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Tier 1 Suppliers Move to Boost Production of Self-Driving Car Components

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【Summary】As more cars are equipped with advanced driver assistance systems (ADAS) and self driving technology, suppliers of these components are ready for a windfall. The top tier 1 suppliers are promoting their ability to integrate the necessary array of sensors, computer chips and software.

Original Eric Walz    Jun 26, 2017 5:50 PM PT
Tier 1 Suppliers Move to Boost Production of Self-Driving Car Components

As more cars are equipped with advanced driver assistance systems (ADAS) and self driving technology, suppliers of these components are ready for a windfall. In 2020, automakers are expected to produce 85.9 million vehicles equipped with collision-avoidance systems, up from 10.8 million last year, according to Gartner Research.

It explains why companies such as Robert Bosch LLC have set up shop near Detroit. Bosch has an office in Farmington Hills Michigan; and Continental Automotive Systems USA and Autoliv Inc. are both based in Auburn Hills, Michigan. The top tier 1 suppliers are promoting their ability to integrate the necessary array of sensors, computer chips and software.

"Revenue is growing extremely fast," Mike Ramsey, a Gartner analyst in Detroit, said of the emergence of autonomous technologies. And the trend favors mega-suppliers, "who are best positioned to take advantage." That's because they enjoy economies of scale, deep pockets for product development and long-standing relationships with automakers, Ramsey said.

"If they don't deliver, the automakers can wring money out of them without putting them out of business," Ramsey said. "The automakers feel a lot of security dealing with the big suppliers."

Bosch Partners with Nvidia and Others

Bosch, the No. 1 automotive supplier with $46.50 billion in original equipment sales in 2016, generates annual sales of more than 1 billion euros ($1.12 billion) for the sensors, software and actuators needed for collision avoidance and self-driving vehicles, according to Automotive News. In May, Bosch announced it will spend $336 million over the next five years to develop artificial intelligence for self-driving vehicles.

However, even a leading tier 1 supplier such as Bosch is relying on newly formed partnerships to fill gaps in its menu of technologies rather developing these technologies in house. In April, Bosch formed an alliance with Daimler AG, whose North American presence is headquartered in Farmington Hills, to produce a fleet of driverless taxis.

The company also has announced plans to manufacture vehicle processors with Silicon Valley based Nvidia and is working with digital mapping company Here to develop crowdsourced road maps.

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The task of designing self-driving vehicles "is too big for one company alone," said Kay Stepper, Bosch's vice president of automated driving. "We need the partnerships."

Acquisitions and Partnerships

While Bosch is forming partnerships to gain access to key technologies, other companies are making acquisitions, and some of the deals have been blockbusters.

ZF Friedrichshafen, ranked No. 2 globally, with 2016 original-equipment parts sales of $38.47 billion roiled competitors in 2014 with the $12.4 billion acquisition of TRW Automotive, a key producer of radar, cameras and brakes. Last week, ZF announced a partnership with automotive lighting and electronics manufacturer Hella.

Last year, chipmaker Qualcomm Inc. disclosed a $38 billion bid for NXP Semiconductors, the auto industry's top supplier of semiconductors. And this year, Intel Corp. announced the $15.3 billion takeover of Mobileye NV, the top producer of obstacle-detection software.

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Large suppliers also have scrambled to acquire smaller companies, often Silicon Valley startups to fill gaps in their technology portfolios.

In 2015, Troy, Michigan based Delphi Automotive with $16.66 billion in global sales purchased Ottomatika Inc., a Pittsburgh supplier of automated-driving software. Shortly after, Delphi invested in Quanergy, a startup developing solid-state LiDAR. Also this year, Delphi partnered with Otonomo and Valens, two Israeli firms that specialize in technology for cloud connectivity.

Delphi is marketing itself as a company that can integrate a customer's sensors, software and computer chips required for building self-driving cars. Other companies are taking the same approach.

Fully automated vehicles are not expected to hit the market until next decade, however sales of their core technologie such as LiDAR, radar, cameras, and object detection software are rapidly increasing.

That has been a golden opportunity for Autoliv, the world's top airbag producer, and also a major supplier of radar and cameras. Autoliv's active safety electronics division reported sales of $740 million last year, up 17% from 2015. The company expects sales will grow 15% annually through 2020.

An important component of Autoliv's strategy is Zenuity, the company's newly formed joint venture with Volvo Car Corp. that will develop the machine learning and AI software that allows self-driving cars to make driving decisions. This partnership is a first between a major automaker and a tier 1 supplier.

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"Volvo Cars combined its know-how with Autoliv's to create a world leader in autonomous driving safety systems. With Zenuity starting operations we move a step closer to delivering this exciting technology," said Håkan Samuelsson, President and Chief Executive Officer of Volvo Cars.

Autoliv and Volvo both hope to have Zenuity's software production-ready in 2019, which means a major automaker could put it on the road by 2021.

Zenuity is important to Autoliv's goal of designing decision-making software that can be used with any supplier's sensors, actuators and control units, not just Autoliv's hardware, said Johan Lofvenholm, president of Autoliv Electronics. "Zenuity is a software-only venture," Lofvenholm added. "We have to make a system that is 'hardware agnostic' so that we can make sure we have maximum versatility for customers."

Autoliv has spent decades designing components that protect passengers from injury (airbags). The next step, autonomous vehicles, will prevent accidents from occurring.

"Autonomous driving is the logical next step," he said. "That's how we are approaching this whole segment."


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