What are the opportunities for distributors in the autonomous vehicle supply chain?

In the past few decades, distributors, the middlemen in the supply chain, have not received much attention from car companies. But now that car companies are realizing the value of distributors, Oems and Tier1 suppliers are integrating distribution into global supply chains and assisting their designs in electronically-intensive systems such as autonomous vehicles (AVs).

The COVID-19 pandemic and several years of semiconductor core shortages have prompted cooperation between Oems and global distributors. Automakers in recent years have turned to distributors for help as chip-makers have struggled to keep up with surging demand for cars. It was surprising to see that at the height of the chip shortage, when consumer/industrial Oems were getting their allotments, Oems were still waiting in line for chips. Carmakers are used to being pushed around by their supply-chain partners because they have a big say in the market. But then carmakers discovered that consumer electronics companies had become big, reliable and strategic customers for distributors, who had overtaken them in the distribution market.

In the past few quarters, some distributors have also noticed new relationships with Oems. At the same time, Oems, tier1s and equipment manufacturers in the design chain benefit from distributors' expertise in parts and wireless communications.

"We work with Oems, Tier1s, EMS suppliers and technology developers who are working on technologies relevant to the autonomous vehicle space," said Jason Skoczen, Director of sales for avre's LightSpeed and Transportation Division.

 

The need for connectivity in self-driving cars is everywhere

 

Self-driving cars rely on data collected by sensors, which is the basis for their autonomous driving functions. Avnet provides products for autonomous driving systems ranging from sensors, communications ics, memory devices, micro-controllers and other peripheral technologies, Skoczen said.

"Autonomous driving will require a lot of sensors," said Gabe Osorio, director of transportation marketing for the Americas at TTI Inc. "Customers may initially just want to find the right sensor," he said. "Distributors can offer different brands of sensors and guide customers to the solution that works best for them."

Osorio stressed that the mere connection of AV equipment provides fertile ground for distributors. "On-board AV data comes from sensors, cameras and LiDAR, which are initially transmitted in on-board systems and then transmitted to wireless networks via Ethernet, connectors, components and wiring harnesses. "Due to the increasing amount of data that vehicles need to receive and process, there will generally be a communications infrastructure in the cockpit (using 5G or other wireless standards)."

 

Self-driving cars have more collaborative needs

 

McKinsey points out that it is important to establish an autonomous driving alliance because no single company can independently control all the capabilities of autonomous driving. In order to be able to cross different technologies and business models, participants need to think strategically about "where to work with partners", "how to identify the right partner and environment", and "which partnership best suits their needs".

TTI Inc. is a specialist distributor whose automotive customers are often involved at the design stage and may deepen the relationship through collaboration in the supply chain. Osorio said that collaborations usually start with components, such as capacitors, resistors or wiring harnesses, and then expand to complete solutions, such as displays or camera solutions. In short, these collaborations are multi-layered. In addition, our customers include not only Oems, Tier 1s, but Tier 2s and equipment developers. He added that automakers aren't designing all their own autonomous driving solutions. "They're looking for partners that they can work with and that can be embedded in their systems," he said.

For most distributors around the world, this partnership usually begins with supply chain management involvement. Distributors' expertise in parts interaction can help automotive customers optimize or simplify designs. "Our services are focused on designing the hardware, but we do also give customers the ability to connect the hardware to the software platform," says Avnet's Skoczen.

Now, it's hard for Oems to get the exact chips they need. As a result, carmakers could also design their own chips or jointly develop them with semiconductor companies. McKinsey argues that "custom" chips are more efficient, rapidly improving the performance of car systems and allowing complex software functions and analytical capabilities to be performed.

 

The amount of electronics in cars has exploded

 

Vehicles have five levels (Level 1 to Level 5), and their requirements for components increase with each level. According to McKinsey's report, vehicles with LiDAR-based Level 2+ features include about $1,500 to $2,000 in semiconductor component costs, with more required for vehicles with Level 3 and Level 4 options.

Separately, a set of McKinsey data shows that ADAS(Advanced Driver Assistance Systems) and AD could generate $300 billion to $400 billion in revenue in the passenger car market by 2035, based on consumer interest in AD(autonomous driving) features and commercial solutions currently on the market.

In recent years, automakers have begun sourcing off-the-shelf parts to save money, and they have grown increasingly estranged from chip companies. As car chips become more durable, there is little incentive for either to upgrade them or increase their production capacity. Smart cars and electrification have changed this trend, and carmakers are starting to focus on partnerships with chipmakers: General Motors and Grofand recently announced a partnership; Gm also plans to work with Qualcomm, stmicroelectronics, Taiwan Semiconductor, Renesas Electronics, NXP, Infineon and Anson Max; In addition, Volkswagen is working with stmicroelectronics.

A complete automotive chip supply chain, including upstream chip manufacturers, midstream distributors, downstream Oems. In the automotive field in recent years, not only the distributors are strengthening the layout of vehicle business, but also the original chip factories and Oems are actively promoting new technologies and promoting new cooperation. The 4th International AIoT Ecological Development Conference hosted by AspenCore will be held on June 8, 2023 at the International Conference Center of Sinovac Science Park, Nanshan, Shenzhen. Guests from Nvidia, Qorvo, Tektronix, Itech, and Guangzhou Automobile will share new technologies and solutions related to automobiles at the "Intelligent Connected Vehicle Sub-Forum". Please scan the code to register.

Success in autonomous driving may require a change in mindset, suggests McKinsey. They should focus on building internal capabilities, such as software development. While the automotive industry can spread development among partners and suppliers, the complexity of an automated stack of Level 3 or 4 capabilities limits the potential for collaboration with different experts.

Automakers should also ensure that autonomous driving architectures are flexible, reusable and easy to upgrade, McKinsey added. But the chips that underpin its systems are being phased out by semiconductor companies in favor of smaller, better-performing devices, which is one reason the auto industry is stuck with a semiconductor shortage in the future.

At the same time, distributors are sharpening their engineering acumen, with salespeople trained by parts manufacturers and distributors hiring engineers who know how to do it. "We certainly have more resources allocated to upfront design, and we work with our suppliers to focus on market opportunities in design," Osorio said.

Notably, suppliers are also encouraging distributors to design their components into Oems' products or systems.

"Our main advantage is the ability to really understand our customers' problem statements and provide them with a variety of solutions with many different technologies and different peripherals," says Avnet's Skoczen.

Osorio concluded that the electronization of vehicles, from lawn mowers and tractors to entire truck fleets, is one of the fastest growing areas in the industry. "As we move into a new era of intelligent control, we are constantly looking at new technologies to support these businesses, tap into more technologies and fill these niches."