Automotive Innovation made in BRIC INTERNATIONAL AUTOMOTIVE CONGRESS 2009

Transcription

1 Automotive Innovation made in BRIC INTERNATIONAL AUTOMOTIVE CONGRESS 2009 Shenyang, September 2009 Dr. Wolfgang Bernhart

2 Automotive Innovation made in BRIC (1/2) Executive Summary 1 2 BRIC markets are drivers for growth Russia and China most important for premium manufacturers In BRIC countries, R&D funds, patents filing and talent pool have experienced double digit growth since the year Approaches to R&D and innovation of the car industry in BRIC > Global OEM's approaches range from basic manufacturing engineering to pure research when entering BRIC countries, depending on their global R&D footprint > Indian OEMs have demonstrated how co-opetition, indigenous innovation and an institution-building approach has resulted in competitive product innovations such as the Nano for example > Low cost innovation as seen by Chinese players is about to disrupt global competition in automotive - the electric vehicle revolution is one example Source: Roland Berger analysis 2

3 Automotive Innovation made in BRIC (2/2) Executive Summary 4 Recommendations for global OEMs managing R&D activities in BRIC > Analyze local market requirements and identify the products and scope of items that need to be adapted to local market needs > Investigate whether the identified topics for local engineering are a good fit for the local talent pool, regulatory framework, resources and global R&D matrix > Seek to achieve true cost benefits by teaming up with local partners and strengthening the local management team > Ensure proper interfaces in the global R&D network to maximize efficiency 5 Recommendations for Chinese OEMs managing their R&D activities > Define YOUR OWN strategy nobody ever became first only by copying another one > Focus on clear core competences try to be different from global OEMs > Ist not about the size of the dog in a fight ist about the size of the fight in a dog Source: Roland Berger analysis 3

4 1 MARKET DEVELOPMENT The crisis will impact the industry for the next years - from a global perspective, 2007 volumes could be reached in 2013 Historical global vehicle 1) production development [m units] FIRST OIL CRISIS > Production: -14% > Duration: 2 yrs ) Light vehicles and commercial vehicles 1980 Source: VDA; J.D.Power; Roland Berger analysis SECOND OIL CRISIS > Production: -13% > Duration: 4 yrs STRUCTURAL CRISIS 1990s (Europe) > no major impact globally GLOBAL RECESSION, FINANCIAL CRISIS > Production: between -20% and -25% > Duration: ~ 4 yrs FC 2015FC 4

5 Source: J.D. Power; Roland Berger/Rothschild analysis 5 1 MARKET DEVELOPMENT The mix of global car sales has changed: The small car segment grew even in 2008, while luxury cars and SUVs lost ground dramatically Light vehicle sales by segment and region 2007 vs [m units] SEGMENT NAFTA W. EUROPE JAPAN ROW WORLD Small/Basic cars Middle class cars Upper class/ Luxury cars % % % % % % % % % % % % % % % Vans % % % % % SUVs % % % % %

6 Source: Anfavea; AEB; CAAM; SIAM; Press information 6 1 MARKET DEVELOPMENT BRIC countries are differently affected by the crisis: strong downturn in Russia, stagnation in Brazil while Asian markets are growing New passenger car registrations July YTD 2009 vs ['000 units] RUSSIA 1) Q1/2009 1,761 BRAZIL INDIA CHINA -40% -1% +5% +8% -50% 1,400-0% 1,400 +8% +31% 5, , ) Light vehicles

7 Source: Wards; KBA; Roland Berger/Rothschild analysis 7 1 MARKET DEVELOPMENT Also in 2009, large cars continue to lose substantial volumes while small cars in Europe benefit from government support programs Light vehicle sales by segment Jan.-Jul. ['000 units] SEGMENT USA GERMANY Small/Basic cars 1,696 1,151-32% % Middle class cars 1,848 1,253-32% % Upper class/luxury cars % % Vans 1) 1,748 1,126-36% % SUVs 2,276 1,641-28% % 1) Incl. Pickups

8 Source: Roland Berger; Press information 8 1 MARKET DEVELOPMENT Our forecasts are based on the assumption that global economy will recover towards the end of 2009 Unemployment rates are a big risk Selected economic indicators (Status: August 2009) GERMANY Indicator of Econ. Sentiment (ZEW) Business climate (ifo) 1) Consumer climate (GfK) Purchase Manager Index (BME) EUROPE World Economic Climate (ifo) 1) Consumer confidence (EU) Purchase Manager Index (BME) USA Weekly Leading Indicators (ECRI) Consumer confidence (University of Michigan) Purchase Manager Index (ISM) Employment Barometer (ifo) Sight deposit (ECB) Unemployment Rate (EU) Unemployment Rate (Bureau of Labor Statistics) 1) Expected trend Positive Negative

9 Source: J. D. Power; Roland Berger / Rothschild analysis 9 1 MARKET DEVELOPMENT In the long run, emerging auto markets are slightly if at all affected by the economic downturn Emerging market passenger car sales 2007 vs. 2008, Forecast 2015 [m units] % % % % % % 2.5 COMMENTS > In Russia, market recovery is expected to commence only in 2010 due to the overall structural instability there > Despite the economic downturn, car sales are expected to rise, whereas the China market will grow fastest Brazil Russia India forecast beginning of xx% CAGR

10 Source: CAAM, China Customs, Roland Berger analysis 10 1 MARKET DEVELOPMENT China PV sales are expected to reach 11.8 m units by 2015, with an annual growth rate of 10.1% China PV sales volume ['000 units] CAGR: 10.1% COMMENTS 3, % 4,454 5, % 6,959 6,051 11,841 > Due to world economic recovery and consumer confidence restoration, we believe 15% growth will be achieved for 2009 and 10.1% growth per year for > China's passenger vehicle market enjoyed strong growth in H109 due to two main drivers: reduction of purchase tax from 10% to 5% for small engine vehicles release of pent-up demand from the effects of the financial crisis > 2H09 growth expected to decrease to 10-12% because of diminishing effects of above drivers > Effects of short-term drivers will diminish further after 2009; low penetration ratio, increasing personal disposable income, continued new product offerings and decreasing retail prices will drive double-digit growth through 2015

11 Source: CAAM, J.D.Power, Roland Berger analysis 11 1 MARKET DEVELOPMENT SUV and C class sedans will gain larger segment shares in the PV market, while A and B classes will slightly drop China PV segment share outlook PV segment share outlook A00 A0 A B C MPV SUV 3.1 m 4.5 m 5.6 m 6.1 m 7.0 m 10% 8% 6% 7% 7% 17% 16% 20% 21% 21% 39% 41% 38% 36% 39% 18% 20% 22% 20% 19% 5% 5% 5% 5% 5% 4% 4% 3% 4% 3% 6% 6% 7% 8% 8% m 6% 18% 38% 17% 5% 5% 11% 2015 COMMENTS > A00 and A0 class market share increasing in 2009 because of tax reduction; A00 segment share expected to remain stable due to strong growth in underdeveloped regions > A segment will remain strong pillar of growth due to extensive new product launches > C segment luxury cars will enjoy strong growth due to expansion of wealth in China > SUV segment will keep growing strongly due to increase in second car purchases for family use > Market share of B class will be squeezed by growing A and C classes

12 Source: UNESCO, China Statistical Yearbook 12 2 R&D IN BRIC BRIC countries have experienced rising R&D spending and an increase of industry awareness in R&D funds allocation Public / private R&D spending [EUR bn] GDP per capita [EUR/person] 3,550 2,559 1,497 6, ,245 1, % COMMENTS > China is leading in absolute terms the R&D spending in BRIC +16% +77% +9% 39 8 > Rise of private R&D funds shows potential to turn research findings into innovative products Brazil Russia India China 31 > In % of GDP, R&D spending is still below the average of ~3% as known from mature industrialized nations private public xx% CAGR

13 Source: Ministry of Science and Technology (Brazil), UNESCO, China Statistical Yearbook 13 2 R&D IN BRIC In BRIC countries, the innovation capability keeps increasing, which is reflected in the no. of patent applications No. of patent applications ['000] +18% % +22% +3% Brazil Russia India China xx% CAGR COMMENTS > Only 5% (ca in 2007) of Russia's patent applications relate to the auto industry > In India, only about 18% of the patent applications in 2006 were of local origin; roughly 9% of all patent applications are related to the auto industry > In China, a large proportion of IT and electrical/electronic patents (37% in 2007) are held by companies with an international presence, such as Lenovo and Huawei; in other areas, public research institutions are the predominant patent holders

14 Source: Ministry of Education (Brazil), UNESCO, China Statistical Yearbook 14 2 R&D IN BRIC The available talent pool in BRIC countries is a pre-requisite for innovation China is leading the development No. of engineering graduates ['000] 14 +6% % Population [million] ,003 1,110 1,267 1, % % Brazil Russia India China 1, COMMENTS > In Brazil, only about 5% of all students study engineering > In Russia, 35% of all graduates receive degrees in electrical/electronics engineering and IT; however, only 40% of engineering graduates actually work in their profession > In India, ~ 1/3 of engineering graduates are in the field of IT > In China, more than half graduate in fields related to electrical/electronic engineering & IT xx% CAGR

15 Source: Roland Berger analysis 15 3 APPROACHES TOWARDS INNOVATION IN BRIC Depending on OEM's global R&D footprint, 6 approaches exist suiting their needs from manufacturing to pure research R&D approaches by global OEMs in BRIC a Manufacturing engineering > Proximity to local production for CKD assembly or part-by-part operation > Ensure global technical standards and requirements in production and processes LOW b Localization & local sourcing > Engineering support to ensure technical requirements with low cost suppliers in emerging markets c d e Local product adaptation & vehicle engineering Non-core engineering services off-shoring R&D hub with off-shore module development > Local adaptation of product scope to fit to market needs and customer requirements > Local vehicle re-engineering / de-contenting to suit local market needs > Off-shoring non-core engineering services such as CAD drawings or software coding (as done in India for example) > Off-shoring complete module or system to be developed in R&D hub as integral part of global product development organization R&D INTENSITY f Research collaborations (PPP 1) ) 1) PPP public private partnerships > Research collaboration in public-private-partnerships with local research institutions to come up with technology demonstration fleets > Cooperation with local fuel suppliers to evaluate potentials (e.g. Jatropha based fuel or bio-ethanol from Brazil) HIGH

16 Source: Anfavea; Roland Berger 16 3 APPROACHES TOWARDS INNOVATION IN BRIC Brazil lacks of local OEMs, but still hosts local automotive engineering operations fostering bio-ethanol based transportation Production of vehicles per fuel type Production of vehicles per fuel type ['000 units] 1,996 1,456 1,499 1,316 1, Ethanol Diesel Gasoline FlexFuel COMMENTS > During 70's, the Brazilian government decided to diminish dependence of oil by investing in technologies based on bio-ethanol > Only in 2003, the first commercial flex-fuel vehicle was launched by VW > Since then, almost every model introduced was flex-fuel > Meanwhile, Fiat developed the Siena Tetrafuel together with Magnetti Marelli, which runs on 100% gasoline, 100% bio-ethanol, with any mixture of bio-ethanol and gasoline and 100% natural gas > The approach fostering innovation by a strong government supportiveness is referred to as policy-driven research

17 Source: press research, Roland Berger Strategy Consultants analysis 17 3 APPROACHES TOWARDS INNOVATION IN BRIC An increase of import duties for imported cars is the main driver for OEMs to produce in Russia no specific R&D approach present Price comparison of locally manufactured and imported cars Price increase for cars manufactured in Russia ['000 RUR] Localization rate Imported components 450 ~40% 60% Aug No duty increase for components Price increase of 25% in Russia for imported components (imports from the EU) % Jan 2009 Case example of a locally manufactured vehicle: > Ford Focus Price increase for imported cars ['000 RUR] 450 Aug Price increase of 25% in RUR for imported cars Increase of import duty by 5% for new cars 30 Similar imported car from Europe and Japan: Actual increase (Jan 2009 / Aug 2008) > Mitsubishi Lancer +21% > Mazda 3 +32% > Toyota Corolla +27% % Jan 2009 Imported cars will increase in price more than twice as much as the cars produced locally, motivating OEMs to setup local production / assembly hubs Overall price increase

18 Source: Roland Berger analysis 18 3 APPROACHES TOWARDS INNOVATION IN BRIC Co-opetition & open source innovation are the key elements of innovation approaches as present in the Indian car industry Overview: approaches to automotive innovation in India a POLICY DRIVEN RESEARCH b CO-OPETITION > R&D via public private partnerships such as the Core Group on Automotive R&D (CAR) & the Automotive Research Association of India (ARAI) > Cooperative type of competition referred to as "fraternity building" similar to the approach for open source architectures > Research examples: hydrogen / compressed natural gas blends or bio-fuels extracted from Jatropha seed oil > OEMs engage suppliers who provide intellectual capital in support of development projects at little or no cost Automotive innovation in India > An approach that turns a firm's external environment into a competitive advantage > Approach that delivers consumer value along the product lifecycle > E.g. by creating social infrastructure around company locations Tata has created a partnership with the community yielding a loyal workforce that is committed AND cheaper > E.g. Tata shifted the assembly of mirrors, wipers and other accessories from production sites to dealerships benefiting from the dealerships' advantageous cost structure (example: Nano) d INSTITUTION-BUILDING APPROACH c INDIGENOUS INNOVATION

19 Source: Roland Berger analysis 19 3 APPROACHES TOWARDS INNOVATION IN BRIC China disrupts global value chains with its low-cost innovation approach by providing innovative products at low cost Example: electric vehicle revolution in China Public/private R&D program > The "863 research program" by the MOST* has supported public/private R&D for new energy vehicles & components Raw material and component supply chain > Based on the long history in e-bicycles, mobile phone and laptop battery manufacturing, Chinese local suppliers have progressed in Li-ion battery technologies > As a result of the industrial development, China has mastered e- motor production via domestic players > Raw material for both permanent magnets and lithium carbonate are locally available in China Low cost innovation: e-vehicles for mass market > OEMs are leapfrogging shortcomings of ICE R&D and using directly the electric drive based on local components > As a result, Chinese OEMs can offer innovative vehicles at lower cost than foreign players would normally ask for; this disrupts the typical reasoning by global OEMs asking for a premium price when providing an innovative product 1) MOST Ministry of Science and Technology Comparison: R&D approaches China vs. India Chinese OEMs: "Clone, Plug & Play" compared to Indian OEMs: "Co-opetition & Open Source Innovation" Integration with other companies/local environm. Risk mitigation: Minimized investments High number of suppliers Lower level of specification/ development by OEM Indian OEMs, e.g. Tata, Mahindra's, Maruti, etc. Chinese OEMs, e.g. FAW, Geely, Lifan, etc. Company-specific module/platform High openness to sharing expertise with other companies Closeness of supplier/ partner integration

20 Source: Roland Berger analysis 20 3 APPROACHES TOWARDS INNOVATION IN BRIC Approaches to R&D and innovation of local players as a lever to close the gap to global OEMs Innovation approaches of local OEMs in BRIC a Policy Driven Research > Public policy decides the direction of research trends and related innovation and supports with subsidies and regulations example China: latest trade-barriers for rare earths > Industry relatively weak compared to global benchmark and depended on government direction and funding b Low Cost Innovation > Focus on cloned solutions with leveraging low-cost manufacturing base > Adopting existing solutions to suit low-cost manufacturing approach providing superior value at low price c d e Co-opetition Indigenous innovation Institution building > Cooperation building with partners along the value chain to engage them in taking part of the development cost in return for assured business > Delivering customer value by leveraging process innovation along the value chain and related partners > Building and environment outside the firms strategic competitive environment to lower costs > Creating effective partnerships within the society at large

21 Source: Arafura, Roland Berger 21 3a APPROACHES TOWARDS INNOVATION IN BRIC Example: New policy regarding exports of rare earths as a chance to get in closer cooperations with global suppliers Use of rare earths in cars and recently announced export restrictions of China > 97% of rare earths from China > No exports of Yttrium, Thulium, Terbium > Total export quota of 35 kto for Neodymium, Lanthanum, Cerbium, Europium

22 Source: Roland Berger analysis 22 4 RECOMMENDATIONS FOR GLOBAL OEMS Global OEMs can tap into the R&D potentials of BRIC by considering key success factors as talents, market, cost benefit and IPR Key success factors when off-shoring R&D in BRIC Market potential > Understand local market needs and customer behavior > Derive true growth potential and identify product segments so far unconsidered Talent-sourcing > Language barrier in China vs. India > Integration of local R&D organization in global network > Voice and trust of local R&D teams to capture local customer needs IPR Intellectual Property Rights KSFs for R&D in BRIC IPR framework of operations > Define critically of R&D scope in terms of IPR > Consider transfer of phasing out platforms to emerging markets for low-cost adaptation and local market penetration Cost benefits > Annual working hours may differ significantly in various BRIC countries > Taxation / R&D subsidies in combination with existing footprint is key for deriving overall cost benefits

23 Source: Roland Berger analysis 23 4 RECOMMENDATIONS FOR GLOBAL OEMS Further cost reductions beyond local sourcing can be achieved via localization of engineering in BRIC countries Current situation of global players' activities in BRIC 4 core steps to manage R&D activities in BRIC countries > Exploit the labor cost advantage when competing in local markets > Suppliers fund manufacturing activities in off-shore locations by using those hubs for both local and global demands; this allows to exploit economies of scale and also to adapt manufacturing processes > OEMs may have difficulties to achieve a true cost benefit when they focus purely on their traditional tier- 1 suppliers, which have moved to BRIC countries as well; true cost benefits can be achieved by using purely local suppliers > Localization of engineering activities in BRIC is the enlargement of low cost country sourcing, that enables to capture the full cost potential from these countries I II III IV Analyze local market requirements and identify the products and scope of items that need to be adapted to local market needs Investigate whether the identified topics for local engineering are a good fit for the local talent pool, regulatory framework, resources and global R&D matrix Seek to achieve true cost benefits by teaming up with local partners and strengthening the local management team Ensure proper interfaces in the global R&D network to maximize efficiency

24 Source: Roland Berger analysis 24 5 RECOMMENDATIONS FOR CHINESE OEMS Chinese OEMs and suppliers should define a clear strategy for innovation and R&D ORGANIZATION > Build an integrated "Product creation" organization not an isolated "R&D silo" > Seamlessly integrate acquisitions > Transfer know-how from partnerships CORE COMPETENCES > Define your core competences to differentiate from global competition - try NOT TO DO THE SAME like competitors > Focus on areas where China has a competitive advantage in resources KEY TOPICS FOR CHINESE OEMs & SUPPLIERS IN THEIR R&D AND INNOVATION STRATEGY COST INNOVATION > Leverage unique cost position > Be innovative in delivering same functions to lower costs its about labour cost, but also about design > Integrate supply base more closely and leverage "industry standards" TECHNOLOGY ACCESS > Use current chances to get access to technologies via acquisitions > Manage a clear post-merger integration to seamlessly build a global organization

25 25 Please contact us for further information Dr. Wolfgang Bernhart PARTNER Stuttgart Office Jun Shen PARTNER Shanghai Office Dr. Marcus Hoffmann PRINCIPAL Shanghai Office Loeffelstrasse Stuttgart, Germany Bus.: +49 (711) Mobile: +49 (160) de.rolandberger.com 1515 Nanjing West Road Shanghai , China Bus.: +86 (21) Mobile: +86 (1350) Nanjing West Road Shanghai , China Bus.: +86 (21) Mobile +86 (1378) cn.rolandberger.com