May 16 2019
As technology continues to improve, the goal of a fully autonomous future looks like less of a dream and more of an impending reality. Nearly all major automakers have some level of a stated goal for partial or fully autonomous vehicles in the coming decade. Ford Motor Company has explicitly targeted 2021 as the year when it will have a production-ready Level-4 (high automation). That target, which is broadly mirrored by its competitors, places viable autonomous vehicles well within the bounds of near-term strategic importance.
As with all changes to an industry’s core product offerings, market share growth will take time. In this case, the domestic Car & Automobile Manufacturing (IBISWorld report 33611a) and SUV & Light Truck Manufacturing (33611b) industries will not necessarily face disruption from this innovation, but rather new products will be available to sell within the same categories. The core original equipment manufacturers in the automotive supply chain are likely to face new partnerships, different operating conditions and focused investment in autonomous features. Conversely, major structural changes are likely to occur in the different supplier tiers and then peripheral industries dependent on the current car production process.
The eight core supplier industries for US automotive manufacturers include:
- Automobile Engine & Parts Manufacturing (33631)
- Automobile Electronics Manufacturing (33632)
- Automobile Steering & Suspension Manufacturing (33633)
- Automobile Brakes Manufacturing (33634)
- Automobile Transmission Manufacturing (33635)
- Automobile Interior Manufacturing (33636)
- Automobile Metal Stamping (33637)
- Auto Parts Manufacturing (33639)
However, while these industries are the core suppliers, the advances in technology have looped other industries into the fold. Two prime examples include the Electrical Equipment Manufacturing industry (33531), which produces the electric motors that are gaining traction in the growing electric vehicle (EV) market and the Battery Manufacturing industry (33591), which produces batteries for the current internal combustion vehicles, as well as, EVs. Shifting dynamics in the make-up of vehicles are likely to produce winners and losers in these industries.
Together, these industries domestically comprise 7,235 establishments and 716,623 employees and generate $331.6 billion in revenue. As automakers shift production, this leaves significant room for structural changes, which are likely to occur on two fronts: between- and within-industry. Between-industry tradeoffs would likely be exemplified by the combination of EV and autonomous vehicles. The trajectory of autonomous cars coincides with fully electrified drivetrains. As a result, the Automobile Engine and Parts Manufacturing industry, which explicitly only produces internal combustion engines, would see demand slowly move toward the Electrical Equipment Manufacturing industry. Every product generated by engine manufacturers would be crowded out by a fully autonomous future.
A more complex example of a between-industry tradeoff could occur for Automobile Electronics Manufacturing and Automobile Steering and Suspension Manufacturing. Electronics would appear, at first glance, to be a clear winner in an autonomous, electric future. However, while the industry broadly encompasses companies with similar production, the nuances of different product offerings can result in vastly different outcomes. The trade-offs occur with steering equipment producers, which are already rapidly embracing greater use of electrical components via drive-by-wire technology supplanting traditional steering columns.
This type of transition can muddy the water between industries. New technologies often create issues for ridged reporting segments. In this case, as long as steering wheels are a component, then the steering industry will continue to see demand for them. However, as control of the vehicle moves toward full automation, the need for centralized controls will push revenue toward the electronics industry. The connection between the user input and eventual automated, sensor-driven input and the steering rack will transfer from products made in the Automobile Steering and Suspension Manufacturing to the Automobile Electronics Manufacturing industry.
The Automobile Electronics Manufacturing industry is also a likely candidate for within-industry structural changes. EVs would effectively end automaker demand for traditional alternators, spark plugs and ignition coils. US manufacturers generate an estimated 23.9% of revenue from these product classes. Conversely, information and entertainment systems; dashboard assemblies; and lighting and wiring industries are likely to see heightened demand.
However, electric engines are inherently less complicated than combustion engines, requiring fewer moving parts and fewer physical connections, which reduces the need for overall wiring and harnesses. Even on the visual display or autonomous capabilities front, the more probable direction is not for more complicated assemblies but rather simplified, centralized control units. Another prime example of within-industry changes is the Automobile Transmission Manufacturing industry. Since the motor can efficiently generate torque over a significantly wider range, EVs can operate without a traditional transmission. This eliminates the need for clutches, gears, automatic and manual assemblies. However, there is still the need for various forms of differentials based on the number of electric motors and the drivetrain setup. In general, the within-industry shifts are characterized by a simplified total vehicle assembly with more complicated, software and computer-focused individual modules.
Directly exposed service industries
While the technical realities of an autonomous future will have clearly identifiable impacts on manufacturers, the run-on effects for service industries can often be overlooked. The technical aspects of autonomous, electric vehicles will influence the need for services, while a potentially more pervasive run-on effect could come from structural shifts in vehicle ownership and Software-as-a-Service (SaaS) models. IBISWorld estimates that the Auto Mechanics and Oil Change Services industries comprise a respective 271,068 and 33,722 establishments.
Although oil is used to lubricate electric motors, the lubricant is not exposed to the same heat, pressure and metal fragments that require regular oil changes in internal combustion engines. For mechanics, the reduced number of components, particularly in the engine and transmission, will drastically reduce revenue from common and expensive repairs. To repair these new cars, mechanics will continue to have to add more IT-technical skill sets and require more specialized tools and monitors. However, overall, the demand for mechanics is likely to fall for reasons beyond less routine stress.
This leads back to the fundamental driving force behind autonomous vehicles. While it allows passengers to watch movies or comfortably eat breakfast during a road trip, the primary goal is to drastically reduce accidents and allow for more efficient mobility solutions. Fewer collisions not only translates to safer cars but also fewer trips to the mechanic or body shop.
The picture of a more efficient future is less certain than that of reduced accidents. Will it involve more ride-sharing? Dealer or manufacturer ownership of autonomous fleets? The short-term likelihood is that individuals will continue to purchase more vehicles with increasingly high levels of autonomous drive. Similar to Tesla’s current models, these cars will be able to be monitored and updated remotely. Similar to smartphone updates, small faults will only require a remote fix from the software provider rather than a trip to the mechanic.
However, the long-run image of centralized ownership raises secondary run-on effects. Large fleet management is likely to require larger maintenance and repair facilities making use of heavy equipment. So, while car mechanics may see falling demand, industries like Machinery Maintenance & Heavy Equipment Repair Services are likely to experience increased demand from new markets. This may also require increased investment in capital and employees to service the new market.
Edited by Taylor Feuss, Marketing & Communications Manager