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The CASE for Asia’s automotive tech market – and how to crack it!

The CASE for Asia’s automotive tech market – and how to crack it!

East Asia represents immense opportunities for tech scale-ups targeting the automotive sector, but at the same time comes with considerable complexities. 

In 2018, Asia was home to 13 of the top 20 global OEMs. Despite slight declines in year-on-year sales, China has maintained its position as the world’s largest automotive market with around 28 million vehicles sold. And Japan ranks as the world’s third largest automotive market.

Sales volumes are part of the equation. For companies developing technologies that fall under the umbrella of CASE (Connected, Autonomous, Shared and Electric), though, start of production (SOP) for certain types of consumer-ready vehicles could easily be five to 10 years away. This is certainly true in the case of L4/L5 autonomous cars. 

But could East Asia be a faster win, in terms of achieving SOP or advanced technical trials, for a company producing, say, V2X platforms, electrification technologies or sensors that enable L5 vehicles? 

Let me outline three reasons why East Asia should be the first stop for automotive tech companies and explain why – despite common misconceptions – you need to go out to Asia to do the deals, even though everyone has a team here in Silicon Valley! 

Why East Asia?

1. A faster win:

Asia can deliver a much quicker commercial return than other global markets if your technology is aligned with national interests or government-subsidies. We’ve seen this over the past few years in the government-funded EV boom in China, with approximately 1.2 million EVs sold in 2018 (half the world’s total!). 

I also expect meteoritic growth in China, Japan and Korea for H2 fuel cells over the next decade, as governments and auto makers look to diversify beyond ICE cars. 

In the US, we’re hindered by a lack of hydrogen fueling infrastructure. In contrast, China is already investing billions of Yuan to drive the market and achieve economies of scale. In South Korea, the Ministry of Trade, Industry and Energy has created an SPC (Special Purpose Company) called HyNet to drive construction of hydrogen charging infrastructure. And the Japanese government is subsidizing hydrogen fueling stations, with a target of 900 sites by 2030.

East Asia is also home to many pilots for vehicle-to-everything (V2X) and autonomous driving – even in overcrowded cities like Beijing and Tokyo. Seoul was the world’s first city to roll out 5G, and just down the road is K-City, an 80-acre, 5G-enabled AV/ADAS testing ground. During the 2018 Winter Olympics, Hyundai Motors drove a fully autonomous vehicle fleet 150 km from Seoul to Pyeongchang.

There are quick-win opportunities for international companies to license technologies in Asia that enable next-generation CASE vehicles, especially when the national government (and therefore corporations) are under pressure to achieve specific rollouts – as with Japan with the 2020 Olympics looming. This is why we’re helping companies such as the UK’s OxTS – which makes systems for validating ADAS sensors and developing self-driving cars – drive sales in Asia. 

Unless you’re actively knocking on the doors of the OEMs and tier-1 players at HQ in Asia and working on live pilots, technology rollouts will pass you by.

2. Global platforms:

R&D and decision-making processes are complex and increasingly spread out around the world, but a lighthouse win in East Asia can lead to incremental deals with global divisions of the OEMs and tier-1s.

For example, last year we did a deal on behalf of a client with Toyota’s infotainment team through JVC Kenwood, a Japanese tier-1. The product was developed at the JVC Kenwood Singapore R&D Center, but the rollout and commercialization were managed by JVCK’s main offices in Tokyo. The product will reach SOP in March 2020 as a high-end aftermarket product for Toyota cars sold all over the world.

Bear in mind also that the biggest opportunities may originate in Asia, but apply to vehicles manufactured or sold elsewhere. 

Toyota sold more than 10 million automobiles in 2018, but only 1.5 million of these were in Japan. But long term technical planning almost always happens at HQ. Furthermore, it’s much easier selling to an existing customer in a new market once you’ve done a deal or established proofs of concept (PoC) at HQ, because your technology is already vetted and your pricing is known – though local procurement will probably still want to negotiate!

We’ve seen the same on a smaller, intra-Asia scale: a deal in China with the APAC HQ of Tenneco, a US exhaust equipment tier-1, led to quick revenues for our client with Tenneco’s sister plant in Japan to service the local off-highway market.

3. A global R&D center:

While companies like Geely, BYD and Great Wall are gaining traction and building impressive vehicles, passenger car sales in China are still dominated by joint ventures that are typically 50/50 owned by a global OEM and a local OEM. Market leader Volkswagen sold more than 4 million vehicles in 2018 and GM sold 3.64 million in China through their JVs. But you’ll need to be in China to do the deals with the western OEMs and engage with local procurement. 

And while companies like GM and VW are making many design and technology decisions in Detroit and Ingolstadt, increasingly more R&D decisions are made in China to address the unique consumer needs of the local market. 

Audi is a good case in point. It released numerous ‘L’ series cars (e.g. A4 L, A8 L, Q2 L) with extended rear passenger legroom for wealthy Chinese customers with personal drivers. And GM has a massive R&D center called PATAC (Pan-Asia Technical Automotive Center) in Shanghai to research next-generation vehicle technologies for the local market.

On the ground

Despite the huge opportunities for automotive tech firms, if you’re serious about doing a deal with an OEM or tier-1 in Asia, you’ll need realistic expectations on timing. It could take 12-36 months or more to get your technology adopted. 

The other point so many overlook is you’ll need a highly skilled team on the ground. 

Holding exploratory meetings is certainly possible in Silicon Valley, but there’s no substitute for going to the heart of the Asian corporations. This is why companies like Santa Clara-based Panasas engaged our Shanghai-based team to sell its technology to Chinese EV OEM NIO in China, even though NIO has more than 600 staff at its North America base in San Jose.

This point was reinforced by a lunch I had the other day with the Head of Strategic Partnerships of a Japanese OEM based here in Silicon Valley. He told me his US-based team can scout technologies on behalf of his HQ, but he has only a limited budget for exploratory PoCs. 

So, you need to be in Asia if you want to develop a PoC with the real decision makers and evangelize your technology across multiple teams. But parachuting in once a month from North America or Europe is costly and inefficient – and just won’t be enough to win the trust you need to build a business with the automotive players in Asia. 

Despite all today’s digital communication technologies, there’s no substitute for the ‘analog way’ of face-to-face discussions in the local language.

Payback

So, the opportunities for automotive tech firms in East Asia are considerable, but the challenges are equally significant. You need to be prepared to play a mid-to-long term game and get to the decision-making heart of the Asian HQs. 

Get this right, and the payback from East Asia could well be huge. 

About the Author

Tommy Shiekman

Tommy has worked in and with China for the majority of his career and heads up our cross-border Automotive Group. He has managed and directed multiple client initiatives in the sector, concluding joint venture and licensing deals and securing purchase orders from OEMs and tier-one suppliers worth many millions of dollars.

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