Automotive Sourcing Models are Changing

The automotive industry trends can be cyclical in outsourcing. But we're seeing a change across the value chain with the development of new technology. For starters, automakers that used to outsource parts design and manufacturing to Tier 1 suppliers now are doing some design work-in electrification, advanced driver assistance systems (ADAS), connected vehicles and other areas-themselves.

Other automakers are acquiring technology companies, forging new partnerships and heavily investing in technology transformations. This gives them more control over the design process and greater ownership of the data collected by that technology. 

For example, Volkswagen is in the process of acquiring a majority stake in WirelessCar, which currently is owned by VolvoGroup AB. The Swedish telematics and connectivity company will help Volkswagen develop a safe and stable data exchange between VW vehicles and the automaker's cloud-based services, which are supported by Microsoft. Volkswagen also is partnered with Diconium to design a customizable marketing platform. The Volkswagen-WirelessCar deal is expected to close in early 2019. 

At the same time, the Tier 1 suppliers that used to handle design, engineering and manufacturing for automakers are now outsourcing manufacturing so that they can focus on designing and engineering technology innovations. With the industry shift toward connectivity, ADAS, electric and autonomous driving, demand for technology solutions is projected to be massive. 

For example, 70 percent of millennials who plan to purchase a new vehicle within the next three years reported that they are willing to pay extra for a state-of-the-art infotainment system. By comparison, only 52 percent of consumers overall and only 30 percent of baby boomers are willing to pay extra for this feature. 

Beyond design, participants indicate they will consider outsourcing automotive manufacturing in the next five years. In fact, four out of five respondents say they are considering outsourcing manufacturing. 

Part of the reason for outsourcing could be that more than half of automakers expect technology innovation for the automotive industry to come from other players. Nearly 40 percent of survey participants expect automotive suppliers that understand regulation, production and other factors to be the primary drivers of transformational technology innovations. Furthermore, 22 percent predict that technology vendors that understand consumer electronics and user experience will drive innovation. This amount is up from 7 percent in last year&# 39;s survey.