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Case study: How Tesla changed the auto industry

Tesla is experiencing growing pains, but has willingly invited more criticism than other young companies because the automaker is brazen enough to pronounce ambitious goals and, most boldly, insist that its vision of the future of the automotive industry is the definitive one.

But Tesla is forcing the auto industry to rapidly change. Large, established automakers now are making fully electric and hybrid electric cars. Automakers are starting to explore and include artificial intelligence (AI) in their cars, and now major automakers and U.S. Congressmen are discussing autonomous vehicles (AVs) and how best to innovate and regulate them.

Not only that, but Tesla's software design is state-of-the-art: the fact that Tesla can update vehicle software over-the-air (OTA) as if it were Apple updating an iPhone is unprecedented. As cars become more tech-savvy, Tesla is in the lead. But Tesla struggles to meet deadlines and frequently delivers flawed vehicles, and profitability remains elusive. Many use Tesla's failings to argue that the company shouldn't be followed as an innovator or even as a true automaker.

It turns out Tesla's story is far more complicated and nuanced than often portrayed, but the roots of its challenges come down to the company's finances and supply chain.

Tesla is forcing the auto industry to change rapidly

Tesla didn't invent the electric car (Scottish inventor Robert Anderson did, in 1832), but it was Tesla who popularized, pioneered and promoted the electric car ever since the company's founding in 2003. None of the major automotive manufacturers were making electric cars until Tesla made it cool in 2008 with its bombastic announcement of the first luxury electric car: the Tesla Roadster.

Since then, big automakers with lots of capital, solid supplier bases and seasoned supply chains went to work in rapidly developing and churning out their own electric cars, as consumers and governments pursue eco-friendly, low-emissions transit options. The next electric car, released in 2010, was made by Mitsubishi Motors.

According to the Bureau of Transportation Statistics data , the number of hybrid EVs sold in the U.S. didn't break 100,000 until 2005. The bureau doesn't have data on the number of EVs sold until 2011, which was 9,750.

Since then, the EV market has exploded. By 2015, 71,044 EVs were sold in the U.S., and 384,404 hybrid EVs. Between January and September 2017, Tesla led the pack by selling 73,227 EVs, followed by Chinese automaker BYD, selling 69,094.

Brian Loh, a partner at McKinsey&Company, said innovation is at an "all-time high" in the auto industry right now, which is significant because historically, the auto industry is very slow to evolve.

" There's so much change happening that the automakers are trying to make sure they’re as successful in the next era as they were in the past," Loh said.

The auto industry is not resistant to innovation and change, but does tend to adapt slowly. Lately however, that's changed dramatically, and largely because of Tesla's disruption in the market. Tesla has that "cool factor," something established automakers do not have, and has created hype around Tesla's EVs that other brands — like the Nissan Leaf, for example — do not get.

"The electronics innovation trend with the industry has been going on for a while, but I think it’s accelerating," Loh said. "The mega trends we read about in the papers every day of automotive driving, electrification, connectivity, shared mobility — these are huge industry sharping trends and they are really having a big impact in the industry at the OEM level and the supplier level, and it’s leading to a lot of big investment."

Then there's the AV discussion. Tesla's Autopilot, which uses AI to drive a Tesla vehicle for you with some minor assistance, has been the subject of hot debate, with some consumers misusing the technology and crashing the cars while using Autopilot. Other automakers are following Tesla's lead and looking to create semi-autonomous or fully AVs, and that has sparked contention in Washington as lawmakers try to reconcile safety concerns with innovation-hungry automakers.

U.S. senators and industry leaders — including automakers, manufacturers , 3PLs and supply chain leaders — now believe AVs are the definitive future of the auto industry, largely because Tesla is driving the conversation.

Tesla is one of the key drivers of innovation as the auto industry is forced to evolve, but Tesla also shows how difficult it is to succeed in the auto industry at all, and how there is still room for improvement within the hotly competitive, tight margin business. In fact, Tesla is a good example of how critical stable supply chains are to the success of an automotive company.

Tesla's supply chain is it's Achilles' Heel

Tesla doesn't meet deadlines. Tesla doesn't meet market expectations. Tesla delivers cars riddled with defects.

Last fall, Tesla missed Model 3 production goals in Q3 2017 due to supplier issues , and ended up having to redesign a key part of the Model 3 . What CEO Elon Musk called "production bottlenecks" continued through Q4 2017, although by then Tesla was no longer blaming suppliers, and told investors in February that the company would produce 5,000 Model 3s a week by the end of Q2 2018 .

Almost all of these problems can be attributed to lack of funding and the fact that Tesla is still a small company, compared to the rest of the auto industry, and so ramping up production for a new car is much harder for Tesla than it is for landed companies like Ford or General Motors.

Tesla's supply chain is still in the development phase, and right now Tesla doesn't have the capital and supplier relationships that other big automakers have.

" For better or worse, Tesla makes its own batteries, so it's heavily dependent on its own sources," said Michelle Anderson, a partner with Boston Consulting Group. "If that went down, batteries are heavily commoditized, so there wouldn’t be too much of a hiccup, but there would be some down time."

Because Tesla's supply chain often relies on single source suppliers, one can quickly fit the puzzle pieces together to see how and why Tesla has struggled. According to a Tesla statement provided by CSIMarket , the electric car manufacturer does have more supply chain volatility than other automakers.

"While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source," the statement reads. "To date, we have not qualified alternative sources for most of the single sourced components used in our vehicles and we generally do not maintain long-term agreements with our suppliers. While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in the short term or at all at prices or costs that are favorable to us."

That's essentially the story of the company's struggle: Tesla tries to scale high and fast, but gets bogged down by a faulty supply chain.

Tesla suffers from a lack of funding and a narrow supplier base

Supply chains are critical to an automaker's success, but the most critical part of the automaker's supply chain is its relationship with suppliers — and that might be where Tesla is weakest.

Loh told Supply Chain Dive that in general, the auto industry doesn't single source, and described the average auto supply chain as being far more efficient and effective than Tesla's.

"Typically an OEM will have a supplier panel or a collection of a few suppliers, anywhere from 2-5 suppliers they source from for that commodity," Loh said. "Oftentimes for a particular vehicle, they might be single sourced on that vehicle, like one supplier would have all of a certain part for a Honda Accord or something like that, but it’s extremely rare for a supplier to be single sourced across an entire commodity for all their vehicles."

Then there's the funding problem. Tesla is technically still in the red — the company isn't profitable yet, and many critics use that fact as their main reason for arguing that Tesla isn't worth investment or even worth paying attention to.

But when it comes to suppliers, Tesla's lack of funding is a huge issue. For example, Tesla is trying to ramp up production of the Model 3, necessitating a high volume of parts and components from its suppliers. Because of that capital outlay, Tesla might hold off on paying upfront costs for the parts and wait until the car starts selling before paying suppliers.

That compounds the problem; now Tesla has to produce and sell as many cars as possible in order to pay suppliers and maintain strong supplier relationships. But because Tesla is still learning how to mass produce electric cars — relatively speaking, Tesla is still new to the auto industry — production problems still arise, making it increasingly difficult to sell and deliver quality cars at an efficient rate.

"In some cases, a vehicle program might be really big and the OEM might say, I’m not going to pay the supplier any upfront funding, you need to handle that cost yourself because you’ll get a big volume down the road," Loh said. "The other extreme is low volume with very little return (for the supplier) down the road, and the OEM might need to pay for more of the engineering upfront."

While that paints a bleak picture for any startup trying to break into the auto industry, there's some silver lining: if you've got a solid vision and can sell that vision — like Tesla — suppliers just might take a risk on you.

"If you have a combination of small budget and low volumes, then it’s trickier to get enough interest from a supplier, especially if it’s an OEM with cutting edge technology and known for leading the market," Loh said. "Even though the pure economics of the program isn’t normal, a supplier might say, the technology might be worth it."

Tesla delivers on its promises, just not always on time

For all of the problems Tesla is now experiencing with the Model 3, the company already experienced with the Model S. At this point, most of the wrinkles in Model S production have been ironed out. That may instill some hope in investors, but the fact remains that Tesla still has inroads to make as a trusted automaker.

What Tesla has proved is that it takes a tremendous amount of funding, grit and hard work, star power and a strong vision in order to succeed in the auto industry and launch a radical new product — especially if you're trying to do both those things at the same time. The fact that Tesla is still around 15 years after its commencement is impressive all by itself.

"On one hand, ramping up a car company from scratch is really hard," said Greg Kefer, vice president of marketing at GT Nexus. "There’s a lot of basic tackling. An assembly line that produces 10,000 cars a week? That’s really hard."

Tesla shows how crucial it is for an automaker — or any company, really — to have all the kinks worked out of its supply chain before pursuing such big goals, like skipping the prototype stage and rushing to produce 5,000 cars a week right away, which is how Tesla approached the Model 3.

While Tesla can be seen as an inspiration to the industry, it also serves as an example of what happens when you lack capital, sufficient cash flow and an unstable supply chain. But if Tesla can keep investors hooked on its vision of a future filled with electric cars, it may just be a matter of time before it becomes an industry bedrock.

"Once they work out the supply chain issues, watch out," Kefer said. "The big three better be looking over their shoulder."

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Tesla Motors: A case study in disruptive innovation

Senior Director, Cost Benchmarking Services, IHS Markit

Associate Director, AutoIntelligence, S&P Global Mobility

Tesla Motors broke the mold. Then reinvented it. Not only did Tesla Chief Executive and Chief Product Architect Elon Musk demonstrate that convention could be defied, he did it in an industry with 100-year-old traditions, norms, and processes. Of course, the auto industry has innovated in the past, but Tesla, which was founded in 2003, has pushed the envelope beyond what most automakers thought possible. The company's Silicon Valley-style "techpreneurship" enabled it to move faster, work more efficiently, and create groundbreaking new ideas around sustainable mobility and automotive technology.

After all, this is Musk's modus operandi. In 1998, he disrupted e-commerce by creating a widely deployable and secure payment platform called PayPal. And in 2002, he launched SpaceX, a company that designs, manufactures, and launches rockets and spacecraft. The company's goal is to enable people to live on other planets. Musk, himself, wants to "die on Mars" and wholeheartedly believes it will be possible.

He is also a lightning rod in the debate around mass transit with an idea some critics refer to as vaporware. Dubbed Hyperloop, Musk's idea is to create a high-speed transportation system that is immune to weather, impossible to crash, uses little energy and recaptures most of what it uses, and travels twice the speed of today's commercial aircraft. He believes the concept could move people from Los Angeles to San Francisco in just 35 minutes. Oddly, he has no interest in making the Hyperloop a reality but, rather, is putting his ideas out there for others to take and improve the human experience.

With Tesla, Musk is focused on disrupting mobility. As of mid-June 2014, the company has released all of its patent holdings, claiming that open-source innovation is more powerful than anything one company could do individually. While IP lawyers cringed, Wall Street applauded, sending Tesla's stock price up 14% to $231 a share. This radical approach to innovation runs deep, as evidenced in the technology and design approach of the company's flagship Model S, its $69,900 luxury car.

In August 2014, the IHS Technology Teardown Team purchased a used 2013 Model S and took it apart to see what made it tick. The team dismantled 12 systems and cataloged every part within each system. The teardown included both the electronics systems inside the car's interior and the drivetrain (see sidebar "What's inside the Model S?").

Technical differences

The teardown confirmed that the Tesla Model S is unlike anything else on the road. A massive plot of real estate in the center stack is dedicated to a 17-inch touch screen infotainment system, which became—since its production launch in 2011—an instant industry benchmark for automotive display integration. There is room left for only two physical buttons on the console—one for the hazard lights and one for the glove compartment release (see sidebar below).

The technical specifications are impressive. The 17-inch screen is a Chi Mei Optoelectronics display with 1920 x 1200 WVGA resolution that includes a projected capacitive touch screen—the same technology employed in many smartphones and tablets. The system runs on a Linux-based operating system, offers Garmin navigation with Google Earth overlays, and computes at speeds still besting most other systems available today with its NVIDIA Tegra 3 processor combined with 2 GB of DDR3 SDRAM.

The system includes an embedded 3G modem from Sierra Wireless that runs broadband data off AT&T's network. It can receive software updates over the air and controls all of the functions of infotainment, audio, navigation, Bluetooth phone, HVAC, and even vehicle settings like windows, door locks, sunroof, trunk release, traction control, headlights, steering, and suspension settings.

In addition, a 12.3-inch fully digital instrument cluster sits directly in front of the driver with its own NVIDIA Tegra 2 processor, which it uses to handle the diverse array of graphics, content, and redundant outputs for the driver. About the only "familiar" driver components are the steering wheel, pedals, and transmission shifter—the latter actually borrowed from the Mercedes-Benz parts bin.

Manufacturing differences

The system is clearly in a class of its own. However, with all of these high-end specifications, how can Tesla sell this as a standard feature in every Model S? More disruption.

The company chose to change up the supply chain and borrow from the electronic manufacturing services (EMS) model of production that is standard practice in the consumer electronics industry. In this respect, Tesla is closer to being a technology company than a traditional automobile maker. Much like how Apple designs the iPhone and then employs Foxconn to build it, Tesla contracted with a leading EMS provider to build its center infotainment system, instrument cluster, and several other systems in the Model S. This model required Tesla to internalize much of the hardware and software development, as well as the systems integration work. Given that Tesla has hired its engineers from all over Silicon Valley and beyond, this was not a problem.

The Silicon Valley culture and the EMS approach to manufacturing were a clear advantage for Tesla at one time but no longer make it unique. The EMS model is expanding in the automotive industry, and the likes of Compal, Flextronics, Foxconn, and Jabil are working with brands including Chrysler, Daimler, Ford, General Motors (GM), Jaguar, and Volkswagen.

However, the transition to the EMS model can be problematic. Ford outsourced the entire infotainment architecture for the development and deployment of MyFord Touch in 2011 to an EMS provider. The initial system had technical software problems that required Ford to issue several software upgrades. This cost tens of millions of dollars, contributed to a poor customer experience, and caused perception problems for Ford, from which the company has only recently recovered.

Development differences

In the last decade, virtually every automaker has relocated portions of vehicle and vehicle technology development to new R&D facilities in the San Francisco-to-San Jose tech corridor. In fact, some early innovators predate Tesla: BMW, Daimler, and Volkswagen set up shop in the Valley in the mid-1990s, and Honda opened its first office in 2003, the same year Tesla was founded.

The reasons for doing so now go beyond manufacturing. Automotive OEMs are co-locating with the likes of Apple, Cisco, Facebook, Google, HP, Intel, NVIDIA, and Oracle to help speed the pace of innovation. This involves accelerating the pace of hardware, software, services, and applications development but also rethinking the process of design.

The development speed of a typical mobile device is often six months or less. Compare that with the design-to-production timing for a new vehicle of approximately four years and it's no wonder car-buying consumers have been underwhelmed by standard in-vehicle electronics. Even today, consumers can find navigation and infotainment systems designed in 2008 for sale in model-year (MY) 2014 vehicles. To give an idea of how ancient that is in "tech-years," BlackBerry held more than 50% market share among smartphone users in 2008. Remember BlackBerry?

Tesla has had a competitive advantage over auto industry rivals in design innovation since day one. Located in arguably the center of the world for technological innovation, Tesla was able not only to construct its vision of mobility in Silicon Valley, but also recruit its employees from many of the leading technology companies to design and build the car there as well. All other OEMs grasping for automotive technology leadership had to learn the culture of Silicon Valley, figure out how to adapt to it, and dissolve the century-old "way of doing things." Tesla was born into it.

Service differences

With Tesla's technology come some very important services. Perhaps at the top of the list is the convenience of over-the-air (OTA) software updates for vehicle recalls, which Tesla has made free and standard for Model S owners. This functionality has, in turn, created plenty of positive press for the company.

It all starts with the connection. The 3G connection in the Tesla infotainment system is already providing this solution via relatively old wireless technology. Since the modular and flexible hardware architecture of its infotainment system allows for mid-cycle technology enhancements, IHS expects Tesla will soon debut true 4G LTE connectivity in its vehicles. The added bandwidth will further enhance the OTA update service, as well as the rest of the services the Model S offers.

IHS forecasts a 60% global penetration rate on embedded cellular connections in cars by 2022, with 4G LTE bandwidth comprising roughly 60% of that market. GM and Audi have actually beaten Tesla to market on this specification as both OEMs already have 4G LTE cars on the road now.

One central purpose of this mass-market vehicle broadband adoption is to accommodate FOTA (firmware over the air) and SOTA (software over the air). Tesla has already deployed this function in part because it allows the company to provide vehicle service without needing to charge (or possibly pay) for service bay labor.

Consider Tesla's recall of the Model S for overheating charger plugs in January 2014. The day the recall notice came out, Tesla had all 29,222 Model S vehicles updated wirelessly and running the new safer version of the software. Ironically, around the same time, GM had a similar fire-related safety recall issued that also required a software update. Despite all of its vehicles having standard OnStar telematics, owners were required to take their cars into a dealership for the software update, costing GM a warranty labor expense on all 370,000 recall service appointments.

While far from a sure thing, nanotechnology offers significant business opportunities for companies willing and able to take the long view. One avenue is to identify a sizable opportunity in an existing market where a nanotech product can displace an existing inferior solution, e.g., a coating for an automobile that keeps itself clean, clears mist from side mirrors, or self-repairs scratches in the automotive paint.

Volume aside, Tesla paid much less on a per-vehicle basis than GM, simply by providing a software update procedure that has been on personal computers for more than two decades and mobile phones since before the BlackBerry.

IHS sees the OTA software trend continuing strongly. With vehicles like the new Mercedes-Benz S-Class claimed to have over 65 million lines of code—10 times that of the Boeing 767 Dreamliner—the automotive industry stands at a crossroads. Software recalls are about to become a major problem, one that will be expensive if this type of technology is not broadly deployed.

As of February 2014, over 530 software-related recalls had been reported since 1994 (see figure below). Among these, 75, or 14%, were issued for MY 2007 alone, with over 2.4 million vehicles affected. Numerous questions arise from the variation in volume by model year—not the least of which is, why have recalls for MY 2007 been so numerous? There are likely several reasons for this spike:

MY 2007 had the last large-sales volume before the economic recession plunged US car purchases from approximately 16 million to 10 million in 2010.

Many new electronics systems were added in MY 2007 for infotainment, advanced driver assistance systems, and core auto control systems, which increased the amount of software in the typical car.

MY 2007 involved recalls of 75 vehicles, the most of any model year. Many automotive OEMs had multiple model recalls with software updates. Toyota had especially high recall rates that included software updates.

It is in this context that IHS expects FOTA and SOTA to be enabled in over 22 million vehicles sold worldwide in 2020 alone, growing from approximately 200,000 vehicles in 2015. Major deployment will begin in 2017. In the meantime, Tesla will continue to leverage its first-to-market status with FOTA and SOTA to help lower overall costs to the end user and improve unit margins on each additional Model S sold.

Powertrain differences

The heart of Tesla's Model S is its electric propulsion system, which includes a battery, motor, drive inverter, and gearbox. The battery is a microprocessor-controlled lithium-ion unit available in two sizes; spending more buys more range and more power. The induction motor is a three-phase, four-pole AC unit with copper rotor. The drive inverter has variable-frequency drive and regenerative braking system, while the gearbox is a single-speed fixed gear with a 9.73:1 reduction ratio. The battery of each Model S is charged with a high-current power inlet, and each vehicle comes with a single 10kW charger and mobile connector with adapters for 110-volt and 240-volt outlets as well as a public charging station adapter.

This powertrain package allows Tesla to deliver a longer driving range than any other EV maker—about 200 miles versus just under 100—plus acceleration and driving performance similar to or better than a traditional gasoline-powered vehicle. While several automakers offer EV powertrains—Nissan's Leaf and Chevrolet's Volt, for example—none matches Tesla's commitment to EV development. And as a clean slate company, Tesla has had the advantage of developing an entirely new powertrain and supply chain without the hindrance of existing dealerships, physical plants, or inventory.

Other EV products use lithium-ion batteries, but in lower kWh and using fewer, but larger, battery cells. For example, the Nissan Leaf uses a 24kWh battery, with 192 cells and EPA-estimated range of 84 miles. The Model S' 85kWh battery has more than 7,100 cells, allowing it to move greater weight faster and with longer range.

To address range anxiety, Tesla has made a significant investment developing charging stations in the US (112 to date, according to the Tesla website), Europe (63), and Asia (17). These supercharger stations can swap out the battery in less time than it takes to fill a tank of gas. Owners must come back and swap again for their original battery. Nonetheless, this helps alleviate drivers' worries about becoming stranded on long trips.

Tesla is working to drive battery costs down in anticipation of the launch of its mass-market, $35,000 Model 3 EV sedan, which is slated to debut in 2017. To that end, the company recently announced a new $5 billion "gigafactory" battery plant in Nevada in partnership with Panasonic. It will reportedly handle all elements of battery cell production, from raw material to battery pack, rather than only battery pack assembly. And Tesla intends to sell its OEM batteries for non-automotive applications, which will enable it to increase production volume and reduce unit cost.

What does the future hold?

• Created a fun-to-drive electric roadster. Check.
• Leveraged the lessons to scale-up to a full-luxury sedan. Check.
• Disrupted the luxury car market and, according to IHS Automotive data, attracted "conquest" buyers from the likes of BMW, Mercedes, and Lexus, not to mention Toyota and other volume brands. Check.
• Diverged from entrenched supply chains to develop technology in-house and lowered per-unit development costs for an industry-leading infotainment platform. Check.
• Addressed a software-related vehicle safety recall in one day for almost 30,000 cars. Check
• Created a company destined to influence the industry as a whole and did so while pleasing Wall Street. Check.

Tesla has established benchmarks for infotainment system hardware, software flexibility, and manufacturing supply chain. The company innovated powertrain design, which has proven both robust and viable for everyday use. And it has received plenty of accolades for aesthetic design from the automotive media. The result is that "made in Silicon Valley" is no longer roundly dismissed as an option for an automotive OEM.

So what's next for Tesla? How does it maintain its leadership in technology development? Has it created a sustainable competitive advantage? Can it deliver on promises of a new luxury crossover with the Model X and a new high-volume EV competitor with the Model 3? Will Tesla be able to steal market share from not only luxury marques, but also from higher-volume brands?

Going forward, Tesla faces five distinct challenges:

Consumer demand. Perhaps the most significant is consumer acceptance of electric vehicles. In the first eight months of 2014, EVs accounted for only 0.7% of the 11.2 million light-vehicle sales in the US. Even Renault-Nissan CEO Carlos Ghosn, a staunch supporter of EVs, last year acknowledged Renault-Nissan would miss its original 2016 target of selling 1.5 million EVs by four to five years.

Dealerships and service. Today, Tesla's direct-sales model is illegal in most US states. As Tesla attempts to go mainstream, it will need the legal restrictions lifted or be forced to adjust its model. Further, as vehicles age and the numbers sold increase, there will be maintenance issues that cannot be handled by OTA software updates. Tesla will need to build out an after-sales service network that is robust enough to handle the demand.

Marketing. To date, demand for the Model S exceeds supply. But as the company targets the mass market with the Model 3 and aims for 500,000 units sold in 2020, it will need to beef up its marketing. Tesla's Apple Genius-bar-inspired dealership model has worked for the affluent early adopters, but can it be scaled up to meet its sales targets?

According to IHS registration data, 51.8% of all Tesla buyers have annual household incomes over $150,000. By comparison, the percentage of Chevrolet Malibu buyers with a household income higher than $150,000 is only 6.5%. Tesla will need to create a marketing strategy that targets economy-car consumers, who are notably different than those who buy the $80,000 to $100,000 Model S.

Production Boosting output will likely mean growing pains for Tesla as it transitions to a high-volume production model. How the company manages the transition will determine Tesla's near-term future. Of course, many automakers have had difficulties ramping up new plants or launches and yet overcome the challenges in the longer term. While growing pains are to be expected, there is no reason to believe Tesla does not have the capacity to become a volume manufacturer.

Innovation. Tesla has already made a name for itself around technology adoption and innovation. But it will be challenged, as all first movers are, to maintain that lead and continue to push the boundaries with future products. Assuming the gigafactory and its supply chain allow Tesla to make a mass-market offering and keep its infotainment stack as an industry benchmark, the company's next move will be automated driving. Musk has already stated that Tesla will "hit the market" by 2017 with a partially self-driving vehicle. With many other OEMs targeting this time frame as well, Tesla might not be as disruptive in automated driving as it has been in infotainment design and sustainable mobility

But then again, it might surprise the market and break loose another game-changing product or technology before the rest of the automotive industry is ready—because that's how Silicon Valley works.

Tesla's user-experience focus sets it apart

We live in an era of smartphone ubiquity. So we are routinely disappointed when we get into our cars and are forced to make do with resistive touch screens (if we are lucky) or LEDs and vacuum fluorescent displays controlled by dials and buttons (if we are not). Tesla understands the importance of smartphone ubiquity to modern life, so it's no accident the transition is seamless when one climbs into a Model S

That is not the case with the majority of comparably priced vehicles from other auto manufacturers. Indeed, many of the recent automotive infotainment systems that the IHS Teardown Team has analyzed feature relatively small displays (typically 7-inch diagonal size or less) and low resolution (typically 800 x 480 WVGA or less).

Then there's the touch technology. Many of the touch screens IHS tears down in automotive head units are using resistive technology. Combine these legacy technologies with often underpowered processing chips and proprietary software and you often end up with a user experience that is unfamiliar, not intuitive, and has a lot of "latency" issues (meaning it's slow).

At the center of the dashboard in the 2013 Model S is the Tesla Premium Media Control Unit, which blows away all of the head units we have seen in specs, not to mention sheer size. The 17-inch diagonal display with touch screen makes for a very large assembly when removed from the dash. Inside the unit are many subassemblies, which are all modular, giving Tesla numerous design options for future models.

Several of the printed circuit board (PCB) assemblies, including the main assembly, feature Tesla Motors logos and copyrights, meaning that they are all designed and controlled by Tesla. In and of itself, this is unusual, as we find that most automotive OEMs entrust and outsource the bulk of their head unit designs to third parties such as Harman

Automotive, Panasonic, Alpine, Denso, Pioneer, and others. Tesla is thus designing and controlling the bill of materials down to the component level. This is closer to Apple's design-and-build model than it is to other automakers.

Such an approach affords Tesla leverage in the supply chain, more direct control over the finished product, and ultimately more control over the user experience. It also gives Tesla a potential performance and technology edge that others might find difficult to quickly emulate, as so much of the design is done in-house at Tesla rather than by the head unit suppliers.

Many other PCB assemblies are modular and come from third parties, such as the processing PCB, which is a turnkey solution from NVIDIA, and the air interface module, which is from Sierra Wireless.

All told, there are 10 PCB assemblies in Tesla's media control unit. The modularity of this design is not unusual for automotive electronic systems and allows Tesla many options. If Tesla wants to upgrade the processing power or change the air interface module, it may be possible to achieve this more easily and with less redesign than if all of the functions were integrated into fewer PCB assemblies. In this sense, modularity of design, rather than aggressive integration, has always been an automotive electronic standard. Not only does modularity give automotive designers many upgrade options, it improves reparability.

The center console of the Tesla Model S is dominated by a 17-inch touch screen infotainment system, which is an industry benchmark for automotive display integration.

What's inside the Model S?

In August 2014, IHS bought a second-hand 2013 Tesla Model S. The Los Angeles-based IHS Technology Teardown Team set to work pulling it apart to examine all primary systems inside the car. The team has cataloged every component and developed a detailed bill of materials for each system that includes the technical specifications, cost, and manufacturers of the components. In addition, the team estimated the labor and manufacturing cost of each system.

The 12 systems analyzed by the IHS Teardown Team comprised the following:

• Premium Media Control Unit
• Instrument Cluster
• EV Inlet Assembly
• High-Voltage Junction Box
• Battery Charger
• Thermal Controller
• Liftgate Left Hand Taillight
• Power Liftgate Module
• Body Control Unit
• Sunroof Control Unit
• Passive Safety Restraints Control Module

Mark Boyadjis, Senior Analyst, Infotainment and Human-machine Interface, IHS Automotive Andrew Rassweiler, Senior Director, Teardown Services, IHS Technology Stephanie Brinley, Senior Analyst, Americas, IHS Automotive Posted 7 October 2014

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Tesla's Entry into the U.S. Auto Industry

Donald Sull

Cate Reavis

May 1, 2019

In mid-2018, the U.S. auto industry was in the early stages of what many believed would be a significant evolution in how people thought about and used cars. The future would be dominated by electric and autonomous vehicles. Car ownership in which people paid for a hard asset with all its bells and whistles would give way to people buying miles on shared vehicles. Tesla co-Founder and CEO Elon Musk had envisioned his company’s electric vehicles leading the charge in the industry’s evolution. However, the company was burning through cash at an unsustainable rate as it prepared to launch the industry’s first mass-market electric vehicle, the Model 3. Many industry observers doubted whether Tesla would have enough money to stay afloat and if Musk was the right leader.

Learning Objectives

To analyze the structure of a complex industry in the midst of a major transition; assess the fit between a company’s strategy and the structural attributes of its industry; and, evaluate how well a company is executing its strategy.

Appropriate for the Following Course(s)

strategy, entrepreneurship, leadership, operations management

Tesla's Entry into the U.S. Auto Industry 

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*TEACHING NOTES AND SUPPLEMENTAL MATERIALS ARE ONLY AVAILABLE TO EDUCATORS WHO HOLD TEACHING POSITIONS AT ACADEMIC INSTITUTIONS.

Audio Version of the Case

Case Study: How Technology is Helping Automotive Manufacturers Achieve Sustainable Goals

• April 28, 2022

A digital transformation in car production is supporting manufacturers as they transit towards sustainable manufacturing.

Car manufacturers face a range of challenges globally as they strive to move towards sustainable manufacturing. Central to this is ensuring production processes remain as clean and efficient as possible while maintaining product quality and reducing wastage. Digital transformation is underpinning this as cloud-based technology such as artificial intelligence (AI) and machine learning (ML) play pivotal roles.

Accuracy and timeliness

One area where ML is supporting car manufacturers is in  reducing production line interruptions . Automotive industry specialist Richard Felton explains that ML systems can help avoid unplanned maintenance by analysing data to improve predictive maintenance schedules. “If you avoid unnecessary maintenance, you reduce costs, increase productivity, and do not have unplanned downtime,” he said. “ML not only handles the sheer scale, breadth and accuracy of the data, but also the timeliness.” The technology can also help manufacturers navigate current global component shortages. “Manufacturers are using ML to anticipate shortages and  how to handle those shortages in components more efficiently ,” he added.

Efficient component inspections

Additionally, ML supports component quality inspections using data from camera inspections to check assembly processes and sequences in terms of complexity, speed and accuracy. “The machine learning can spot anomalies that human operators might miss across millions of data points,” he added. This digital transformation is supported by companies such as  Amazon Web Services (AWS) , which as a cloud service provider, enables customers to access and manage data, scale globally and make data driven decisions in real-time using AI, ML and other advanced services. AWS services help with sustainability, digital manufacturing and supply chains and improves the overall equipment effectiveness by capturing, analysing and visualising plant floor data. The services brings all this together as a holistic solution to support the automotive industry. Felton, who is the senior practice manager,  AWS for Automotive , said the platform has purpose-built capabilities, drawing on expertise from across the automotive industry and offers the “broadest partner eco-system of any cloud specifically for automotive customers to help them transform their businesses.” We helped VW tackle that very complex operation with the digital production platform, with analytics in the cloud to help them achieve efficiency, quality and sustainability.

Automating processes with AI

In one example, the company supported a digital production platform for Volkswagen (VW), which has 12 brands operating over more than 120 sites, 1500 suppliers and 200 million parts a day entering its factories to make 11 million cars a year. “We helped VW tackle that very complex operation with the digital production platform, with analytics in the cloud to help them achieve efficiency, quality and sustainability,” saidFelton. During production, Volkswagen Group brands apply 25 different labels that contain country-specific safety, usability and specification data with over 2,000 variants. To automate this process, VW brand Porsche developed a solution using the services, which saw a manual label inspection programme replaced with an AI-driven programme to conduct the process automatically and with  greater speed and accuracy .

Providing integrated solutions

Manufacturers are increasingly looking for  integrated solutions  that combine manufacturing systems with those operated by their supply chain partners to reduce transport costs and lead to more sustainable ways to move millions of parts. In this instance, the digital platform configures route optimization and ensures correct demand forecast to reduce component waste. With a trend towards electric vehicles driven by sustainability goals and emissions regulations, computer aided engineering can support durability, crash protection, safer use of batteries and thermal modelling of advance cooling systems. The services can help customers predict and understand battery health, capacity and failures, range and weather conditions impacting battery performance. The company also works with Rivian Automotive on high-performance computing for design engineering for crashworthiness, aerodynamics and durability. “There is a significant time and cost saving by doing simulation in the cloud as it gives access to a scale that you do not have on present systems; you have almost limitless capacity to do simulations,” said Felton.

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Five trends transforming the Automotive Industry

The mobility of the future is “ eascy”  – electrified, autonomous, shared, connected and “yearly” updated. In this study, we describe the factors influencing the sector leading up to 2030 in the key US, Europe, and China markets. It also describes how the automotive industry should restructure itself in terms of volume, scale, and complexity.

Through mathematical modeling of key performance indicators and demographic trends, the paper discusses:

• Mobility behaviour of users through social personas and how they could influence traffic demand;
• External factors that will influence mobility habits, vehicle mileage and frequency of usage;
• Predictions of car inventory, replacement cycles and new sales; and
• Implications for manufacturers, suppliers, service providers and their business models. 

Electrified  – the transition to emissions-free mobility will become a global requirement. Electricity used to charge vehicles will increasingly come from renewable sources to ensure carbon dioxide-neutral mobility.

Autonomous  - The development of vehicles which require no human intervention will reduce the use of public mobility platforms and offer individual mobility to new user groups.

Shared  – Professionally managed fleets of shared vehicles will reduce the cost of mobilty by a significant amount through more efficient use of expensive mobile assets.

Connected  – This applies in two ways: communication between cars or with traffic management infrastructure or between vehicle occupants and the outside world. The car of the future will become a “third place” between home and workplace, combining features of both. 

‘Yearly’ updated  – The range of models will be updated annually to integrate the latest hardware and software developments, and react to changing requirements of shared fleet buyers.

Our mobility habits will change 

The percentage of shared and autonomous mobility in overall road track will rise significantly.

Our forecasts suggest that by 2030, more than one in three kilometres driven could already involve sharing concepts. At the same time, user preferences will move more towards autonomous mobility. We calculate, based on mileage, that by 2030, the share of autonomous driving in overall traffic may rise to as much as 40%. Developments in Europe and the US are expected to happen at a roughly parallel pace. In China, by contrast, the proliferation of shared and autonomous mobility could happen faster than in the Western world. This would make China the leading market for the transformation of the automotive industry. 

Effects on the automotive value chain

The comprehensive and rapid reorganisation of the automotive sector after 2025 will have far-reaching consequences for the entire industry and its value chains. Elementary structures and attitudes will have to change fast in order to cope with the developments by 2030 and beyond.

If they want to remain successful, both manufacturers and suppliers will have to offer user-oriented innovations. All these trends are likely to become increasingly apparent between 2020 and 2025 – which means that these are decisive years for manufacturers and their suppliers.

Download report (4.2mb) Five trends transforming the Automotive Industry

Related content, the automaker’s dilemma: getting more impact from innovation capital.

The current wave of auto innovation has emerged with remarkable speed: new safety features, connectivity gadgets, and real progress toward bringing autonomous...

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Case Studies, Articles and White Papers

We have already been able to successfully apply our knowledge and experience in a variety of projects in product development, production, and aftersales. Get a comprehensive insight into our past projects with a selection of case studies, articles and white papers.

Whether tests in the passenger car and commercial vehicle sector, vehicle camouflage, competencies in the field of electromobility, fleet management, vehicle repair centers or much more: The case studies, articles and white papers show the complexity of our services in the automotive industry and provide you with an interesting insight into our projects.

Confidentiality of customer information and project information

All Formel D employees work in accordance with strict enterprise corporate guidelines. Among these we also include discrete handling of strictly confidential information. Consequently, we only publish selected reference reports that are chosen in a direct exchange with the customer.

Technical Representation C5 – A key service to assure supply chain quality

QCC Support for Yamaha Motorcycle Production in Brazil

Formel D supports Yamaha on the client’s premises in Manaus in northern Brazil with approximately 40 employees in the quality and supplier management divisions since 2019.

Increase Efficiency in Vehicle Software Management with Full Scope HIL-Management

This white paper explains how to recognize problems in the product and relevant vehicle projects early on in a complex HIL landscape and how to introduce suitable preventive measures to resolve these issues in good time in a complex network of dependencies.

Comprehensive Expertise in physical and software Testing

Article in Top Company Guide 2020 | For manufacturers in the industry, there is a much larger demand for vehicle testing prior to moving into series production. Formel D Group supports its customers with numerous services in this area.

Commercial Vehicle Testing – Under Realistic Conditions

Article in Informel 1/2019 | Due to the rapid development of increasingly complex vehicles, manufacturers are counting on experienced partner support in the field of vehicle testing. Formel D is responsive to this environment and is continually expanding the scope of its services in this area.

Vehicle Testing 2.0

Long version of interview in OEM & Lieferant 2/2019 | Vehicle tests help ensure vehicle quality under a wide range of external conditions. Formel D supports its customers in preparing, organizing, and carrying out test runs on public streets as well as private tracks and test sites.

The right components at the right time

Article in Top Company Guide 2019 | In the summer of 2018, Formel D joined the “Retail Enabling Parts Management” (REPAM) project as a strategic partner, supporting dealers of a premium German manufacturer in optimizing their stock management processes.

Comprehensive Services for new Mobility

Article in Automobil Industrie | E-mobility, connected cars, shared mobility, autonomous driving or increasing digitalization: Based on the global trends in the automotive industry, the key to success and sustainability more than ever lies in the optimization of quality assurance processes.

Quality assurance for vehicles of all sizes

Article in OEM & Lieferant | The Formel D Group offers a comprehensive range of services along the entire automotive value chain for vehicle types of all sizes.

Electric Future – Supplier management in China

Article in customer magazine Informel | China is increasingly becoming a pioneer of electric mobility. In light of the booming market for electric vehicles, Formel D is active in the field of supplier development for various OEMs in the People’s Republic.

Professional Hotline Support

Article in customer magazine Informel | Since 2015, Formel D has been active in the fields of service management and technical support for a German premium manufacturer. The Group assists the automotive manufacturer with its comprehensive system knowledge and experience and helps to increase customer satisfaction.

Quality Confirmation Center (QCC)

Article in OEM & Lieferant | As digitalization increases, Formel D constantly improves its Quality Confirmation Centers (QCCs) to help manufacturers safeguard the supply of parts for assembly lines.

Full Trialing for vehicles of tomorrow

Article in OEM & Lieferant | New propulsion technologies, lightweight designs, optimized consumption demands, the sophisticated comfort requirements of final consumers and the introduction of extended assistance systems – these are just a few of the topics which are now affecting development processes.

Vehicle Repair Center (VRC)

Customer service now plays an increasingly important role in the holistic consideration of the vehicle lifecycle. Proactive quality- and solution-oriented handling in this field forges a sustainable positive relationship to the brand. Formel D is aware of the importance of customer loyalty, so it now offers a similarly wide range of services in the aftersales area as it does in development and production. Service, vehicle, dealer and warranty management form the basis of the service portfolio in this segment.

Interactive Workshop Media

The time management of visits to passenger car workshops makes a crucial contribution to customer satisfaction. Complex repairs in challenging installation geometries can be very time-consuming. The law prescribes comprehensive repair instructions for each vehicle derivate, but it does not specify all of the parameters. Formel D develops easy-to-understand workshop literature with multimedia approaches and an especially high information content with the aim of supporting a convenient and effective repair process.

Pre-Delivery Inspection (PDI)

Formel D uses structured concepts for pre-delivery inspections to support manufacturers with their upstream fleet management. At specially equipped sites, the service provider processes vehicles for internal delivery. This ensures that they are in perfect technical and optical condition at all times while taking the manufacturer’s guidelines into account.

Holistic Assurance and Verification

Article in Automotive Testing Technology International | The automotive sector is characterized by progressively shorter development times and an increasing density of derivates. Also, the rising proportion of electronic components in vehicles leads to new and expanded demands for solutions in the field of vehicle, software and component tests. Formel D as an experienced partner of the automotive industry expertly maps these scopes of services in everyday virtual and real-life testing.

Quality Assurance using the E-Report

Article in OEM&Lieferant | Countless Tier 1 and Tier 2 suppliers are involved in the complex process of manufacturing a car. This means that quality assurance includes an increasing number of incoming goods checks which the processing manufacturers prefer to put in the experienced hands of the Formel D Group.

Vehicle Management Worldwide

From the East Coast to the West, Formel D gives expert support to a German premium manufacturer in its Performance Centers in the US using its globally standardized procedures and qualified professionals.

EDI – Electric Data Interchange

Article in OEM & Lieferant | The global economy is currently experiencing a period of increased and unprecedented activity in which the worldwide exchange of goods and services gives rise to supply relationships with far-reaching economic impacts. Worldwide communication between, and integration of, suppliers is required in order to meet all present-day requirements of a corporation acting globally.

Competence center for E-Mobility

Article in OEM & Lieferant 1/2019 | 115,000 m² of parking spaces for around 5,750 vehicles, a technical center measuring 1,500 m² with professional equipment and good water, rail and road connections: Since 2016, Formel D has set benchmarks with its Verification and Campaign Center (VCC) in Ahlhorn, North Germany. Now, the Group is gradually expanding the location into a Competence Center for electromobility to meet ever-growing customer demand.

Global supplier analysis and qualification for our customer ABB

Since the start of 2012, Formel D has been lending its support to the global group, ABB, to develop its suppliers. Engineers and quality managers employed by the service provider ensure on-time delivery in line with agreed quality standards.

Processing of show cars for Volkswagen

For the second time in succession, Formel D was responsible for smooth procedures and a perfect optical impression of the show cars at the 9th Group After Sales Conference (GASC) held by Volkswagen. The Formel D team offers a complete solution for this purpose, including logistics management, individual processing, subsequent quality checking and support during the days of the fair.

Innovative production processes and future-oriented technologies

The Formel D Group supplies a German premium manufacturer with various quality-assuring service tools to ensure an optimum production process in vehicle manufacture.

Packaging Management – Perfectly packaged

For 18 years Formel D has been working in the field of packaging manage- ment. The premium service provider specifies, constructs, improves and tests packaging materials and develops packaging concepts for the after sales sectors of Opel/GM and BMW.

Preparation of show cars for BMW

At the Leipzig car show, BMW gave its visitors a few moments that were literally illuminating. They were made possible by the vehicles’ special interior lighting system – which was installed by Formel D. It’s just one of the many services that the service provider offers in its CARing. portfolio.

Tracing errors and preventing new ones

Guarantee and warranty costs burden the automotive industry worldwide swallowing up tens of billions. They are a clear indicator that further improved processes and controls need to be established. The Formel D Warranty Solution Center (WSC) offers solutions for cost reduction and quality optimisation along the entire process chain.

Problem solving – made easy

In order to constantly improve the quality of serial production processes, the automotive industry relies on the standardised problem management process (PMP). BMW conferred the search and identification of possible error patterns also to the Formel D Group.

On board from the beginning

It was 18 years ago that the foundation was first laid for the creation of customer and workshop literature and the determination of labour time for Opel AG. Since 1997, Formel D has also been responsible for serviceability tests and other coordinating activities in the GM After Sales division. Today, Formel D is in charge of projects in these areas for GM/Opel all over the world.

Interview literature and serviceability

Formel D works for General Motors not only in the areas of literature and serviceability, but also as a builder of bridges to new regions. For Joachim Beitz and Ralf Rösner of GM/Opel, this represents a special strength of the service provider.

Formel D opens RMC – Refining Manufacturing Center

By opening its Refining Manufacturing Center (RMC®) in Brussels in June 2010, the Formel D Group has added a new innovative concept to its service spectrum. With the launch of the Audi A1, Audi AG has introduced a new product to the “small urban sports car” market segment. Formel D has been commissioned to carry out customer-specific refinements for Audi A1s by adding high-quality Audi Genuine Accessories and other finishing touches once the main production process has been completed. Formel D is fully responsible for the work it carries out on Audi vehicles at the RMC.

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The automotive industry: Disrupting or being disrupted?

This industry note talks about how the automotive industry has been disrupted over the years, the various factors that triggered these disruptions, the current trends in the industry, and the value chains interlinked with the automotive value chain. Awareness of the benefits of electric vehicles is increasing across the globe. The ecosystem of electric vehicles covers not only the automotive value chain but also the energy, infrastructure, mobility as a service (MaaS), fleet services, and shared mobility value chains. The players in any one of these value chains are trying to expand into the other value chains in both organic and inorganic ways. This trend is growing the entire interlinked value chain and creating more white spaces for existing and new players. Research and development in the automotive industry is also at a peak and this may lead to further innovations and disruptions. The future outlook for this industry is highly unpredictable. Some of the biggest automotive markets are yet not close to adopting electric vehicles. Going forward, the steps taken by these markets, consumer behavior in these markets, and the push created by government/automotive players will define the shape of the industry.

• Evaluating the white spaces in various value chains that make up the e-mobility ecosystem.
• Evaluating the impact of any further disruption on the current ecosystem e.g. industrialization of fuel cell electric vehicles (FCEVs).
• Evaluating the best way forward for luxury internal combustion engine car manufacturers.

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ServiceNow | Automotive industry case study

Putting the client in control

The Backstory

A major automotive manufacturer had spent a number of years outsourcing its service management capabilities and IT service desk. However, the services they were getting were not meeting quality nor cost expectations, and it became evident that they needed to take more control of the processes themselves. While they could outsource these services, it was their responsibility and management that would provide the most value to their organization.

As the contract with their provider was coming to an end, the client decided to take control of these functions themselves, building out an overall service management organization. Ultimately, this shift would unify their people, process, and tools. The aim was to create a brand new platform that would improve the existing level of customer service, streamline support tasks, and place responsibility for the performance of IT back into their hands. 

The Challenge

We were brought in to assess the service management plans the client already had in place, discover what would be needed to enhance them, and create a transition road map that aligned with their priorities. As their previous contract drew to an end, the client faced the prospect of not having an ITSM platform in place. This was not an option: The deadline for the transition was fixed and had to be met. We began in February and needed to go live by July. This left no margin for error to successfully implement ServiceNow across six different IT process areas and for about 1,500 IT users in North America. A project of this size would typically take a year to complete, but we dove right in!

Our Approach

Achieving their objectives required a significant amount of “jump-start” tools and an agile development approach. KPMG brought both. We decided to gather and respond to requirements from the client in real time. Instead of building the platform all at once, we began with identifying the client’s needs, prioritizing them, and developing solutions for them as they came in. We started with our view of critical functionality and leading practice and then confirmed what the client’s absolute “must-have” capabilities were. We challenged the status quo with new ideas and ways of thinking. We then underwent a 12-week sprint cycle to make those key protocols functional, providing regular views of the build through “show-me” sessions and adjusting priorities as needed. Around all this, we supported organizational change, training, and testing activities to help ensure adoption despite the aggressive time line. Once the basic processes were complete, we then introduced elements that we knew could support that infrastructure. This would test our flexibility, experience, and capabilities to the fullest.

The Results

By the end of the project, we had deployed a true platform to run the IT business. The solution included the configuration of six core ServiceNow applications, service catalogue of over 70 services for end-user consumption, over 150 reports including a custom view of “business disruption”, and a configuration management database with 20 CI classes and over 60,000 CI records. The solution provided an improved experience for their users. It gave the client a detailed map of their applications and infrastructure, helping them understand impact, potential, and relationships. It provided levels of consistency and automation that they had not seen before. We were then able to start passing control to the client, helping them build out an ITSM governance structure and allowing them to manage the system themselves, enhancing it to their needs as they evolved.

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IoT Case Studies in the Automotive Industry

The automotive industry is one of the pioneers and leaders in adopting the Internet of Things (IoT) technology. By connecting cars, parts, and devices to the internet, automakers can enhance their operations and customer experiences. From smart manufacturing to connected vehicles, IoT offers a range of opportunities for automakers and drivers alike. Here, we present some of the most inspiring IoT use cases and case studies in the automotive industry.

If you want to learn how IoT can help you transform your automotive business and create value for your customers, read on. Or why not explore IoT case studies from other industries?

Customer Cases Booklet

Control: pioneering motorsport telemetry, giken mobility: driving electric motorcycle innovation through connectivity, chargenode: optimizing ev charging, koenigsegg: from the racetrack to the road, rgnt electric motorcycles: staying connected in style, volvo: on a brand new highway of connectivity, more iot cases and examples, connected vehicle technology drives automation forward, 15 iot examples for business applications, get a free consultation.

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New Horizons: Multinational Company Investment in Developing Economies

Auto sector case study

Emerging markets are in a position to not only attract significant foreign investment from automobile companies but also significantly improve the performance of the automotive assembly industry.

The critical component for success in developing economies is whether they foster a positive environment for investment. When they do, the results can be staggering. As an example, India, closed to foreign investment until 1983, has grown its automotive assembly industry by a factor of 13 since laws were liberalized.

The "very positives"

In the span of a generation, India's automotive market has transformed a failing local industry into a thriving producer of reasonably priced, reliable small cars, some for export. Alongside the assemblers, successful component manufacturers and suppliers have developed. Still, while India's industry is booming, consumers, rather than investors, are reaping the greatest rewards.

Mexico boasts a strong industry that has succeeded without offering incentives to lure American carmakers. Output, productivity, and employment have all increased, leading to higher tax revenues and high plant utilization.

The "positives"

In Brazil, incentives to lure investment backfired by creating an investment frenzy that led to overestimated demand and an oversupply of product. States that offered inducements lost money, although consumers ultimately prospered when car prices dropped.

China, lately a magnet for foreign investments, has acquired foreign infrastructure products and inherited manufacturing processes far superior to those present in incumbents. And as a result, prices have declined and sales grown rapidly - a trend is likely to continue as remaining barriers to FDI entry are being removed.

The automotive assembly industry and developing economies are in a position to reap massive rewards. But neither will reach their potential until remaining incentive and price controls are loosened to allow the laws of supply and demand to hold sway.

Related Articles

New Horizons: Multinational company investment in developing economies

New horizons: multinational company investment in developing economies.

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• February 11, 2022
• Digital Transformation
• By Poonam Chug

5 Digital Transformation Use Cases in the Automotive Industry

The automotive industry is on the brink of significant technological disruption. Underpinning Industry 4.0 and the next-gen of mobility is the rapid emergence of artificial intelligence, intelligent automation, predictive analytics, and Big Data – delivering real-time insights to enable powerful innovation and transform the way automotive companies operate.

Technological advancement has ushered in an era of new driving experiences and business models. Moreover, organizations must adjust to changing customer expectations, ensuring they can deliver personalized and more meaningful customer engagement on every channel.

Additionally, the COVID-19 pandemic has led to unprecedented challenges, halting production, affecting demand and supply, and causing thousands of automotive workers to shift to remote locations. Now, as the automotive industry carefully navigates the road to recovery, industry leaders are signaling the onset of the new normal, heralding in digital transformation at an unparalleled speed.  The automotive industry is no longer just about “manufacture, buy, service, sell.” Instead, automotive companies must now build a “connected vehicle platform” that integrates with all surrounding systems and provides robust, end-to-end experiences to customers.

Below, we’ll have a look at some of the innovative use cases of AI, automation, and analytics that automotive companies must consider to become more agile and resilient and set the stage for continuous improvement in operations.

Digital Transformation Journeys to Watch for in the Automotive Industry

1. enhance in-vehicle driver experiences.

Today’s drivers expect real-time and contextually meaningful information at their fingertips while on the road. They want built-in apps and systems to predict their needs, respond immediately, and deliver connected mobility experiences.

Building connected driver experiences in the era of “software-defined vehicles.”

At Acuvate, we can leverage Microsoft Azure Maps, Microsoft PowerApps, and our enterprise bot-building platform, BotCore, to modernize in-vehicle driver experiences with real-time location intelligence and voice-based virtual assistants.

• Navigation and route-planning
• Personalized recommendations and alerts based on location, preferences, and situation
• Driver monitoring and safety using IoT sensors and voice-based AI services
• In-car commerce

With Azure Maps, automotive companies can add maps, routing capabilities, and geospatial services to vehicles.  Moreover, the solution offers rich data visualizations and image layers on maps with multiple map layers and heatmaps.

Additionally, intelligent voice-based virtual assistants integrated with maps and other third-party services can anticipate driver needs, understand context, answer queries, and create a seamless experience using insights from cloud data.

From the moment drivers enter up to the point when they leave the vehicle, IoT sensors can monitor driver behavior. The bot can push remote alerts if the driver fails to follow safety protocols.

2. Facilitate fleet management using emerging mobility services

For automotive companies that deploy fleets of vehicles, continuous real-time information analysis is essential to optimize the management of these mobile assets, track vehicles and drivers, refine operations, anticipate future change, and communicate key insights to relevant stakeholders.

Modernize fleet management with advanced analytics and AI

Acuvate helps clients leverage Microsoft’s most-renowned AI, machine learning, and advanced analytics technologies to study location data and gain spatial awareness of all mobile assets at a given time.  We can develop and deploy AI bots into the system that provide real-time insights into delays, congestion, and other issues, while IoT-connected sensors refine and improve the overall transport experience. Here’s how –

• Onboard IoT sensors collect information on vehicle performance, transfer it to the cloud, evaluate potential risks or malfunctions, and execute over-the-air updates to fix issues.
• Real-time driver and ridership information boost in-the-moment decision-making
• Connected infrastructure manages parking by broadcasting space availability to reduce traffic.

For example, Mr. X manages thousands of cars, trucks, and delivery vans. Through a powerful suite of IoT sensors and AI-enabled bots, data from vehicles and drivers is fed into a centralized platform for analysis.

Mr. X can then do the following –

• Check the amount of gas in each vehicle and monitor metrics like speed, braking, mileage, and acceleration.
• Run large-scale simulations to assist drivers with the best routes depending on traffic patterns and the weather forecast.
• Receive real-time data on vehicle performance to alert the maintenance crew and schedule replacements.
• Monitor driver wearables like headbands and smartwatches to analyze the quality of sleep, project fatigue levels, and ensure drivers don’t work more hours than assigned.

Daimler Trucks leverages Microsoft Azure Cloud to deploy a data analysis tool for fleet management.

To help fleet managers increase vehicle reliability and reduce operational costs, commercial vehicle manufacturer Daimler Trucks North America leveraged Azure, Microsoft’s cloud computing service, to build Detroit Connect, a data capture and analysis program for cloud-connected vehicles. Designed to assist fleet managers in making informed, data-driven decisions, Detroit Connect helps Daimler better understand vehicle performance, determine productive road time, and improve fuel efficiency. Consequently, customers can understand deteriorating fuel economy performance (whether it is driver behavior or a machine learning issue, or just the vehicle’s load) and rapidly respond to emerging issues within a fleet.

3. Drive agility and efficiency with low-code app development

Global automotive companies employ thousands of employees working across different departments. For large modernization initiatives, the assurance of a bespoke product that will drive change across the entire organization, the resources spent on deployment are worth the expenditure.

However, the same investment may feel interminable for small incremental changes that may affect only a particular department or a small number of employees, especially if the organization strives to maintain itself as a lean company.  In such a scenario, empowering employees to create solutions to everyday problems and inefficiencies with low-code app development platforms can reduce costs, infuse agility, and provide a quick way to innovate.

After all, automotive companies must ensure that the entire organization – from the C-suite executives to the factory floor is equipped and empowered with the right tools.

How can automotive companies quickly create unique apps for specific business use-cases?

As a Microsoft Gold Partner, Acuvate can help citizen developers in automotive organizations develop solutions to everyday business problems with Microsoft’s low-code app development platform called PowerApps. Such apps can fulfill the following use cases:

• User look-up app to assist employees in finding each other’s location and contact details; helpful since automotive plants can sometimes run as long as a mile.
• Log issues with machinery and other equipment through mobile apps for a quick resolution.
• Automate manual data entry tasks through apps and save hundreds of hours in employee productivity.

Toyota uses Microsoft PowerApps to develop a facilities management tool

Toyota has already created more than 400 apps via Microsoft Power Apps. Chris Ingalls , Business and Solution Architect at Toyota, explains, “You don’t have to worry about system design, infrastructure, or networking. PowerApps gives citizen developers a best practice and model-driven design.” 

For example, Toyota’s facilities employees have developed an app to enhance safety and boost efficiency across its vast campuses. The app allows employees from all departments to quickly log issues that warrant attention by scanning a location-identifying QR code and uploading a photo. Facilities employees can then prioritize safety issues and attend to multiple problems in the same vicinity.

4. Build the “office of tomorrow” with digital workplaces

Stakeholders in the automotive industry (original equipment manufacturers, or OEMs and dealers) must ensure that the entire organization (from C-suite to the factory workers) stays connected, collaborates effectively, and accesses the right information at the right time.

The importance of global collaboration and workplace transformation has increased many folds as the automotive industry faces disruptors in shared cars, self-driving vehicles, connected fleets of vehicles, and of course, the challenges posed by the COVID-19 pandemic.

Consequently, automotive companies must build a modern workplace in the cloud that unifies devices, data, processes, and relationships, allows teams to connect in an impactful way, and streamlines workflows by offloading repetitive tasks.

Creating a connected, empowered, and productive organization with a digital workplace

Acuvate helps clients improve communication, collaboration, information discoverability, and knowledge mining with our autonomous modern SharePoint intranet solution, Mesh 3.0, and the Microsoft 365 cloud.

Porsche Holding drives the future of modern workplaces with the Microsoft 365 Cloud.

Herbert Lohninger, Head of Digital Workplace Services at Porsche Informatik , said, “Employees need a mobile way of working that empowers them to interact easily with colleagues, partners, and customers through simplified knowledge sharing. Microsoft 365 Apps for enterprise fills that role.”

Porsche Holding represents the Volkswagon group brands, retailing, importing, and providing after-sales service to users in 27 countries.

As such, as stated by Pinia Eder, Chief Information Officer at the Porsche Bank Group, “Porsche Holding chose Microsoft 365 to connect people and information intelligently so that we can work together to grasp business opportunities without worrying about the technology.”

5. Meet rapidly evolving customer expectations

In today’s digital era, vehicle shoppers already have a lot of information in hand before they show up at the dealer for a test drive. They have made up their mind about what they want and how much they want to spend.

Consequently, automotive companies must keep up with evolving customer expectations and transform the way vehicles are marketed, sold, and maintained.

Today’s customers demand omnichannel digital experiences and expect personalized engagement at every touchpoint of their journey with the brand. Dealerships must create a unified view of each customer to move them from online research to actually buying seamlessly.

Leveraging data analytics, advanced CRM systems, and AI chatbots to power a digital car buying experience

Acuvate can help automotive companies leverage machine learning and advanced analytics to bring together customer data from various platforms and legacy backend systems and discover insights that drive proactive engagement.

• Track and analyze engagement history to deliver interactive marketing
• Streamline sales through fluid conversations between shoppers and dealerships
• Increase CSAT with data-driven customer relationships
• Empower customers with digital experiences akin to their experiences in other retail segments

Moreover, our sales and marketing bots can help you deliver consistent messaging across all channels, track engagement, tailor proactive communications to suit customer needs, and automate workflows for service agents in the field.

About Acuvate

Acuvate Software is a global player in next-generation digital services and consulting with 15+ years of experience improving business efficiencies and revenue for numerous automotive enterprises worldwide. As a Microsoft Gold Partner, we leverage all things Microsoft to build enterprise apps that support intelligent analysis, collaboration, and orchestration of information, to redefine sales, service, mobility, and experience.

Poonam Chug is Vice President – Business Unit Head (Migration & Modernization). She has worked in various areas, right from designing and executing sales & account management strategies to reengineering digital workplace solutions. With her determined focus on our mission and progressive approach, she has achieved customer delight in the space of AI, Knowledge Mining, Content & Collaboration, Virtual Assistants, RPA and more. Backed with a deep understanding of customer needs and technology, she heads Migration & Modernization business unit with an upshot of maximizing revenue while ensuring customer satisfaction.

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Reframe your strategy: The great automotive value shift

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Reframe your strategy: The great automotive value shift (PDF)

With value shifting toward new disruptive areas, the auto industry needs to quickly adapt and unlock the emerging revenue opportunities..

• Value along the automotive value chain is shifting away from traditional sources toward emerging technology value pools.
• EY analysis found three value megapools around electrification, software defined vehicles and circularity that represent the greatest opportunity for growth.
• Mobility ecosystem players need to optimize today’s business while simultaneously innovating for tomorrow's business in emerging growth areas.

A s value migrates toward new disruptive arenas, auto industry players must quickly adapt, or risk becoming irrelevant. They must assess where the greatest revenue opportunities will lie, how quickly they will grow and what specific expertise, capabilities or strategies will be required to unlock their potential. To answer these questions, an EY team has conducted a detailed market analysis of the emerging opportunities across the evolving automotive value chain.

This analysis reveals how the great value shift is shaking long-held assumptions about the sources of value, as the revenue potential of once-lucrative income streams rooted in the manufacture of internal combustion engine (ICE) vehicles and related components wanes. Value is shifting from traditional revenue streams to adjacent new opportunities, which we have categorized as transitional and growth.

• Transitional opportunities such as hybrid vehicle manufacturing and alternate car ownership models are those most adjacent to traditional revenue streams and represent the first wave of the shift. They provide good revenue potential for industry incumbents and new entrants alike.
• Growth opportunities are those that represent the next wave of adjacencies shaping the new economics of mobility. They include battery electric/software-defined vehicle technologies and circular business models, and they offer the most significant revenue potential.

Out of the 40 value pools identified by our analysis, we have categorized six as traditional, 14 as transitional, and 20 as growth.

The findings reveal three value megapools that will collectively represent a revenue opportunity of more than US$660 billion by 2030, not just for OEMs, suppliers, battery manufacturers and energy players but also emerging startups and investors participating in the mobility transformation.

• Supercharge the future — batteries and charging
• Redefine the vehicle architecture — the software-defined vehicle

Close the loop — battery and vehicle circularity

To assess the attractiveness of the 40 value pools, the EY team developed a proprietary framework across four broad parameters (and 16 sub-parameters) — scalability, technological maturity, investor attractiveness and customer expectations. 1 The result was a shortlist of 10 value pools (top right in the chart below), which we clustered into three megapools mentioned above.

Case study: Developing an integrated mobility strategy for an OEM

To participate in the changing mobility landscape, the automaker aimed to increase its market share in mobility services in Europe by adopting a stronger customer focus, identifying new revenue streams and developing differentiating capabilities.

To help achieve that, the EY team conducted a readiness assessment to prioritize about 20 mobility services business models across the automotive spectrum by adopting a three-step filter prioritization approach using our proprietary attractiveness rating framework as well as evaluations of capability and strategic fit.

We helped the client to identify the most attractive mobility areas or value pools and created a three-year strategy roadmap period to develop and deploy the services in 12 key European markets. The EY team also evaluated M&A opportunities for the client to identify target companies and helped develop the OEM’s organizational structure for mobility services.

Unlocking value within the megapools

Look to EV batteries and charging, SDVs, and circular models.

Supercharge the future — EV batteries and charging

Batteries and charging are foundational to steering a successful electric vehicle ( EV) transition . This megapool comprises EV battery production, active materials and components, EV public charging solutions, and energy storage systems. The combined value of this group of adjacent opportunities is expected to reach about US$405 billion by 2030 at a compound annual growth rate (CAGR) of 14.8% between 2023 and 2030.

After a strong start, driven by EV enthusiasts, EV growth has moderated due to the impact of high ownership costs, reduced subsidies, range anxiety, slower-than-expected rollout of charging infrastructure and the increased interest in hybrids. To get growth back in the fast lane calls for EVs with greater range, reliability, safety and lower costs in a fiercely competitive market, and that’s where batteries offer a pivotal differentiating potential. As China owns about 75% of global battery metal refining capacity, rising trade tensions between China and the West, and consequent localization regulations (such as the US Inflation Reduction Act), securing direct access to battery materials and technologies will enable the most reliable and diversified battery supply chain. In addition, most automakers have begun integrating vertically to optimize the energy density, cycle life and thermal stability of their EV batteries.

However, the best-performing EV battery is only as good as the infrastructure available to charge it — a reliable, convenient and affordable, fast charging network is the other key to wider EV adoption (EY professionals predict that by 2030, there will be about 76 million public and private charging stations across the US and Europe, at a 30% CAGR from 2024 to 2030 2 ). Industry players are integrating and even standardizing charging into their brand offerings, along with seamless payment and navigation services. Moreover, to manage the load on energy grids, EV charging data will spur new opportunities in real-time monitoring and managed EV charging services — smart and vehicle-to-grid (V2G) charging. Investing in stationary energy storage systems will further bolster grid resilience by providing backup power during emergencies and balancing load during peak demand.

How EY can help

Mobility Lens Suite: Explore the future of mobility

Explore the future of mobility with the EY Mobility Lens Suite, a proprietary automotive and transportation research toolset. Learn more.

Redefine the vehicle architecture — the software-defined vehicle  

The shift from hardware to software-defined vehicle (SDV) architectures will not only unlock new revenues in technology and data-based services but also drive cost efficiencies, enhance faster software delivery and improve the quality of fleets. This megapool comprises SDV enabling technologies, advanced driver-assistance system/autonomous vehicle (ADAS/AV) components, data monetization, and software-based repair and maintenance. The combined value of this group of adjacent opportunities is expected to reach about US$169 billion by 2030 at a CAGR of 18.8% between 2023 and 2030.  

Vehicles are becoming increasingly software-defined 3  — the average number of lines of code per car is anticipated to grow from 200 million in 2020 to as much as 650 million lines by 2025. 4 Centralized architectures and standardized platforms are becoming more common, and significant opportunities are arising across the vehicle tech stack, from ADAS/autonomous driving components and chips to new operating systems (OS) and user interface controls. Levels of vehicle autonomy are already rising beyond lane departure warning and blind spot detection, requiring sophisticated radars, light detection and ranging systems (LiDARs) and cameras. Legacy infrastructure must also evolve to seamlessly integrate hardware and software (via OS), facilitate data exchange between OS and applications (via middleware) and accelerate agile development (via standard processes or toolchains).

Connected cars are also generating a wealth of data on driver behavior, vehicle use, location and customer preferences, providing various data monetization opportunities. Moreover, advances in artificial intelligence (AI), machine learning (ML) and vehicle-to-everything (V2X) technologies are transforming the collection and analysis of connected car data, providing customer insights to enable value-added services and enhance operational efficiencies.  

A software-defined car will also need to be updated frequently (via over-the-air updates) to ensure optimal functionality. With increased sensors, ADAS recalibration will become critical as minor malfunctions or misalignment can lead to inaccurate readings, causing safety and vehicle performance issues. Connected cars will also enable predictive maintenance using advanced analytics to reduce downtime and improve vehicle performance.

Moving toward fully circular models aimed at reusing and recycling materials promises a greener automotive industry and solves an increasingly geopolitical war for rare minerals. The combined value of adjacencies in battery and vehicle circularity is expected to reach US$88 billion by 2030 at a CAGR of 16.2% between 2023 and 2030.

Decarbonization and waste management directives are forcing industry players to upgrade from traditional take-make-waste to closed-loop circular models. The EU remains at the forefront of this change, mandating OEMs since 2015 to ensure 95% of vehicle weight be reusable or recoverable and further proposing recycling 25% of plastics used in the sector by 2030 (of which 25% must come from end-of-life vehicles). 5 It has also put mineral-specific recovery targets to increase recycling efficiency (e.g., lithium recovery rate of 50% by 2027 and 80% by 2031). Moreover, there are mineral specific mandates for the use of recycled materials in new batteries (e.g., 6% recycled lithium and nickel and 16% recycled cobalt by 2031, increasing to 12% recycled lithium, 15% of recycled nickel and 26% of recycled cobalt by 2036).

The increased demand for electric mobility and the resulting need for batteries has created significant opportunities in battery circularity. Spent EV batteries can be repurposed and reused — for stationary power storage applications or in vehicles with lower capacity requirements — or they can be recycled to recover scarce minerals. However, the increasing lifespan of EV batteries may result in limited recycling feedstock, creating potential headwinds to meet regulatory targets.

The focus must also go beyond decarbonization if the industry is to lead on a broader environmental, social and governance (ESG) frontier. The use of sustainable materials in cars is already on the rise, from recycled steel and battery minerals to bio-based thermoplastics and recovered carbon black. However, the cost to innovate with these materials remains quite high. The fragmented nature of the market and downcycling practices create further challenges to retain the recycling value within the automotive ecosystem. To maximize value creation across the vehicle lifecycle, design, processes and business models must all be synced.

Case study: Defining an OEM's 6R circularity vision, strategy and future roadmap

As the automotive industry is witnessing a regulatory shift, the OEM wanted to evaluate its requirements to comply with EU regulation on vehicle and battery recycling while also balancing commercialization of its end-of-life assets, ensuring security of supply, and playing an industry feedstock aggregator role.

To achieve this, the EY team developed a robust business case mapping more than 10 major vehicle components and commodities, outlined the economics of recovering, dismantling, pre-processing and recycling or repurposing for vehicle components from a financial standpoint and defined the target business model.

The EY team helped create an actionable roadmap across pilot development, partner activation and infrastructure development and shaped client’s vision around the “6Rs” (redesign, recover, retain, recirculate, repurpose, recycle). We also conducted a network optimization study to evaluate footprint options for the transport of hazardous materials.

Winning the great value shift race

Focus on four pivotal actions to win.

Understanding the great value shift is only the start — translating it into lasting competitive advantage calls for a complete strategic rethink. Players must focus on four pivotal actions to win the value shift race: building a culture of innovation, redefining strategy and customer experience, unlocking the value/potential of data, and nurturing future workforce skills.

Become ‘innovation obsessives’

From additive manufacturing technologies and ADAS systems to advanced materials for improved vehicle performance and to enable the “gigacasting” of ever-larger one-piece structural sections, innovation is non-negotiable. Obsessing on innovation holds the power to separate the leaders from the laggards, by leveraging strategic partnerships, ramping up R&D investments and building an ecosystem play.

Berkana’s two loop innovation transformation model 

EY-Nottingham Spirk Innovation Hub

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EY Digital Operations Hub @ MxD

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The EY Partner Ecosystem: our strategic relationships and alliances

EY teams collaborate, co-create and innovate with our category-leading organizations to drive transformation, performance and growth.

The Berkana two-loop model explains how change is inevitable. As the industry shifts from the traditional automotive systems to advanced technologies, players must identify strategic partners with a shared vision. The partners must demonstrate competencies in new technologies (e.g., advanced battery tech), complementary capabilities (software synergies) and robust governance.  

Alongside the right partners, skilled R&D teams and progressive scaling of R&D will be critical to successfully integrate the latest innovation into vehicle production processes. As pioneers, players will encourage the industry to follow suit.    

New growth avenues should be explored using new models and methods — such as closed material loops — to limit environmental footprints, build supply chain security and manage high manufacturing costs. Players must begin designing vehicles for easy disassembly and maintenance, while the use of standardized parts and more renewable materials will help accelerate commitments around sustainability and reduce overall costs.

Case study: Commercializing innovation through EY design-driven approach

The automaker wanted to move from a product sales company to a mobility services organization to generate additional revenue streams by focusing on new services and establishing new ways of commercializing and scaling innovation.

The EY team curated a design-driven innovation program to identify 10 opportunity areas; three were shortlisted for the prototype phase that included identification of business models for commercialization and potential partnerships scenarios. The team also helped the client select diverse groups of internal pioneers that can help drive innovation within the firm.

From the prototyping phase, two proof-of-concepts were piloted with ecosystem partners that helped the client gain strategic insights into its business future. The EY team also helped set up an innovation services unit focused on upskilling key personnel and training their leadership team on how to lead for innovation.

Reimagine strategies, redefine portfolios, revolutionize customer experience

To make the most of the value shift, players must go beyond traditional vehicle sales strategies, redefining their portfolios while building a laser-focused understanding of customer needs .

Defining the constructs of a value shift

As EVs gain popularity, industry players must continue to streamline their ICE portfolio, reducing complexities and freeing up capital for new businesses such as ADAS and AV components, SDVs, and recycling technologies. They must remain agile in the face of growing regulatory uncertainties and nonlinear pathways into the EV age.  

With the increased convergence of mobility and energy industries, auto players can collaborate with utility players for energy storage systems, vehicle-to-home and vehicle-to-grid charging to provide smart energy solutions for customers.  

Industry players should also look to develop user- and data-centric digital services, integrated payments, and better EV charging infrastructure to boost consumer confidence. Personalizing the driving experience and enhancing convenience features will also help improve customer satisfaction.  

As vehicles become increasingly software-defined, players must ensure seamless integration between hardware and software by investing in car OS and middleware. They should also focus on ADAS recalibration centers and integrate ADAS services into their aftersales mix to broaden their customer base.  

Amid this change, players must urgently rethink their operating models as agile, fit-for-purpose frameworks to support their new mobility strategy.

Case study: Prioritizing future focus areas to meet strategic vision

Amid the changing mobility landscape, the European OEM launched an initiative to revise its “Focus Area Strategy” to bridge the gap between its service roadmap and 2030 vision of meeting its service revenue target. The EY team conducted a deep dive on the five focus areas, comprising over 20 value pools, and prioritized them based on several dimensions including market size, expected growth and ability to capture the strategic fit to build a shortlist of nine distinct value pools. From our analysis, we recommended select value pools to the client based on its capabilities and future growth prospects and estimated a market share range for each value pool that it should aim to capture to meet its revenue target by 2030.

Cyber architecture, operational technology and engineering services

Discover how EY's services & offerings can help your business across multiple aspects of its cybersecurity portfolio.

Double down on data  

Customer-centricity can be enhanced exponentially with data. To fully harness data’s potential, clear data management, streamlined processes, and user-centric and modular architectures are necessary.  

Data is becoming increasingly dynamic as AI, ML and quantum computing technologies continually learn and evolve, driving next-gen analytics and reducing costs while also generating new monetization opportunities. Auto players must create modern architectures, leverage advanced analytics and generative AI (GenAI) to transform R&D operations (e.g., faster design cycles, simulations to enhance vehicle safety) and customer experience (e.g., anticipating customers’ preferred features, voice assistants for infotainment). They must provide access to anonymized vehicle data for optimized offerings (e.g., partnering with technology players or insurance companies to personalize offerings or enhance safety features, leveraging geospatial data to enable governments to deploy intelligent traffic management solutions).  

However, as these vast collections of data are stored in the cloud, challenges around data privacy, cybersecurity and AI emerge. Despite their interest in connected car features, consumers can be reluctant to share their data. Players must respect privacy regulations during data collection and processing and implement responsible and ethical AI to establish safeguards and trust.  

Increased vehicle connectivity has also generated higher data security risk. Cyber attacks aimed at vehicle systems are becoming more common, more sophisticated and larger in magnitude (in 2023, large-scale cyber incidents increased 2.5 times year-over-year). 6 Companies must transition to an integrated vehicle security operations center to secure V2X operations for connected fleets. They must define cyber defenses across the supply chain, engage in simulated recovery processes and work with cyber test labs to lower vulnerabilities.

EY Skills Foundry™: workforce upskilling and reskilling platform

EY Skills Foundry is a workforce upskilling and reskilling platform that helps your business adapt at pace by equipping people with the skills they need to continuously realize transformation.

Conduct a talent transformation  

The great value shift can only be achieved by a commensurate transformation in talent, with players becoming more human-centered than ever and fostering a high-performance culture centered on wellbeing and continuous learning.  

The center of gravity around skills is shifting from the mechanical engineering that automakers traditionally placed at the forefront toward software and chemical engineering, thereby increasing the emphasis on hiring the right talent.  

As innovation becomes indispensable in software/chemical/electronics engineering, battery, robotics, AI, and data or material science, existing staff will need to master disruptive technologies if incumbents are to thrive. Players should upskill their workers, from the basics of EV powertrains to managing electrical procedures to become EV-ready. They must also reskill workers in advanced robotics, mechatronics, sensor technology, ML to build automated driving technologies and AUTOSAR (automotive open system architecture) as well as eco-design engineering and sustainable chemistry for a circular future. Employees will also need to be open to change and hone their skills in collaborative problem-solving and in understanding partner technologies, etc., to navigate the complexities of emerging ecosystems and drive successful partnerships.  

However, auto players continue to face challenges in hiring the right talent due to fierce competition with other sectors such as banking and health care for top science, technology, engineering and mathematics (STEM) talent. While competitive pay would be table stakes, players must adequately communicate their vision to strengthen their employer brand. Partnering with universities on research, as well as offering apprenticeships, experiential learning opportunities and auto tech scholarships, will help build a future-proof workforce.

Gearing up for the great value shift

The great automotive value shift is already underway. There is an urgent need for players within the mobility ecosystem to optimize today’s business while simultaneously innovating for tomorrow’s business. The decision is not whether to engage with the value shift, but how? Winning players will be those who prepare themselves for a new tomorrow by recognizing the full range of needs and ambitions that exist across the entire global ecosystem and aligning the organization’s strategy and capabilities to create value within these emerging megapools. It’s time to put yourself in the driving seat and gear up for the great value shift.

A special thank you to the EY Global Advanced Manufacturing & Mobility Analysts Manisha Samal, Animesh Walia, Gautam Rashingkar, Ankit Khatri and Davinderpreet S Gugnani for their contributions to this article.

• Each parameter was assigned a specific weightage in direct correlation to relative significance.
• Batteries and Secure Energy Transitions, International Energy Agency, https://iea.blob.core.windows.net/assets/cb39c1bf-d2b3-446d-8c35-aae6b1f3a4a0/BatteriesandSecureEnergyTransitions.pdf, April 2024, accessed 30 April 2024.
• EY EV charging infrastructure forecasts
• This article introduces the automotive value pools that will shape the future of mobility. The SDV value pools study marked the inaugural piece in the series; watch this space for further value pool deep dives.
• “Software is Taking Over the Auto Industry,” Goldman Sachs, 8 November 2022, https://www.goldmansachs.com/intelligence/pages/software-is-taking-over-the-auto-industry.html, accessed March 2024.
• EU End-of-life vehicle directive, EUR Lex 30 March 2023, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=legissum%3Al21225, accessed 11 March 2024; “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on circularity requirements for vehicle design and on management of end[1]of-life vehicles,” EUR Lex 12 July 2023, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A451%3AFIN&qid=1689318552193, accessed 11 March 2024.
• Global Automotive Cybersecurity Report 2024, Upstream Securities, accessed April 2024.

The automotive industry is at a crossroads with traditional revenue streams beginning to decline as the industry shifts toward electrification. New revenue pool opportunities are emerging around EV batteries and charging, software-defined vehicle architectures, and circular business models. To remain competitive, industry players will have to embrace the shifting value paradigm, reimagine their strategy and drive innovation throughout their organization.

Related articles

Why human interaction remains essential to the car buying journey

The dealership retains a crucial role for buyers of EVs and ICE cars. Learn four key themes that emerged from the latest EY Mobility Consumer Index. Read more.

How can smart connected products change the way manufacturers operate?

Smart connected products offer industrial manufacturers new ways to generate revenue and cost efficiencies. Read more.

What auto suppliers can learn from PE to drive their EV transition

Auto parts suppliers that have hesitated to adopt an EV strategy can learn from the bold decision-making culture of private equity firms. Learn more.

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Value-driven growth requires manufacturers to put innovation and digital strategies at the heart of transformation. Learn more.

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

Automotive case studies

Worldwide demand for vehicles continues to grow and focus on fuel efficiency and emissions control from both domestic and commercial transport. There is also an increasing need to produce extremely accurate and reliable manufacturing systems, with a trend towards automated manufacturing processes to reduce cycle times.

Body, chassis and wheels

Challenge: Reduce the overall weight of the Swinburne Formula SAE car.

Challenge: Increase production precision and reduce scrap.

Challenge: Decrease set up time and increase process repeatability.

Challenge: Increase quality control to the chassis production process.

Challenge: Increase throughput and reduce scrap during production of high-volume and high-value automotive parts.

Challenge: To provide high quality machined castings with a short lead-time.

Challenge: Reduce shop floor gauging time of Daimler parts by 85%.

Challenge: To decrease CMM inspection and probe calibration times.

Challenge: To have the flexability of gauging many different parts with an immediate pass/fail decision.

Challenge: Reduce tool breakage detection by 67%.

Challenge: Achieve 0% scrap rate.

Challenge: Use non-contact laser technology to detect tool breakage.

Challenge: To design and build a single-seater car which races on a course normally reserved for Formula 1.

Challenge: To reduce inspection time by 40%.

Challenge: To be the first land vehicle to exceed 1000 miles per hour (1609 km/hr).

Challenge: Assess the engineering performance of students, the costs of the car and a marketing strategy for the racing car of a fictitious investor.

Precision components

Challenge: The Fulin Testing Centre needed to upgrade to a rapid and efficient inspection solution.

Renishaw and RLS provided magnetic encoders and technical support to British-based Dynisma for its latest dynamic motion simulator designed for applications in motorsport and beyond.

Challenge: To accurately inspect difficult-to-reach features on automotive parts.

Challenge: To confirm that additive manufacturing can produce sufficiently thin walls, production of a complete component and be used for short series production.

Challenge: Aligning the performance of software modelling and design tools with real 3D printing processes.

Challenge: Reduce unsprung mass and achieve an overall weight reduction in Moto2 bike design.

Challenge: Reduce quality room waiting times.

Challenge: Improve broken tool detection.

Challenge: Reduce cost on machine maintenance.

Challenge: Reduce down-time and scrap rate.

Challenge: Minimise set-up times.

Challenge: To find a diagnostic tool to check machines are capable of producing to part specifications.

Challenge: Improve tool breakage detection.

Challenge: Monitor the position of the crankshaft in the engine and measure clutch speed.

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Find out more

Automotive applications

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• Internal combustion engines
• Hybrid and electric vehicles
• Electronics
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• Medical and healthcare
• Precision manufacturing
• Scientific, research and analysis

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Value Stream Mapping: A Case Study of Automotive Industry

2014, International Journal of Research in Engineering and Technology

Related Papers

IOSR Journals

The A value stream includes all activities required to transform a product from raw material into the finished goods. Value Stream Mapping scrutinizes business processes from beginning to end and a visual representation map is drawn of every process involved in the material and information flows. Then a future state map is drawn to show how things should work for best competitive advantage. Value Stream Mapping helps to identify the current flow of material and information in processes for a family of products, highlighting the opportunities for improvement that will most significantly impact the overall production system. Nowadays in a competitive market, companies require small lead time, low costs and high customer service levels. As such companies pay more effort to reduce lead time. Value Stream Mapping (VSM) is the one of the lean manufacturing tool. In this study we will utilize value stream mapping (VSM) technique to identify and eliminate different types of wastes in fastener industry. The current state is mapped to capture a snapshot of how things are done and where the improvement potentials lie. Future state map is made to show the implementation action plan considering takt time. A case study carried out in Morning Star Industries Ludhiana, India.

IOSR Journals publish within 3 days

Bus body manufacturing play a key role in automotive manufacturing, as vehicle manufacturers often sub contract such enterprise to complete bus manufacturing process. In a fiercely competitive global environment, the bus body manufacturing enterprises are constantly looking for ways of meet their customer requirements of delivery on time, cost and quality in order for them to survive. However, bus body manufacturing enterprises barely meet the customer demands in terms of delivering on time due to long cycle times on the production floor due to low labour utilization, material wastage and unorganized work flows. In this research, we critically looked at improving productivity such enterprises by considering a case study of one of the leading bus body manufacturing enterprises in Kenya. Value Stream Mapping was used as the main productivity improvement tool supported by line balancing techniques. The results from the improved value stream map indicated an increase in efficiency of 13.1% and a reduction the cycle time by 7 days, demonstrating the potential of these tools for improving productivity in bus body manufacturing.

ICSESD-2017

Pranav Charkha

International Journal of Scientific Research in Science and Technology IJSRST

Today, Lean manufacturing Tools and Techniques are widely used for eliminating various kinds of waste and increase profit of organization by making process more efficient. Lean is about doing additional with less: Less time, inventory, space, people, and money. Lean is about speed and obtaining it right the first time. The Lean manufacturing approach is meant to transform non-value added activity into value added activity. Lean manufacturing has its impact on the employees and also the customers alike. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to produce perfect value to the customer through an ideal value creation methodology that has zero waste. This paper provides the literature survey on lean tools and lean implementation technique of implementing lean manufacturing.

Duong Huong

In Bangladesh a significant amount of foreign currency comes from the RMG sector. Garment industries in developing countries are more focused on sourcing of raw material and minimizing delivery cost than labor productivity because of the availability of cheap labor. Due to this, labor productivity is lower in developing countries than in the developed ones. So productivity improvement is one of the major concern in garments factories. This paper addresses the scope of value stream mapping (VSM) application in a selected garments factory of Bangladesh. The core idea behind the thesis work was to examine the existing condition of production system where there is no application of VSM technique and to analyze the scope of VSM technique application in the studied production line. The main objective of the research paper is to identify various wastes occurs in the production system. Additionally it tries to find out some areas for improvement and propose some improvement strategies. In this concern this case study has been conducted focusing cutting, finishing and on a particular production line of sewing section in a selected garments factory. During the investigation, attention has been concentrated how non-value adding activity hampers daily production rate and how to improve the productivity. Value adding, non-value adding (necessary and unnecessary) processes and different types of wastes have been identified by drawing the current state map for cutting, sewing and finishing sections. The study focuses on removing the big losses namely, breakdown losses, quality loss, small stops, startup rejects to improve the effectiveness of the production line. Some strategies are proposed for reducing these losses and improving the overall productivity. It is found that the non-value adding time has contributed significantly in total production lead time. Finally, a future state map has been proposed to the management that will be benefited for productivity improvement of the existing production system as well as to reduce the non-value adding time. 1. Introduction In Bangladesh, the Ready Made Garment (RMG) Industry has emerged as a major economic sector and has had its impact on the financial service sector, communication, transportation and on other related industries. 2 million workers in 4,000 factories, which is about one-fourth of the number of employees engaged in the manufacturing sector, constitute the real backbone of the country's economy [1]. Garment industries in developing countries are more focused on sourcing of raw material and minimizing delivery cost than labor productivity because of the availability of cheap labor. Due to this, labor productivity is lower in developing countries than in the developed ones. For example, labor is very cheap in Bangladesh but the productivity is low among other developing countries. Similarly, the cost of fabric is a major part of the garment so there seems to be great need for improvement in this sector. Even in developing countries the CAD and CAM system for fabric cutting has been implemented to save fabric. Now the worry is about labor productivity and making production flexible. The fashion industry is highly volatile and if the orders are not fulfilled on time, the fear for losing business is real. This means that time is very important driver for success. The Company that delivers goods with a shorter lead time is the market winner. This can be achieved greatly by adopting lean manufacturing system which is more than a cost reduction program. It aims at eliminating wastes which could be in the form of excess production and inventory, redundant movement of material, waiting and delays, over processing, excess worker motion, rework and corrections. Part of lean manufacturing is assessing operations and processes or products that add cost rather than value. Each step of the manufacturing process is examined to determine if it adds value to the product. If it does not add value, the process could be assigned to a subcontractor or outsourcing company in order to focus the workforce on value-added operations of its core business. This is known as value stream which is a set of processes required to transform raw materials into finished goods that customer's value. In this research work, the scope of one of the most important Lean Manufacturing tool called " Value Stream Mapping " will be evaluated in a selected garments factory

IAEME PUBLICATION

IAEME Publication

Purpose: The purpose of this paper is to implement lean to determine and eliminate various wastes with the help of Value Stream Mapping. It aims at representing a Current and Future State Maps to give overview of improved areas in waste and resource management in Indian Manufacturing Firm. By the detailed study processes involved in industry, the existing stages have been mapped with the help of Value Stream Mapping. After which improvement related areas are identified like cycle time, production lead time etc. Considering the current processes of the industries operations Current State map is developed to show how actual production is taking place at the industry before implementing any lean procedure. A Future State Map is finally developed considering the lean behavior to reduce the waste production and to increase its productivity. After a thorough comparison between Current and Future State Map of the Indian Manufacturing Firm a 78.8% decrease production lead time was investigated, followed by 28.4% reduction in cycle time. Also a significant decrease in WIP and manpower requirements was observed. This case study presents VSM as a robust tool for implementing lean and to give proper insight to industry managers and researchers to know techniques of improving lean implementation.

International Journal of Engineering Research and General Science

Chowdhury Rahman , Mostafizur Rahman Sobuj

In Bangladesh a significant amount of foreign currency comes from the RMG sector. Garment industries in developing countries are more focused on sourcing of raw material and minimizing delivery cost than labor productivity because of the availability of cheap labor. Due to this, labor productivity is lower in developing countries than in the developed ones. So productivity improvement is one of the major concern in garments factories. This paper addresses the scope of value stream mapping (VSM) application in a selected garments factory of Bangladesh. The core idea behind the thesis work was to examine the existing condition of production system where there is no application of VSM technique and to analyze the scope of VSM technique application in the studied production line. The main objective of the research paper is to identify various wastes occurs in the production system. Additionally it tries to find out some areas for improvement and propose some improvement strategies. In this concern this case study has been conducted focusing cutting, finishing and on a particular production line of sewing section in a selected garments factory. During the investigation, attention has been concentrated how non- value adding activity hampers daily production rate and how to improve the productivity. Value adding, non-value adding (necessary and unnecessary) processes and different types of wastes have been identified by drawing the current state map for cutting, sewing and finishing sections. The study focuses on removing the big losses namely, breakdown losses, quality loss, small stops, startup rejects to improve the effectiveness of the production line. Some strategies are proposed for reducing these losses and improving the overall productivity. It is found that the non-value adding time has contributed significantly in total production lead time. Finally, a future state map has been proposed to the management that will be benefited for productivity improvement of the existing production system as well as to reduce the non-value adding time.

International Journal of Productivity and Quality Management

Rajarajanramji Mohanraj

International Journal of Latest Technology in Engineering, Management & Applied Science -IJLTEMAS (www.ijltemas.in)

For any Company's economy, the industry cost, production time, total quality management and waste reduction have great impact. The investments consumed by the company by eradicating non value added production work and time are very important. Focusing on these points Lean Manufacturing tools, a Japanese strategy, is implemented in this work. An apparel industry was studied and the bottleneck areas were identified through Value Stream Mapping (VSM). The bottleneck areas were identified and eliminated by implementing line balancing and parallel working section. The implementation of kaizen resulted in reduction of cycle time by 48.7%.

International Journal of Engineering Research and Technology (IJERT)

IJERT Journal

https://www.ijert.org/lead-time-reduction-in-windmill-control-panel-manufacturing https://www.ijert.org/research/lead-time-reduction-in-windmill-control-panel-manufacturing-IJERTCONV7IS06072.pdf The prime purpose is to reduce the lead time of windmill control panel manufacturing by implementing lean manufacturing by the use of lean tools to achieve the takt time in electrical control panel assembly line. The ''lean'' approach has been applied more frequently in automobile assembly and machine tool building then in electrical control panel manufacturing company. The lean system was developed with reduced non value added activities so that greatly reduces the seven Mudas. People work with a greater confidence, with greater ease, and with greater peace than the typical manufacturing facility. Value stream mapping and line balancing was the main tool used to identify the opportunities for various lean techniques. We described a simulation model that was developed to contrast the ''current'' and ''Future'' scenarios in detail, in order to illustrate the potential benefits such as reduced production lead-time and lower work-in-process inventory. Work instructions is displayed in all the assembly stations also improved the performance of the line workers.

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