Open or fail – Why open innovation is crucial to master transformations in the automotive industry

When we look at the automotive industry, we have always not only been looking at car manufacturers, but also at their respective suppliers on different levels and their specific role in the value chain. Today, power is shifting. Suppliers are not “only” suppliers anymore, but rather partners of the OEM. Tier 2 suppliers now become tier 1 suppliers and new companies/startups are entering the market, providing new solutions. On top of that, challenges like the sustainability transformation can only be won when all ecosystem partners act together. Let’s have a more detailed look on these changes and why open innovation is crucial to master this new setup.

From supplier to partner

Traditionally, car manufacturers would commission their suppliers to develop, produce and supply parts that would then be assembled at the car manufacturer to produce the final vehicle. Obviously, this business procedure is still happening. But we can see that car makers and suppliers are more and more partnering to develop specific solutions for rather complex problems. To name one example, BMW is now partnering with Qualcomm to push the development of autonomous driving. Switching to Qualcomm from their old supplier is based on the desire to strengthen the partnership approach, co-innovating in this must-go area for the automotive industry.

Climbing up the supplier ladder

Besides other topics, one specific challenge in the automotive industry has been in the media throughout the last months and even years. The chip shortage has shown the weakness of supply chains and the dependency of car makers from suppliers, not only on tier 1 level. Chip makers have usually been suppliers for suppliers, delivery their products not directly to the OEMs. But the chip shortage plus the ever-increasing importance of chips (due to e.g. car software, autonomous driving) has initiated a rethinking in the industry. Chip makers are now not only tier 1 suppliers for car makers, but are also an increasing important part of the value chain. The BMW and Qualcomm example above perfectly shows that shift from supplier to partner. Being closer to those partners also allows car makers to get them deeply involved in their innovation and R&D processes.

New players in the game

Similar to other industries we see new players joining the innovation ecosystem of the automotive industry. Obviously, there are new market entrants that are pushing traditional OEMs to innovate at a faster pace. For example, one of the main objectives of Volkswagen’s to be established Trinity plant in Wolfsburg is to double productivity to catch up with their competitor Tesla who have just opened their new plant 250km away from Volkswagen HQ. Besides those new OEMs, more and more startups are entering the market as well, providing added value at various parts of the value chain. From blockchain solutions to increase transparency in the supply chain, to software components as part of the vehicle software, to solutions for battery monitoring and EV charging. Identifying these solutions and integrating them into the innovation and engineering process is one key success factors for car makers. BMW for example is using their Startup Garage as a venture client unit for early stage startups. After validating their prototypes, the connection is made to relevant decision makers at the BMW Group, supporting the startup to become a official supplier and helping them to integrate the solution. This open innovation approach is one amongst others. Mercedes-Benz for example is working closely together with Startup Autobahn which connects startups to industry player. And Volvo is utilizing their own Volvo Cars Tech Fund to not only partner with startups, but also invest in them.

Open Ecosystem

The automotive industry is facing challenges that can only be met by a whole ecosystem that goes even beyond the automotive sector as such. One relevant example is the industry consortium CATENA-X, where car manufacturers, suppliers, service providers and many more have come together to set important standards, e.g. regarding data to create supply chain transparency and resilience and regarding carbon footprint calculations and measures. Here, open innovation is done between all involved stakeholders, creating solutions from which everyone will benefit from.

We have learned that open innovation is indeed crucial to master the transformation of the automotive industry. Our TechnoVision report shows insightful example of fruitful collaborations and fingers the pulse of technology areas where open innovation will be even more crucial – let’s take AI, metaverse and the software transformation as few examples for that.

We invite you to download the report, and I would also like to hear from you and discuss how to make open innovation a success.