Last week I saw an interesting post on Venture Beat about Acer Launching an Electric All-Terrain Vehicle. This struck a chord because Taiwan-based Acer is a manufacturer of PCs and other consumer electronics (CE) devices. Acer is one of the most prominent companies in Taiwan’s CE complex, which builds almost all of our consumer gadgets. They are closely tied to some of the industry’s most important ODMs, component vendors and contract manufacturers. It is not that surprising to see a consumer electronics giant diversify into higher priced devices as they move up the value chain. However, if you don’t look at Acer as an device maker, but instead view them as a flagship of the Taiwanese electronics industry, the announcement has broader implications.
I have been watching the automotive industry for a while. It is now the third largest consumer of semiconductors. In an earlier post about the semis industry I suggested that the industry needs to look to automobiles as a major potential growth driver in future years. I know at least one other major Asian electronics giant that has begun to invest massively in electronics for automotives. Their reasoning is very compelling. Today’s auto supply chain looks a lot like the mobile phone supply chain fifteen years ago. Back then, the suppliers to the handset OEMs were largely subsidiaries or spin-offs from the the companies that built base stations and phones themselves – Nokia, Motorola and Ericsson. Then companies like Samsung and LG, using merchant silicon from Qualcomm, entered the industry and eventually pushed the handset OEMs to move away from captive suppliers. A lot has changed since then, but handset vendors do not build their own components anymore. Of course, there are notable exceptions, but even Apple and Samsung today only design two or three of the hundreds of chips that go in their phones. Everything else is built by outside suppliers. And those outside suppliers are based in and around Taiwan’s electronics complex. You see where this post is going?
Today, the suppliers to the auto OEMs are largely related companies. Many had grown up supplying a single OEM, or were spun off from the OEM itself. My impression is that the auto supply chain is burdened with all kinds of legacy costs and practices. Auto design cycles move incredibly slowly when compared to consumer electronics. There are some good reasons for this more deliberate pace, but I am wiling to bet that there is immense room for improvement, just like we saw in the consumer electronics industry a decade ago. You can get a sense from this by looking at the website for the Automotive Electronics Council, the industry body for auto electronics. That website looks pretty dated, even when compared to slow-moving CE groups like the Bluetooth consortium or the Mobile Operators standards’ body.
The other thing to keep in mind is that the silicon content in cars is going up quickly. If you search for Semis Content in cars you can find a lot of reports like this one from PWC which says that by 2017 35% of the content of auto parts will be electronics, and by 2030 it will 50%. Anecdotally, I can think of all kinds of car systems which are getting replaced or upgraded by semis from sensors and gauges, to dashboards and entertainment systems. If you just look at current status quo for the industry, it is clear that cars are a huge opportunity for components vendors. But if you take this a step further and imagine what will happen as new entrants enter the fray, it seems likely that the opportunity is even bigger.
Put simply, there is huge potential for the consumer electronics supply chain to enter and then disrupt (yes, the ‘D’ word) the traditional supply chain for autos. Take a legacy supply chain which has changed little in decades, layer in new areas of required expertise, factor in a search for growth to replace slowing smartphone growth and it is not to hard to see a world in which several major Asian electronics players start to move aggressively into the auto supply chain.
To be balanced, it is clear that this has not happened yet. A search for news about autos on Taiwan’s Digitimes yields pretty mundane stuff. Which leads us back to Acer. They have set up a separate subsidiary to make electric vehicles, and Samsung has a similar effort there as well. We are still in very early stages of this process. So maybe I am reading too much in to all this. And maybe we will never see that transition. On the other hand, maybe we are just seeing the industry get warmed up. Even the fastest companies are going to take some time to design a car. I remember when it took handset OEMs 18 months to take a phone from design to production. Now, companies in Shenzhen can do that in 18 days. As I advise every semis company I speak with, it is time to start investing in auto design centers in Asia, gearing up to supply the people who will make the auto sub-systems in the future, and possibly supply new car OEMs as well.
P.S. If you want to take this a step further and imagine a science fiction outcome, this story looks even more compelling. If we move to a world in which all cars are electric and autonomous, and people stop owning cars altogether, it seems to me the only way for this to be affordable is for cars to built like our gadgets are today.