Each product goes through four phases: creating the product, manufacturing it, marketing it, and using it. The build-to-buy phases are what I learned while working at Texas Instruments, where it was widely used. I find this concept very useful for analyzing products, market segments and even industries. I added the usage phase while at IHS to better analyze and understand the long life of the automotive industry.
I use it mainly to analyze the automotive industry and its many market segments. I also used the concept for semiconductors, PCs, software and other market segments to get better insights. Let me start by explaining the concept.
The basic concept
Each product goes through the four phases as shown in the following figure and explained below. I use the automotive industry as an example for a better understanding of the concept. The following figure analyzes the key characteristics of the automotive industry in 2005, before the high-tech industry created multiple disruptions in the characteristics of the creation-manufacture-use-market phases.
The figure shows the key characteristics of each phase and the requirements for success. Below each block are summarized the high barriers to entering the automotive industry. Prior to 2005 it was extremely difficult to enter the automotive industry as a new company.
This is the R&D phase that ends with a new ready-to-manufacture car model. The duration of the creation phase varies by segment and is in the range of 3-5 years. The automatic creation phase is characterized by a long development time: with a range of 5 to 7 years for a completely new car and 3-4 years for individual electronic systems. The automotive industry is unique due to the variety of technologies that need to be mastered: a wide variety of mechanical technologies, knowledge in combustion engines, other technologies, and a growing number of electronic systems for everything to work. These technologies must be integrated and proven to be safe through thorough testing and testing.
The complexity of developing and mastering combustion engine technologies was the main entry barrier to starting cars for several decades before 2005. The main exception was China, where most newcomers maintained partnerships with experienced automotive companies. In the last decade, battery powered electric vehicle (BEV) has been making it easier to be a startup in the automotive industry.
Phase by phase
This is the manufacturing phase where the new car model is produced in one factory or in several 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 for production to happen. The manufacturing phase requires factories, supply chains, inventory management, and extensive manufacturing technologies. It can be the most difficult phase for a car startup company.
This includes activities that take 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 generates customer demand is difficult for any product. Media and TV-focused ads have been the path to brand development, as the internet and social media are having an impact. Financing for buyers and / or leases adds more capital requirements in the automotive industry. Another key is knowledge of the market and consumers to offer the products that customers will want.
This is the phase of customer use, which for the automotive industry lasts up to 15 years and sometimes longer. There are both costs and new revenue opportunities in the use phase. Warranty and repairs have significant cost issues, with consequences for customer loyalty. Withdrawals and repairs have loyalty issues and similar costs that must be managed after the warranty expires. Replacement products offer new revenue opportunities along with the sale of parts after the warranty expires.
The following figure provides trends and perspectives on how the high-tech industry has drastically changed the key feature in all phases of the automotive industry since 2005. The key technologies that are affecting the automotive industry are shown in red. In general, the greatest impact is in the creation and use phases.
The impact on the high-tech industry has been growing for decades due to the shift from analog to digital chips and the proliferated use of microprocessors and memory chips in electronic control units (ECUs). This trend will continue with a variety of SoCs, sensor chips, AV-focused chips and more. Changing the emerging system architecture to the domain ECUs will further affect the creation phase.
The growing importance of software can be the most disruptive impact in the creation phase. The high-tech industry leads the parade in the development of software platforms and the creation of the software-defined emerging automobile. Car manufacturers are increasing their investments to gain more software experience, but they have a long way to go.
The complex test functions in the creation phase are increasingly difficult and multifaceted. Software simulation as part of testing is growing in importance.
3D printing has a bright future in the automotive industry and first impacted the creative phase. The rapid production of prototypes used in the creation phase saves time and often also saves costs.
Phase by phase
The automotive manufacturing phase is also seeing high-tech disruptions, mainly due to the growth of BEVs and differences in vehicles with internal combustion engines (ICEVs). BEV manufacturing technologies are very different and have fewer parts than ICEVs. Fewer parts will result in a lower manufacturing cost. BEV’s material billing (BOM) costs are currently higher than combustion engines, but BEVs are projected to be lower than some ICEVs around 2025.
BEV supply chains are very different from ICEV supply chains and require years of development and hard work with new partners and suppliers. One of my previous columns has more perspectives on BEVs: Battery EVs: Not Known, But When and How Fast (Part 2)
3D printing is emerging in the manufacturing phase and will see long-term growth as 3D printing technologies improve in speed, materials used and variety of parts. An important advantage is that 3D printing has no cost of tools and can be used in the so-called off-light manufacturing.
Industry 4.0 includes a variety of technologies to improve manufacturing and includes 3D printing. Industry 4.0 is also called manufacturing scanning. Car manufacturing will be severely affected by the continued development and improvement of Industry 4.0 technologies.
Changes in the car market phase are mainly driven by internet technologies and devices that harness the power of the internet with the most important smartphones.
Internet-based car sales are growing and will be significant, even in the United States where dealership sales dominate due to state-specific laws prohibiting such transactions. The automotive industry is the only major industry that has severe restrictions on internet sales; it is unlikely to last much longer.
The impact of social media and internet marketing and advertising has become significant and they are offsetting much of the restrictions on direct car sales over the internet.
The use phase has the greatest potential for high-tech interruptions and is well on its way to dramatic changes, including many desirable improvements for car users. Most of these improvements come from a few key technologies: software-defined vehicles, two-way automatic communication, AV technology, and 3D printing plus applications that are based on these technologies.
The expected importance of new business models based on MaaS (mobility as a service) is a long-term disruption with a huge potential impact. Robotaxis and other AV-based use cases are included in 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 and new innovation is likely to occur. Car data is useful and increasingly valuable. The contents of the car are also increasing in variety and value. Two of my connectivity columns have more details:
Over-the-air (OTA) software updates are at the peak of a growth stage and will proliferate over the next five years. Functional upgrades through OTA will become even more important as new revenue streams occur for the automotive industry and the functionality of the car improves for many years after initial sales.
Remote diagnostics and forecasts are another important connected car application that has a positive impact on warranty and repair costs for both the car OEM and the car owner. OTAs are also used to reduce the cost of software removals and repairs.
3D printing has important future applications in the use phase to have a big impact on spare parts management. Over time, more and more spare parts will be manufactured on demand from parts description files instead of parts storage systems. At some point in the future, these part description files may be updated with the best part description, the equivalent of functional hardware upgrades using 3D printing.
Cloud-based software applications are growing rapidly in the automated use phase. Many of the applications discussed are closely linked to cloud software platforms. Examples are OTA, cybersecurity and connected vehicle functions.