provider Data and mobility manager
We are in a world of fully connected cars Technological opportunities are utilized to the
which communicate with each other. Con- full extent. Infotainment & communications
nectivity and all forms of digital innovations components integrated in the interior are a
inside the car are highly in demand. must for OEMs.
The fallen giant Stagnant car maker
A strong decrease of relative material cost The hype around connectivity technologies
of infotainment & communication and is gone, making it difficult for specialized
interior components is likely, as affordable suppliers to grow.
mass mobility is most prevalent in this
world.
33Deep Dive 2: Drivetrain technologies incl. ICE, transmission and alternative drivetrains Almost all OEMs and many suppliers are However, a complete end to all ICE sales and moving parts) and reduce complexity. putting immense effort into the research is not likely either, and there might also be In any case, OEMs will try to decrease over- and development of alternative power- business potential for selected providers in all cost levels as much as possible in this trains. The ICE manufacturing industry is a strongly consolidated market. component cluster. affected by increasingly stricter environ- mental regulations. Gasoline engines can Together with alternative drivetrain Currently, material costs for electric driv- still be optimized through down-/up-sizing concepts, transmission components etrains are relatively high. This will change technologies. Diesel engine components have to adapt. Overall, the demand for over time. For example: such as injectors and high-pressure pumps transmissions due to alternative drivetrains can also be optimized incrementally. is decreasing due to smaller sized transmis- Additionally, there are ICEs that work with sions or even no need for transmissions at alternative fuels (ethanol, biodiesel, CNG, all. A remaining cost driver could be hybrid LPG). In general, however, investments in transmissions with integrated electric new ICE technologies are expensive and motors, complex mechanical design and seem highly risky in the long view (see additional parts, e.g. power connections. Figure 16 for Deloitte’s projections on the Also, dual clutch transmissions (DCT), which development of alternative drivetrains). have seen high market growth in the past Recent announcements from Britain, years, might see relatively stable volumes France (2040), India (2030), and Norway in the foreseeable future. Continuously (2025) on dates for planned ICE sales bans variable transmissions (CVT) make some add further validation to these notions. components obsolete (fewer gears, cogs, 34
The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 16 – Deloitte E-Mobility Model – Development of alternative drivetrains
Annual sales of alternative drivetrains in million car sales and share of total vehicle sales
(model incorporates data from China, NAFTA, and Germany) 99.7%
62.2
60
57.7
55
+ increased willingness to pay extra
50
+91.8%
45 + Strong battery price
and capacity development
40 + Willingness to pay extra
+ Supporting regulations 36.5
35
+ Strong oil price development
32.4
30 + Fast learning curve
+ Supporting regulations (penalty payments) 52.2%
25
– Slow learning curve 36.4%
20
+85%
15
– Slow learning curve
10
10.5% 18.1%
5
6.5%
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Baseline case: defensive development Scenario 1 Scenario 2 Scenario 3 Scenario 4
Increasing electrification will not
only lower demand for internal
combustion engines, but also for
transmissions
•• Electric engines without rare earth ele- •• Depending on the general market The total material cost volumes in 2016
ments (e.g. induction engines) can reduce demand for alternative drivetrains, we were €107.1 bn (ICE) and €1.3 bn (Electric
production costs by 20–30% in upcoming foresee a strong market volume increase Drivetrain). Depending on the scenario we
years. across all scenarios. All electronic-related expect the following market volume trends:
parts like power electronics, converters/
•• Costs can be reduced by making engines inverters and electric motors face much
smaller and lighter. This can be achieved higher demand.
by, e.g., using silicon carbide transistors
for the engine electronics to reduce the
size of capacitors.
35Fig. 17 – Market volume forecast 2025: ICE
2+ Hardware platform provider Data and mobility manager
bn € bn €
-35% -34%
150 150
100 -27% 100 -42% -23%
-42%
50 -52% 50 -50%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
The fallen giant Stagnant car maker
bn € bn €
-26% -13%
150 150
100 -34% -15% 100 -23% +0%
50 -46% 50 -37%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
2016 2025
Investments in new ICE
technologies are highly
risky in the long view –
across all four scenarios
36The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 18 – Market volume forecast 2025: Electric Drivetrain
2+ Hardware platform provider Data and mobility manager
bn € bn €
20 +1,231% 20 +1,116%
+1,209%
+1,052%
10 +1,432% 10
+1,402%
+761% +686%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
The fallen giant Stagnant car maker
bn € bn €
+666% +670%
10 10
+685% +679%
5 5
+686% +702%
+463% +505%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
2016 2025
2+
Hardware platform provider Data and mobility manager
IT players foster the electric drive tech- Alternative drives are definitely in focus, the
nology. This yields new chances for non-con- demand for electric motors and power elec-
ventional automotive suppliers. ICE engine tronics increases strongly, whereas demand
suppliers face drastically shrinking volumes. for ICE shrinks.
The fallen giant Stagnant car maker
Regulators reinforce the shift towards Combustion engines and alternative driv-
e-mobility. Public e-mobility offerings only etrains coexist, e-mobility emerges as an
have limited customer acceptance and independent business model.
market success.
37Deep Dive 3:
HV batteries & fuel cells
The main issues in the way of mainstream Because HEVs require lower energy capaci- Further battery types of the future are for
market adoption of alternative drivetrains ties than BEVs, preferred batteries for HEVs example lithium sulfur and lithium air, which
are charging times, cost, and range. All of are not only LiBs, but also nickel-metal both promise higher energy densities than
these problems come down to energy stor- hydride (NiMH) batteries. In any case, LiBs lithium-ions. But both technologies are still
age: The battery or fuel cell component. are a good option on a price basis, given in early development and not expected to
the large amount of lithium that is available. enter the market before 2025. Thus, at the
Battery packs represent around 25–40% As the technology is relatively new, they are moment everything comes down to the LiB
of the value of fully electric vehicles. It is still expensive, but cost decreases coming market, which is currently dominated by
needless to say that the price development from economies of scale and typical learn- Asian companies, in particular from Japan
of batteries remains crucial to the market ing curves are expected. and South Korea.
acceptance of electric vehicles. The most
promising innovations for the automotive Due to an expected progressive market
manufacturing industry are currently based penetration of BEVs and PHEVs, we will see
on lithium-ion batteries (LiBs). For PHEVs a strong increase in demand for LiBs in fu-
and BEVs, higher energy densities and high- ture years. As battery manufacturers try to
er power capable electrode materials like anticipate this progress, they have built up
lithium-ion are needed. Battery aggregates battery capacities in advance over recent
for electric vehicles can be broken down years. Thus, battery manufacturing plants
to the battery cells, modules, and whole currently face low utilization rates of around
packs. LiBs can improve overall costs due 65% of production capacities. It remains to
to a lower number of cells needed for an
entire battery pack.
38The Future of the Automotive Value Chain | Supplier industry outlook 2025
Fig. 19 – Deloitte E-Mobility Model – Battery price development
Battery price development in € / kWh
220
200
180
160
138
140
Threshold of competitiveness at 130€ /kWh 2
120 130
110
110 95
100
104
88
80
77
60
62
40
20
0
2015 2020 2025 2030
Scenario 1 & Scenario 4 Scenario 2 Scenario 3
be seen whether the demand for batteries The future differentiator in the battery mar- of platinum which is used for the platinum
will grow fast enough to change this, as ket is considered to be neither the size or catalyst that splits the hydrogen. But the
important market players have already range of electric vehicles, but in their charg- main issue for FCEVs is that there are only
announced that they intend to establish ing time. In that field, flash batteries can very few hydrogen fueling stations, far few-
further battery capacities. Excess capacity, play an important part, as they can drop er than public electric charging stations, as
however, typically leads to decreasing the charging time down to just five minutes. these are extremely expensive and demand
market prices. Since this technology is also still in the early is not overly apparent.
stages of its development, the use of flash
In recent years, the battery price in €/kWh batteries in vehicles would come only with In total, we estimate the material costs vol-
has strongly decreased. Starting at €900/ significant material cost increases. ume for HV Batteries and Fuel Cells in 2016
kWh in 2010, we are now at just over €220/ at around €5.5 bn in the markets analyzed.
kWh, and further cost decreases are ex- All those challenges are not apparent in The battery market volume will see a high
pected. From our research, a price level of fuel cell electric vehicles (FCEV). They can increase across all scenarios. Nevertheless,
€130/kWh is seen as necessary to establish be fueled just as fast as conventional ICEs the volume development until 2025 highly
battery EVs on a broad basis (figure 19). and their ranges are comparable. Even depends on the speed of the e-mobility
though FCEVs are relatively expensive, they uptake per scenario:
become cheaper by reducing the amount
39Fig. 20 – Market volume forecast 2025: HV batteries / fuel cells
2+ Hardware platform provider Data and mobility manager
bn € bn €
100 100 +1,359%
+1,380%
+1,241%
50 +1,317% 50 +1,721%
+1,610%
+1,047% +1,015%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
The fallen giant Stagnant car maker
bn € bn €
+925% +892%
60 60
+932% +878%
40 40
+948% +945%
20 20
+780% +817%
0 0
GER USA MEX CAN CHN ∑ GER USA MEX CAN CHN ∑
2016 2025
2+
Hardware platform provider Data and mobility manager
IT players are driving the trend towards As e-mobility is in focus, optimized batteries
electric vehicles. The supply of (compo- and innovative charging solutions for these
nents for) batteries creates new opportuni- are in high demand.
ties for non-conventional suppliers.
The fallen giant Stagnant car maker
Even though the government tries to push Electric drivetrains co-exist with ICEs, thus
the shift towards e-mobility, consumers efficiency improvements in batteries are
only use it to a limited extent. R&D invest- crucial for the competiveness of electric
ments in battery innovations have cooled vehicles.
down.
40The Future of the Automotive Value Chain | Supplier industry outlook 2025
Deep Dive 4:
Driver assistance systems
Autonomous drive technology has the Fig. 21 – Industry challenges until series maturity of autonomous vehicles
potential to completely transform mobility
industries. In each step towards a fully
autonomous vehicle, different development
Key development topics Description
and complexity stages of Advanced Driver
Assistance Systems (ADAS) are used to set
the technical foundation. Various sensors Function/Software Human cognitive abilities must be reproduced
around the car detect obstacles, help keep
the vehicle on track and warn the driver in
case of danger. ADAS applications not only
Back end/ HD Map Highly accurate maps and localization are a
ensure a higher safety level for the driver by
prerequisite
providing the vehicle with more information
about its surroundings, but also promote
comfort. The different stages of autono- Fail-Operational New architectures needed to control car in
mous driving can be differentiated in levels Architecture "first failure" cases until driver takes over
from 0 to 5 (figure 22). (about 5–10 seconds)
In a Level 5 vehicle no human intervention Method Assurance New hedging methods are required
is required, other than setting the destina-
tion and starting the system. In order to
get there, OEMs, suppliers, software com-
Legal Aspects Change of existing laws and regulations. Cars, not
panies, regulators and other stakeholders
humans, will make maneuver decisions.
have to solve a number of potentially
show-stopping issues, ranging from the de-
velopment of reliable driving functionalities
to settling remaining legal concerns
(figure 22).
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