Startups and established technology companies looking to supply electronic and other components to the burgeoning connected-car market are shaking up traditional supply chains in the light-vehicle sector, a survey by the law firm of Foley & Lardner LLP has concluded.
Due in large part to advances spurred by the Internet of Things, sensor technologies, and computational data analysis, vehicle manufacturers are being joined by growing numbers of companies from outside the traditional automotive base to supply components and systems for both connected and autonomous cars. Startups (hardware and/or software) and mature technology companies were each nominated by 22% of survey respondents—comprising automakers, suppliers, startups, investors, and technology companies—as their perceived primary competition in the connected cars and/or autonomous space over the next three years.
"Traditional original equipment manufacturers are being pushed—with respect to both their technology and business strategy—by their counterparts in the technology industry who see opportunity to seize market share at every point along the supply chain," say the authors of Foley & Lardner's 2017 Connected Cars & Autonomous Vehicles Survey. "No traditional automotive company, from automakers to first- and second-tier suppliers, is immune to such competition."
Most industry observers expect development of autonomous vehicles—i.e., those capable of operating without direct driver action to control steering, acceleration, and braking—to lag that of vehicles that merely have one or more connected technologies. Nonetheless, survey respondents in almost equal proportions say they are currently developing technology for connected (56%) and autonomous (52%) vehicles.
"Survey responses reinforce the idea that resources must be devoted concurrently to both clusters of technologies in order to keep pace with competitors and specialized companies," the survey's authors note. "Current inventories, build schedules and launches, and investments require companies to focus on autonomous vehicles now to be best situated when these technologies become more mainstream in the future."
Further signaling the growing acceptance of technology startups as change agents in the automotive industry, the highest percentage of survey respondents (70%) nominated Northern California as a regional leader in the development of connected and autonomous vehicles. Detroit was the second most frequently cited (46%) leader in the development of such technologies, reflecting its traditional strength as an automotive OEM and supplier base.
"Whether Silicon Valley and Detroit are on a collision course or a collaborative and integrated path forward remains to be seen, but in the near term we expect each will continue to do what they do best—innovate and produce," says Todd Rumberger, co-chair of Foley & Lardner's technology industry team.
Connected Car Growth Bodes Expanded Role for Telematics
While telematics systems have been incorporated in automobiles for over two decades now, industry analysts are now predicting a sharp upturn in their use in tandem with the move to greater vehicle connectivity. Telematics systems support connected in-car experiences, while also linking vehicles to one another, road infrastructure, and the cloud.
IHS Markit forecasts that the number of light vehicles with some form of telematics will double—from 33 million to 66 million—between 2016 and 2023, by which time approximately 70% of new light vehicles will be equipped with such systems. Global revenue from such technologies will grow at a compound annual growth rate (CAGR) of almost 17%—nearly tripling to more than $6.7 billion by the end of that period.
By application, IHS Markit forecasts:
- Consumer electronics (CE) telematics, currently the leading automotive telematics application with almost half the global market, will concede market share to embedded and hybrid solutions.
- Embedded solutions, often used for safety and security features such as emergency calling, roadside assistance, stolen-vehicle tracking, and over-the-air updates, will increase as the European eCall mandate goes into effect in 2018. Total revenues of embedded telematics control units (TCUs) are expected to grow at a CAGR of 15% through 2023, IHS Markit says.
- Hybrid solutions, which use both an embedded TCU and a connected CE device to provide a two-way data connection to the car, will have the strongest growth among the three types of telematics systems over the forecast period. Production of hybrid systems will surpass that of other types of telematics systems in 2018 and continue to lead the market through 2023.
"A large portion of vehicles already feature multiple connections, especially in the luxury segment," says Anna Buettner, manager for automotive infotainment at IHS Markit. "This trend is expected to spread to other lower segments during the next few years, as strong market demand will bring connectivity to vehicles and regions that traditionally lagged behind."
