Technology advances to reshape global manufacturing footprint

The global manufacturing footprint is a fluid one and set to change dramatically in the coming years. While overall automotive volumes are expected to remain high, Western Europe is poised to lose a large chunk of its share of production. In KPMG’s Global Automotive Executive Survey for 2018, 74% of executives said they expect production in Western Europe to account for less than 5% of the global total by 2030. That's up from 65% of executives in the previous year's study. New plant locations "In the short term we see global production going up but we don’t see European production going up," explained Justin Benson, UK Head of Automotive at KPMG. "It might be producing the same number of vehicles but it would represent a smaller proportion of the bigger pie." He suggests that most vehicle manufacturers preparing to invest in new automotive plants for global production are likely looking outside of western Europe. China, North America and Eastern Europe are the sorts of areas attracting greater potential, particularly China because of the local demand potential. "The real growth in new vehicles at the moment is still in China. At the same time there is overcapacity in Europe," Benson told Automotive World. "If someone is going to invest in a new plant then they tend to do it in China because it’s a ready-made market and they can sell what they are making." Componentry is another force at work behind the prediction. KPMG envisions a move towards specialisation of software and firmware in the western world, while regions such as India and China take over more production on the hardware side. "China and the countries of Eastern Europe, for example, are becoming much better at making large quantities of high quality vehicles. That means it becomes less important where the manufacturer is based," he suggested. "For certain technologies such as satellite navigation and connected car systems, development would remain very much in the western world. Most high value componentry probably will remain in the countries that have developed it, which tend to be Europe and the US." Electric and autonomous The rise of electric vehicles (EVs) poses further uncertainties for production investment. While EVs are expensive to make, they require fewer components and are relatively easier to produce. AlixPartners estimates that EVs require 40% fewer production hours than what's required by today's internal combustion engines as they replaces the entire combustion engine with an e-motor, a battery and a basic transmission. The impact on jobs and production locations is hard to predict. "We have never had a change like this," pointed out Andrew Bergbaum, Managing Director for Automotive at AlixPartners. "In the past the industry has only ever added content - adding in more complex engines, more emission controls, more user comforts, more crash protection. This is the first time we start to take something away." Predictions for autonomous vehicles (AV) also raise manufacturing questions. In KPMG's outlook, individuals will always want their own personal way of travelling but the focus will be more about how they connect with the in-vehicle environment. It is this connected technology that will have most of the value in this new paradigm. The vehicle body itself becomes relatively unimportant and even commoditised in a world of shared mobility. "We see a time when 80% of the vehicle parc will consist of vehicles that simply transport people from A to B. People will consume a different experience in their vehicle than they do at the moment. There will be fewer vehicles covering many more miles," Benson predicted. "If that’s the case, the market needs fewer vehicles produced and there will be a consolidation of manufacturing over time." Counter forces This vision of shared vehicles nearly interchangeable with each other poses real concerns for brand value. Not all will be able to survive in this new world. "There are about 80 OEMs in China. Meanwhile there are about six or seven in the western world. Eventually there will be consolidation, but initially, over the next few years, there will be an increase simply due to demand in China and India. Then it will start to correct itself again," predicted Benson. The coming years will be a time of change, shaped by growing demand in emerging markets and advances in autonomy, which will eventually reduce the overall vehicle numbers. "The generational difference and demographics are having a huge effect. We see a balancing out of these things over the next few years before any inflection points one way or the other," Benson added. "It’s a very exciting period, but uncertain, and it’s about making the right bets and the right choices."

Technology advances to reshape global manufacturing footprint

Megan Lampinen speaks to KPMG about the manufacturing outlook from executives in its latest Global Automotive Executive Survey

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