In addition to the investments required to address these future issues, however, there is also increased cost pressure resulting from various factors, such as lower margins for electric vehicles, stagnating sales figures and increasing political pressure. Manufacturers will have to accept the below-average margins for electric vehicles, as end customers will not be prepared to pay a significantly higher price for new technologies. It can therefore be assumed that only when a relevant number of vehicles have been sold will the market mechanisms that have been initiated automatically take effect and electromobility will replace combustion vehicles economically. With the economies of scale this would bring, car manufacturers could then also achieve satisfactory margins on electric vehicles. In our estimation, governments would have to roughly double the subsidies for the purchase of an electric vehicle in order to stimulate the market, but this is currently not foreseeable.
In addition, global sales markets are currently developing in line with the global economy. In Europe this is taking place in terms of production, with declining exports, but also with an impact on sales. In addition, the global automotive industry is undergoing radical change in order to meet existing environmental targets as best as possible. Not to mention possible customs and tariff influences.
Increasing regulations and the statutory CO2 fleet targets further increase the cost pressure on car manufacturers. In order to achieve the Paris Agreement, either an annual three-percent reduction starting in 2017 or, alternatively, an annual reduction of 20 percent in CO2 emissions starting in 2030 is required. From 2020, the CO2 fleet limits of 95 g CO2/km set by the EU will become binding for the first time, which will result in fines amounting to billions of euros for the automotive industry. The main reason for the failure to meet fleet targets and the associated penalties is the still limited willingness of customers to buy electric vehicles. This results from the higher acquisition costs compared to combustion vehicles, the limited range and the time-consuming charging process, as well as the current lack of charging infrastructure in many places.
For the automobile manufacturers, all this results in a massive imbalance between expenses and revenue. The need to position oneself in the new technologies leads to increasing research and development costs. Due to the fact that the market launch of these technologies is only just beginning, this development is also associated with higher costs per production unit. Cost-intensive fines due to the adopted regulations are contributing to further cost increases. Overall, however, these additional costs can only be passed on to end customers to a limited extent, which in turn results in a reduced profit margin per vehicle.
Of course there has always been considerable cost pressure in the automotive industry. However, in the past, OEMs have largely been able to compensate for the costs they face by increasing sales volumes. Currently, however, production and sales figures are stagnating in many markets and therefore this economy of scale cannot be realized to the same extent as in the past, which is why OEMs can no longer bear this cost pressure alone. As a reaction to this development, cooperations in the automotive industry are becoming more and more important – also increasingly beyond the boundaries of the Group.
From Magna Steyr's point of view, eight different main segments of cooperation can be distinguished: from development partnerships, platform sharing and vehicle manufacturing, to cooperation in the areas of software, powertrain, connectivity and autonomous driving, to the joint development of new fields such as charging infrastructure or mobility services. The creation of joint undertakings to share investment costs in new technologies is also increasingly being considered.
Magna Steyr as established partner for the automotive industry
As the world's leading, brand-independent engineering services provider and vehicle contract manufacturer, Magna Steyr is a strategic partner for numerous global OEMs. With more than 120 years of automotive history, Magna Steyr can draw on extensive complete vehicle competence and wide experience in working with many different OEMs to best serve both traditional automotive manufacturers and new players in the industry. In addition, the multi-OEM experience helps to make better use of synergies and thus reduce costs and time to market. Today, Magna is one of the few suppliers to offer everything from a single source: from virtual vehicle development and series development to complete production – for both traditional OEMs and new entrants.
In the area of engineering, Magna Steyr is a neutral partner in the entire product development process. With a range of services from individual work packages and derivatives to complete vehicle development as well as platform development and 4,500 development engineers in a global network, over the last 20 years over 40 different vehicle types and derivatives have been developed.
As a manufacturer of complete vehicles, Magna Steyr has so far produced more than 3.65 million vehicles, divided into 29 models for nine different OEMs. Recently, within 24 months, Magna Steyr started six new series production start-ups for three different customers. Currently, the models Mercedes-Benz G-Class, BMW 5 Series, BMW Z4, Toyota GR Supra, Jaguar I-PACE and Jaguar E-PACE are rolling off the production lines at the Magna Steyr plant in Graz. With this wide range of drive technologies, from conventional drive systems and plug-in hybrid to purely electric vehicles, some of which are manufactured on a single production line, Magna Steyr is the first brand-independent contract manufacturer to be able to claim this.
This proves that Magna Steyr, as an established partner of the automotive industry is able to meet the different requirements and processes of OEMs individually and to implement them flexibly both in development and production. Long-term cooperation partnerships, such as the more than 40 years of cooperation with Mercedes-Benz AG in the Mercedes-Benz G-Class, which has been built by Magna Steyr in Graz since 1979, is further proof of this. In addition, Magna Steyr has recently entered into a joint venture in engineering and contract manufacturing with the Chinese BAIC Group to jointly develop and also manufacture electric vehicles for the Chinese market in the future.
Magna Steyr's conclusions for an industry in change
On the one hand, the global automotive industry is currently facing an enormous area of tension due to higher investments in future technologies and increasing cost pressure. On the other hand, in a world in which the conventional automotive industry would like to return to its accustomed stability, more and more financially strong companies from outside the industry are seeking to conquer a part of the future mobility market for themselves. Brand-independent partners in the areas of complete vehicle engineering and complete vehicle production, such as Magna Steyr, can play a key role here as a neutral link and interface between the traditional and new mobility world. The increasing need for external support, whether from cost pressure, e.g. for niche vehicles, or from the start of development of new business models for new entrants, opens up great potential for the future for an independent engineering services provider and contract manufacturer.
Cooperation has always existed in the automotive business
The topic of cooperation is not a new one in the automotive industry. It is a topic that has always preoccupied the entire industry, OEMs as well as suppliers. However, the triggers change over time. In the collaborative environment of platform sharing and contract manufacturing, the main influencing factors are now diverse. In addition to the high cost pressure from all sides, the main issue is a manageable investment in new technologies, which can be achieved by sharing costs thanks to the use of the same platforms and components. This is the only way forward for manufacturers to withstand the above-mentioned area of tension. Companies such as Volkswagen have been using platform sharing for many years for a wide range of models. A good example is the Modular Electric Drive Kit for electric vehicles.
Cooperation between independent OEMs
Not only within a group of companies, but also between independent OEMs on different continents, the number of cooperation is increasing. For example, there are numerous OEM-OEM cooperation that use a common platform and manufacture the vehicles on a common production line to ensure an optimal, cost-efficient operating point in terms of volumes. For example, when it comes to flexible production options for niche vehicles, such as two-seater sports cars as emotion carriers. Due to the changes in customer needs, a significant decline in demand is evident in this segment in particular. However, if we look at the total volume of cross-brand products, manufacturers can certainly generate sales potential here – provided that there is a corresponding production volume to take advantage of economies of scale. Cooperative ventures can be the solution here, so that niche vehicles, such as emotional sports car icons, can continue to be produced cost-effectively in the future and thus do not disappear from the OEMs' product range.
BMW and Toyota as a prime example of cooperation between two OEMs
One example of a successful cooperation between two OEMs is the joint production of the BMW Z4 Roadster and Toyota GR Supra at Magna Steyr in Graz. As a neutral contract manufacturer, Magna Steyr has been producing the two cars since 2018 in order from BMW Group emerged from the cooperation BMW Group with Toyota. Both products are manufactured on a common production line at Magna Steyr's production plant in Graz. The result is two completely different sports cars, each of which has its own brand-specific DNA and, as an emotional carrier, inspires with different but impressive driving characteristics. On the basis of a common platform the BMW Z4 Roadster is produced on the one hand and the Toyota GR Supra as a coupé on the other. This cooperation enables both BMW and Toyota to produce an emotional carrier of their product portfolio by generating economies of scale and synergies in processes and plants. A neutral contract manufacturer, such as Magna Steyr, can ensure flexible production here.
Cooperation between traditional OEMs and new entrants
Another possible form of cooperation which is becoming increasingly important in the market is a cooperation partnership between a renowned OEM and a new player in the automotive industry. Such a partnership not only offers a new entrant access to an existing mature vehicle platform, but also provides a profound access to comprehensive automotive know-how. As a result, new vehicle models can be developed and brought to market in the shortest possible time.
Efficient development cooperation between a German OEM and VinFast as new entrant
A current example of a successful cooperation between an established OEM and a new entrant is the Vietnamese market entrant VinFast. Magna Steyr acted here as a neutral link between the two partners. As an engineering services provider, Magna Steyr supported VinFast in the development of two new vehicles, an SUV and a sedan, based on an existing platform of a German OEM. By applying virtual engineering processes, the complete vehicle platform was created in 23 months. In addition to the complete vehicle development, the project also included a feasibility study, the testing and validation of the vehicles and support for the market launch. The vehicles are now built at VinFast's new production facility in Haiphong, a port city in northeast Vietnam. The new entrant VinFast has benefited considerably from the cooperation partnership and the time-to-market phase has been significantly reduced. The cooperation with Magna Steyr gave VinFast rapid access to automotive know-how and proven technologies. These two factors are particularly important for new entrants.
Cooperation between new entrants
In the future, however, cooperation between two or more new entrants will become more and more likely and increasingly important. For the vehicle architectures of conventional vehicles, but also for new vehicle concepts, this means that in future these will have to be designed and developed extremely flexibly in order to generate the greatest possible benefit for a wide range of users. Especially in cooperation partnerships between new players, neutral engineering services providers and contract manufacturers play a decisive role in providing new entrants with fast access to automotive know-how, enabling them to realize new, innovative vehicle concepts and bring them to market ready for series production in the shortest possible time. On the one hand, this involves complete vehicle development, but also a production partner who can manufacture the new vehicle models flexibly and cost-effectively.
Multi-OEM as an opportunity for emotional niche vehicles
One segment for which cooperation will be of decisive relevance in the future is niche vehicles, such as compact sports cars and convertibles. Due to the low production volume of the individual models, it is becoming increasingly difficult for traditional OEMs to achieve margins customary in the industry with these emotion carriers. Assuming that these products continue to be developed and produced solitarily in the future, there is a risk that sports cars will belong to a dying species and disappear from the market in the long term. However, if one looks at the total volume across markets, there is certainly potential here to generate a corresponding sales and production volume. Joint production of several programs on a single platform with a specialized long-term partner and the associated volumes on a profitable scale can achieve positive cost effects, increase flexibility for OEMs and continue to make end customer dreams come true in the future.
Conclusion: cross-brand cooperation is an essential factor for the entire automotive industry to successfully master the coming challenges together.
From a Tier 1 perspective, we see that the demands on vehicle development have changed in recent years. Whereas in the past, great importance was attached to the most individual vehicles with the greatest possible unique selling proposition in development contracts for a complete vehicle, there is now an increasing need to adopt market-proven vehicle architectures, with redesign and adaptation to customer-specific requirements – especially in vehicle architecture. In future, engineering services providers must therefore be able to develop new products for a wide range of OEMs within the shortest possible lead times on the basis of existing vehicle architectures. It is essential to understand the specific customer requirements and to implement them adequately.
The task of the engineering services provider is to translate the existing vehicle into a neutral language, brand it and transfer it into the language of the other OEMs for the derivatives. Only in this way is it possible to generate maximum diversification and brand identification with minimum monetary and time expenditure. All this is done taking into account the original degree of industrialization in order to keep the time to market and the production start-up curve or time to product maturity as short as possible. Finally, the advantage of a transfer platform is also that there is already a proven production concept for the original vehicle, and plant planning is simplified and leads to extensive process transfer. In general, the higher the diversification, the lower the degree of carry-over parts (COP) and vice versa. A high degree of COP in turn saves development and production costs. Entering into partnerships in the areas of development and production thus increases the competitiveness of all cooperation partners.
In the case of cooperation between OEMs and new entrants, basically every constellation is conceivable and possible, and this type of cooperation will continue to increase, no matter whether multi-customer engineering or multi-customer manufacturing. The further away one or both partners are from the automotive industry, the higher the share that engineering partners or contract manufacturers bring to the cooperation partnership, also in terms of infrastructure.
In conclusion, it can be said that cooperation in the automotive industry brings numerous advantages and opportunities and it is hard to imagine the future without it. This goes both for the expansion of the OEM product portfolio and the development of new markets and customer groups. The development costs for new technologies can be reduced and the time to market shortened by distributing costs and risks among several partners. In the end, joint vehicle concepts are often made possible which would not be feasible as a stand-alone solution due to production capacities and costs. This offers all providers of mobility solutions the opportunity to continue to focus on their core programs.
Cross-brand cooperation is thus becoming a recipe for success for the automotive industry in order to face the coming challenges together and ensure long-term corporate success.