It was always clear who was in charge in the car industry. Mercedes ordered, Bosch developed and delivered. When VW built a plant, no matter where it was on the globe, Continental moved right into the neighborhood. ZF, a supplier of chassis and gearboxes, had to follow suit because of transportation costs. And it was unthinkable that "Mahle inside" would be printed on a Daimler engine.
But this balance of power is beginning to shift. Autonomous driving and electric cars create a historic opportunity for auto suppliers to cut themselves a bigger slice of the value-added pie. The engine has always been the pride and distinguishing feature of German cars, at least with the successful luxury brands. But the engines in electric cars are built by suppliers. Even ZF can already produce a rear axle with an electric motor, offering a complete drivetrain that costs half as much that of an equally powerful internal combustion engine. Bosch and Continental have similar capabilities.
Of course, there is also the battery to consider – the most expensive element of an electric car. Producing truly cost-effective batteries is only possible in quantities greater than the number of cars sold by BMW, Daimler or Audi. And if Daimler were to produce a battery of its own, BMW would hardly order from its archrival. Here too, industrial logic favors the supplier, provided it has the necessary technological capability. Bosch wants to decide by the end of the year whether to hazard an investment in the billions, so as not to cede the field to the Japanese and Chinese. If it succeeds, Bosch will have an enormous bargaining chip against automakers.
The trend towards robotic cars also favors big suppliers – in more ways than one. Driver assistance systems are traditionally manufactured by companies like Bosch and Conti. Having acquired U.S. competitor TRW, ZF is now also involved in assistance systems. All it would take is a small step to network the entire sensor system inside and outside in a control unit. Bosch, Conti and ZF are preparing to supply the brain of the car of the future. To do so, Bosch and ZF are working with artificial intelligence expert Nvidia.
Bosch, Conti and ZF are preparing to supply the brain of the car of the future.
What makes suppliers particularly threatening to premium manufacturers is their flexibility. In the past, whether it was spin protection or anti-lock braking systems, it was clear that Bosch was producing for Daimler. With the advent of the electric robot car, companies like Tesla, Apple and Google are now cheerfully ordering from Germany's "Big Three" suppliers. Without their help, the U.S. dream of the smartphone on wheels would remain nothing but a dream.
And when something is missing, the suppliers themselves go shopping. Bosch acquired developer ITK while ZF is snaring LIDAR and radar specialists. French company Valeo is snapping up one business after another in Germany, most recently a company specializing in gesture control. Thousands of IT specialists are needed to master the flood of data in cars. And if we want cars to be self-learning, the only way to do it is with artificial intelligence, that is, scientists' recreations of human neural networks.
There is so much demand Bosch and ZF are even working on an education initiative with Daimler and BMW. They are planning a Cyber Valley for artificial intelligence modeled after Silicon Valley – complete with professorships, research institutes and startups – to be built around Stuttgart.
But the Germans should have no illusions, given the cutthroat competition for the best minds. Dazzling brands like Mercedes, BMW and Audi are still more alluring than Bosch, Conti and ZF. But for the next generation of graduates, the question is more about who has the most interesting projects than brand image. And suppliers might be more likely to handle these projects in the future. Engineers who play with drones and action cams at home will be more interested in Google cars, Tesla robots and powerful batteries than fuel consumption in the next E-Class.
The three suppliers are already involved in startups focused on very different problems than differentials, fuel injection pumps and shock absorbers. Suppliers have always been forced to cooperate with many customers, and at times they couldn’t afford to be choosy. Some accuse them of opportunism. But for the first time, their adaptability has become an important advantage in the epochal upheaval of the auto industry.
Neither suppliers nor car manufacturers know how soon the upheaval will arrive, which is part of both of its allure and its danger. But suppliers can quickly switch to their more successful customers. They might come from China, in the case of electric cars, or the United States, in the case of robotic cars – but not necessarily from Untertürkheim, where Mercedes is headquartered.
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