Taking a ‘Create-Make-Market-Use’ Approach to Automotive Analysis

Article By : Egil Juliussen

Every product goes through four phases: create the product, make the product, market the product and use the product...

Every product goes through four phases: create the product, make the product, market the product and use the product. The create-make-market phases are what I learned while working at Texas Instruments where it was heavily used. I find this concept very useful in analyzing products, market segments and even industries. I added the use-phase while at IHS to better analyze and understand the long life of the auto industry. I primarily use it to analyze the auto industry and its many market segments. I have also used the concept for the semiconductor, PC, software and other market segments for better insights. Let me start by explaining the concept. The basic concept Every product goes through the four phases as shown in the next figure and explained below. I use the auto industry as an example for a better understanding of the concept. The next figure looks at key features of the auto industry in 2005—before the high-tech industry created multiple disruptions to the characteristics of the create-make-market-use phases. The figure shows key features of each phase and the requirements for success. Below each block, the high barriers to entering the auto industry are summarized. Before 2005 it was extremely difficult to enter the auto industry as a startup company.
Create Make Market Use
Click the image above to enlarge. (Source: Egil Juliussen)
Create phase This is the R&D phase which ends up with a new car model that is ready for manufacturing. The create phase length varies by segment and is in the 3-5 years range. The auto create phase is characterized by long development time — with 5-7 years range for a whole new auto and 3-4 years range for individual electronics systems. The auto industry is unique due to the variety of technologies that must be mastered: a wide variety of mechanical techs, combustion engine expertise, other technologies and a growing number of electronics systems to make it all work. These technologies must be integrated and proven safe through exhaustive testing and re-testing. The complexity of developing and mastering combustion engine technologies was the main entry barrier for auto startups for several decades prior to 2005. The main exception was China where most newcomers had partnerships with experienced automotive companies. In the last decade the battery electric vehicle (BEV) is making it easier to be a startup in the auto industry. Make phase This is the manufacturing phase where the new car model is produced in a factory or multiple factories. The time to make the car is usually short for volume production and is measured in hours and even minutes. What takes time, resources, and significant capital is to create the infrastructure to make production happen. The make phase requires factories, supply chains, inventory management and extensive manufacturing technologies. It may be the toughest phase for an automotive startup company. Market phase This includes the activities that get the car to the customer or end user. It includes building a sales network, which has traditionally been a dealer network. Creating a brand name that generate demand from customers is hard for any product. Media and TV-centric ads have been the path for brand development with internet and social media now making an impact. Financing for buyer and/or leasing adds more capital requirements in the auto industry. Another key is market and consumer knowledge to offer the products that customers will want. Use phase This is the customer use phase, which for the auto industry is up to 15 years long and sometimes longer. There are both costs and new revenue opportunities in the use phase. Warranty and repairs have significant cost issues with resulting customer loyalty consequences. Recalls and repairs have similar cost and loyalty issues that must be handled after warranty expired. Aftermarket products provide new revenue opportunities along with parts sales after the warranty has expired. High-tech disruption The next figure provide trends and perspectives on how the high-tech industry has dramatically changed key characteristic in all of the phases for the auto industry since 2005. The key technologies that are impacting the auto industry are shown in red. Overall, the biggest impact is in the create and use phases.
Click the image above to enlarge: (Source: Egil Juliussen)
Create phase The high-tech industry impact has been growing for decades due to the shift from analog to digital chips and proliferating use of microprocessor and memory chips in electronic control units (ECUs). This trend will continue with a variety of SoCs, sensor chips, AV-centric chips and much more. Emerging system architecture shift to domain ECUs will further impact the create phase. The growing importance of software may be the most disruptive impact on the create phase. The high-tech industry is leading the parade in developing software platforms and the creation of the emerging software-defined car. Auto manufacturers are increasing their investments to get more software expertise in-house, but they have a long way to go. The complex testing functions in the create phase are getting more difficult and multifaceted. Software simulation as part of testing is growing in importance. 3D printing has a bright future in the auto industry and has impacted the create phase first. The rapid production of prototypes used in the create phase provide time savings and often results in cost savings as well. Make phase The automotive make phase is also seeing high-tech disruption — mostly from the growth of BEVs and the differences from internal combustion engine vehicles (ICEVs). BEV manufacturing technologies are very different and have fewer parts than ICEVs. Fewer parts will translate to less manufacturing cost. The BEV bill-of-material (BOM) costs are currently higher than combustion engine powertrains but BEVs are forecasted to be lower than some ICEVs around 2025. The BEV supply chains are vastly different from ICEV supply chains and require years of development and hard work with new partners and suppliers. One of my earlier columns have more perspectives on BEVs: Battery EVs: Not If, But When and How Fast (Part 2) 3D printing is emerging in the make phase and will see long-term growth as 3D printing technologies improve in speed, materials used and parts variety. An important advantage is that 3D printing does not have tooling cost and can be used in so-called lights-out manufacturing. Industry 4.0 includes a variety of technologies to improve manufacturing and includes 3D printing. Industry 4.0 is also called manufacturing digitalization. Automotive manufacturing will be greatly impacted by the continued development and improvements of Industry 4.0 technologies. Market phase The changes in the auto market phase are primarily caused by internet technologies and the devices that leverage the power of the internet with smartphones being most important. Internet-based auto sales are growing and will become important — even in the U.S. where dealer sales dominate due to state-specific laws that forbid such transactions. The auto industry is the only major industry that has severe restrictions on internet sales — it is unlikely to last much longer. Impact from social media and internet marketing and advertising have become important and are making up for much of the restrictions in direct internet auto sales. Use phase The use phase has the most potential for high-tech disruption and is well on its way to dramatic changes including many desirable improvements for the car users. Most of these improvements are coming from a few key technologies: software-defined vehicles, two-way auto communication, AV technology and 3D printing plus the applications that are built on these technologies. The expected importance of new business models based MaaS (mobility-as-a-service) is a long-term disruption with tremendous potential impact. Robotaxis and other AV-based use-cases are included in the MaaS applications. Several of my previous columns have discussed these trends and opportunities. Applications based on two-way communication to connected vehicles are already plentiful with new innovation likely to occur. Data from the car are useful and growing in value. Content to the car are also increasing in variety and value. Two of my columns on connectivity have more details: Over-the-air (OTA) software updates are at the cusp of a growth stage and will proliferate in the next five years. Functional upgrades via OTA will be even more important as new revenue stream for the auto industry and improved car functionality for many years after initial sales. Remote diagnostics and prognostics constitute another important connected car application that has a positive impact on warranty and repair costs for both the auto OEM and the car owner. OTA are also used to lower cost of recalls and software repairs. 3D printing has significant future applications in the use phase to greatly impact spare parts management. Over time more and more spare parts will become on-demand manufacturing from part description files instead of parts storage systems. At some point in the future such part description files can be updated with file description of better parts—the equivalent to functional hardware upgrades via 3D printing. Cloud-based software apps are growing rapidly in the auto use phase. Many of the applications discussed are tied closely to cloud software platforms. Examples are OTA, cybersecurity and connected car functions.

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