Where The Money Should Go

Over the past years I have been writing about the latest developments of the automotive industry - both technological and otherwise. Ever since my early engagement and with an increasing tendency I am often approached by leaders of Chinese OEMs who ask for my advice or opinion on investments into towards future endeavours.

There are many opinions on what approaches and technologies the future lies in. Large OEMs and others are proclaiming “the next big thing” and the other OEMs are looking in that direction for guidance on where to put the money. Which investment is a sound one towards a realistic goal？ And what is just wishful thinking？

The future will ask for more fuel efficient， lowemission vehicles produced at a competitive cost level. If we look at potential future technologies that tackle these goals， the hot topics lately are - amongst others - Volkswagens MQB （Modularer Querbaukasten = Modular Transversal Toolkit）， electrification of the drivetrain， lightweight and ever pressing cost reduction in general.

Especially a modular platform like the MQB and electric vehicles （EV） are promising approaches that can have a positive impact on both a companys image and its sales， but they come at a high price. For example VWs MQB promises the modularization of the entire portfolio with both weight and high cost reduction potentials. No question that others want to bring their modular strategy to the same level. On the clear downside development of the MQB cost know-how and money. While a very tempting approach， the scope of the MQB could only be developed by an OEM of VWs proportions. Other OEMs should simply explore more simple options， before tackling such a complex and expensive approach. The same counts for electrification of the powertrain. Even though it will reduce emissions and increase fuel efficiency. Ever stricter emission standards are making Hybrids and EVs the topic for all OEMs. The electrification of the powertrain however is no simple task， it requires the whole structure of the vehicle to be redesigned at an immense cost. With increased pressure to cut reduce costs， obviously the money for new investments is also tight. But one does not necessarily need the financial and engineering capacities of a VW， GM or Toyota to improve on the points mentioned above.

To tackle higher emission standards and increase fuel efficiency a more simple and more realistic approach are lightweight designs. The vehicle naturally gains fuel efficiency and/or frees up capacities that can be used for more efficient and more demanding after treatment systems. As the legislation will demand for higher standards all over the world， these will become increasingly necessary.endprint

Gaining experience in the field of lightweight is a priority for global OEMs， including Chinese OEMs. Currently I can see many Chinese OEMs reaching out to gain more crucial experience in the field. While especially the European OEMs already have vast experience in the field， their Chinese counterparts still need to catch up on the right solutions， on where to employ which lightweight option.

Sometimes these changes are put off， because it would disrupt existing supplier relationships， as we could recently see， or rather would not see， in the case of South Koreas Hyundai. Hyundai put off aluminum body panels， and instead stuck with the steel solution. This was most likely as a switch to aluminum would have badly hurt its sister company Hyundai Steel. OEMs should not be put off by the cost and change these solutions will demand， as they will pay off on multiple levels. Also lightweight approaches can be easily staggered， by changing part by part， and by starting with non-structural parts. This is not only cheaper， but also allows for a smoother transition and development in know-how. （As opposed to a complete change of the vehicle and production， that a modular system or electrified powertrain would demand.）

As another approach to stay competitive in the future OEMs are looking into the best ways to further reduce vehicle cost. As domestic wage levels lose their competitive edge material cost reduction becomes increasingly important for Chinese OEMs. The reader might think I am stating the obvious here， but in order to reduce cost is inevitable to build up a competent team of cost planners with close links to R&D and purchasing. Only by doing so the cost level can be accurately estimated from the early planning stages and later surprises are kept to a minimum. Developing these skills holds an extremely high potential， especially for Chinese OEMs who have for too long rested on their， now vanishing， labor cost advantage. To plan ahead for the future， obviously future product generations should be included. In order to reduce investment cost within the assembly line， as much of a line as possible should carried over to the next generation. This demands some extent of planning in the development phases of both， the first and the following generation（s） of vehicles. Unlike in many other fields， even the Western OEMs have not put a lot of effort into this potential so far. They often built a completely new line for a new product generation - at an immense cost. But lately in discussions with Western OEMs it has become clear， that the potential to carry over some of the old production line has been identified by Western OEMs as well（especially since various modular approaches hold a great potential for just this）. Here the key lies in the balance of which equipment can remain the same and which needs to be replaced to make space for a new technology（for example）. As the Westerners are doing now， so should the Chinese OEMs start to learn from their neighbors in Japan. The Japanese have impressively mastered to carry over extensive amounts of the production line to the next model（s） and are aiming to extend this carry over potential even further.endprint

Chinese OEMs would be well served by not aiming for the one big breakthrough as a savior， be it on product or on production side， but rather look into slowly building up their own know-how in the fields mentioned above. This includes a transparent measurement of clearly set indicators， in order to track the processes and initiate them at the right time. By being able to gradually include improvement after improvement， rather than pursuing a tempting but extreme change（such as the MQB）， they will not only be able to inevitably catch up with their peers， but eventually to innovate at a higher pace.

During times of decreasing sales volumes and increased pressure to reduce overall costs， new investments are often one of the first cutbacks on the table. This makes it hard to focus on which technologies to invest into. But if domestic OEMs still want to play a significant role in the next 10 or even 5 years， building up their own competency is not an option but rather a necessity to stay in business.endprint