Fate of Automotive Parts Manufacturers in Autonomous World: Existential Threat or Lifetime Opportunity?

This articles was guest-authored Victor Haydin, Automotive Practice Leader at Intellias.

As the autonomous driving world is growing bigger each day, the auto industry starts channeling billions into self-driving vehicle technology. Traditional automakers like BMW, Volkswagen, and Daimler, for example, or new tech players like Tesla or Waymo have different approaches to embracing driverless future. But the outcome is the same — they produce an end-product and sell it to consumers.

All-in-all, their course of actions is quite clear, as they know what to aim for and what to roll out to market. But let’s peep under the surface, as the most challenging shift of the auto industry towards future mobility lies inside a car, or rather in its parts. Paying attention to major automakers only, we usually don’t see the struggle of the entire supply chain standing behind them. The industry restructuring may hit automotive parts suppliers too hard — many of them, from oil producers to tire manufacturers, won’t likely withstand.
Those capable of adapting to the upcoming changes will live long and prosper, while others will be destroyed. Here comes their either lifetime opportunity or existential threat.

All the shift happening in the automotive industry comes in three main trends that are connected but still quite different:

• the shift to autonomous driving;
• the shift to electro cars;
• the shift to the sharing economy.

Parts manufacturers are already facing lots of problems with electric cars, especially those producing internal combustion engines or any other specific elements of a fuel-powered vehicle. Their choice is too small: dive into electrical technologies or get out of the business.
Take the company that produces clutches, for example. With the rapid market transformation towards electricity, such a company will have to cancel all of its existing R&D and focus on new investments. Yes, it’s lots of losses, but it’s also the only chance to stay afloat. In this case, the company still makes auto parts, though different than before. However, if talking about the sharing economy and autonomous driving, things are not that apparent here.

When the sharing economy comes to the rule, car utilization will increase significantly. If today average drivers use cars only for 3% of their time, with shared mobility, this number will increase up to 80%.

What does it mean? - The number of cars will automatically decrease, further escalating the decrease in market demand. The number of parts to be manufactured will decrease accordingly. But along with the excessive use come rapid breakdowns. Thus, auto parts of the new era should be significantly more reliable.

Today, we have a passenger vehicle market with the average life expectancy of a car being 200-300,000 miles. Take buses or trucks, though: their life span is much longer, crossing around 200,000 miles only per year. So yes, parts for these vehicles should be enduring and strong enough not to fail to perform — no one will bring a truck to a service station each month. Do parts for future passenger cars need to be as lasting as parts for today’s trucks?

According to a recent report by Grand View Research, the global shared mobility market will reach the point of $619 billion by 2025. The ride-hailing segment is predicted to get a revenue share of more than 52% during the forecast period.

But none of these numbers can help automotive parts manufacturers predict the life expectancy of future cars, because the sharing economy differs from case to case. Fewer parts but more reliable — it’s obvious. But how much fewer and how much more reliable?

Case #1: Taxi service

As access prevails over ownership, services on-demand will get easier to approach. Society seeking for alternative transportation solutions that would cut back traffic congestion, fuel consumption, and air pollution will tap on sharing economy. So when it comes to taxi services, heavy-duty is what you should expect in this case. Cars will probably be on the go for the whole day.

Case #2: For commuters

In this one, cars will have a bit of calmer life. As commuters travel between points A and B regularly and on a regular hour, cars will be riding only a few times a day. For the rest of the day, they will be parked somewhere.

Case #3: On-demand

People will call a car only when necessary, and these vehicles will also differ: the one for city rides, the other for a mountain trip. Today, we don’t have such flexibility, as we but a single car for all occasions. You buy a crossover because twice a year you go skiing. But the rest of the time you use it to get to an office. You buy a family-type car because occasionally you drive kids to school. But the rest of the time you use it to get to an office.

And there are lots of similar examples. However, with the sharing mobility, you have a choice. You choose different cars to get to work, to go skiing, or to go traveling with children. This on-demand model is what can stress parts manufacturers the most, as they won’t be able to predict an average car use. City-based vehicles will drive on a lower speed with the active use of brakes and an accelerator. Road-trip cars, on the contrary, will hit highways on high speed. And each auto part will have to be designed according to such radically different scenarios.