The opportunities and challenges brought by the convergence of the digital economy, changes in mobility and consumption, regulation, and care for the environment.
“La Inversión Extranjera Directa en América Latina y el Caribe 2017 [Foreign direct investment in Latin America and the Caribbean 2017]” analyzes the main trends in foreign direct investment (FDI) in the countries in the region. The study reveals that FDI inflows dropped by 7.9% in 2016 to US$167.04 billion, a figure which represents a cumulative drop of 17% compared to the high point of 2011.
However, the most significant point, which is the focus of this review, is the disruptive change that is being seen in a leading productive sector, the automotive industry, namely in the form of relocalization, shifting business models, and technological revolution. This process is becoming a catalyst for and driving force behind large-scale technological and productive changes. Suppliers of autoparts and components are becoming increasingly important in the productive chain and are driving technological development.
The authors argue that strong competition, consumer pressure, and rapid technological progress have favored the consolidation of new platforms that allow large-scale manufacturing to become increasingly flexible. In the coming years, the major manufacturers will concentrate a large proportion of their global production in a very small number of new modular platforms, focusing increasingly on their areas of specialization and giving increasing responsibility to their suppliers. The report also emphasizes that manufacturers are trapped in a highly competitive dynamic, which puts pressure on them to come up with more and better features for their products. There is an increasing need for high innovation and technology content for firms to maintain their positions on the market.
This dynamic, the authors argue, forces firms at all points in the production chain to increase the resources they spend or use on research, development, and innovation. Indeed, five of the twenty firms that invest most in R&D at the global level are from the automotive sector. While vehicle manufacturers invest, on average, around 5% of their sales on R&D, suppliers of parts and components have an R&D intensity of around 10%.
The report describes three major trends that will determine the dynamics of this industry in coming years:
- Convergence with the digital economy;
- changes in the concept of mobility and consumption patterns; and
- regulatory requirements in relation to safety, the environment, and energy efficiency.
In the face of these changes, the automotive industry’s wider market will change significantly. Between 2015 and 2030, the authors estimate that vehicle sales will fall between 50% and 28% while shared mobility services will grow by up to 20%. Furthermore, traditional suppliers will see their market share drop from 10% to 3%, while the share of suppliers of new technologies, electronics, and software will increase from 1% to 10% over the same period. We are currently experiencing a process of colossal change in which electronics, digitization, and software are key players: today, the average automobile contains 60 microprocessors and it is expected that electronics and software will grow exponentially toward 2030, particularly with the development of electric vehicles. In this way, the focus of supplier income will shift from engines, interiors, and chassis (the traditional areas) to electronics, software, cloud services, and next-generation batteries.
The incorporation of digital technologies into vehicles is allowing connectivity and autonomous transportation to progress rapidly. In fact, it is expected that around 75% of vehicle production in 2020 will be connected vehicles. It is interesting to note that this wave of new technology use in the automobile industry will not translate into substantial price increases.
These advances are attracting hard-core tech firms: Apple, Google, Uber, Intel, and Samsung are venturing into everything from vehicle manufacturing to developing components, connectivity-related services, and autonomous driving.
These processes, which are emerging in the current context of overpopulation, congestion, and pollution in major cities, are modifying consumption patterns and the regulatory requirements that the automotive industry faces. For all of these reasons, the report concludes that the sector is going through one of the greatest productive revolutions in its history. Its frontiers are expanding and new products and business models are appearing.
The convergence of traditional manufacturing with electronics and software is modifying the structure of the international automotive production chain.