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© mp corporate finance Analysis | May 22, 2017

Apple, Google and Co. build pressure on traditional Automotive OEMs

The automotive industry is currently experiencing fundamental changes with a pace that has never been seen before.
Traditionally, the automotive industry was mainly focused on innovation arriving from mechanical engineering companies. In the last decades however, the industry has become heavily influenced by innovations arriving from the electronics industry. The traditional automotive OEMs are forecasted to reach a global sales CAGR of 2.9 percent from 2015 to 2020. At the same time the connected car revenues (incl. Safety, autonomous driving and communication services) are expected to grow with a CAGR of 23.6 percent until 2020.

The four main trends currently shaping the industry are: car connectivity, autonomous driving, CO2 emissions and powertrain developments, as well as new mobility concepts for urban use.

Car connectivity is gaining momentum with new technologies and decreasing costs of the past years. Premium brands as BMW and Tesla are pushing new technologies such as interaction between hand devices and cars, as well as car-to-car interactions to support the development of the autonomous car. New mobility concepts from Uber and Co. bring along innovations and demands that have a significant impact on the automotive industry. In Europe and the US, urban residents are losing interest in owning cars which increases the demand for new technologies to optimise car-sharing and low cost transportation.

However, China’s middle class is still dreaming of owning a car, making them the largest car market in the forthcoming years. Another megatrend is energy efficiency and the reduction of CO2 emissions. One of the effects is the replacement of mechanical parts through electronic components (e.g. x-by-wire technology) to reduce weight of the vehicles and increase fuel economy. Furthermore, the powertrain segment is experiencing a revolution resulting in new challenges for car manufacturers and suppliers. With hybrids and all-electrical vehicles experiencing a hype, the largest pressure and demand for innovation receive the battery and charger producers, writes analyst firm MP Corporate Finance.

Due to this large electronics involvement, it’s no surprise to see large tech companies like Apple, Google and Co. becoming increasingly active in the automotive industry. While Apple invested approx. $10bn in the development of his iCar, Google is working on a new operating system for connected and autonomous cars. On the other hand, traditional car producers and suppliers are teaming up with electronics companies (e.g. Audi & Nvidia, Bosch & TomTom and Hyundai & Cisco) to stay competitive.

Because of the competitive environment between this two industries, it won't be a surprise to see more M&A activity and joint venture projects emerging between mechanical engineering and electronics companies, in the near future.

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November 14 2017 8:30 PM V8.8.9-1