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How is the automotive value chain ‘stacking up’?
This article discusses:
- Exponential growth in technology.
- Value chains and vertical integration.
- ‘Stacking’ of the value chain.
- Areas of disruption that are reshaping the value chain.
- Summary.
Exponential growth in technology is impacting the Automotive industry.
What do we mean by ‘exponential growth in technology’?
Three exponential laws:
- Moore’s law: Every 18 months, your computer will have twice as much power to process information.
- Butters’ law: The amount of data communicated through a single optical fiber doubles every nine months.
- Kryder’s law: The amount of data stored per centimeter square of a hard drive will double every 16 or 17 months.
Click here to check out some visual references of these laws.
What does this mean for the automotive industry?
More than 40% of a vehicle’s architecture is now electronics, featuring over 100 million lines of code. This is set to rise to 300 million by 2030. Cars in the 1980s had only 50K lines of code which gives you an indication of how times are changing.
As technology has developed and large incumbent organizations have failed to adapt, new market players have been able to enter and disrupt industries such as automotive with new consumer offerings.
Traditional value chains and vertical integration:
Value chains are the organisation of entities in a market that create and deliver value to consumers.
Typically, automotive competitors have aimed towards vertically integrating their value chains.
Vertical integration is a strategy where a company:
- Owns or controls its suppliers, distributors or retail locations to control its value creation and delivery across multiple steps in the supply chain.
- In the past, vertical integration has allowed companies to control processes and…
