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After decades of eschewing electronics distributors as “middlemen” in the supply chain, automotive companies are finding value in the channel. Original equipment manufacturers (OEMs) and tier-1 suppliers have integrated distribution into their global supply chains and are availing themselves of design assistance in electronics-intensive systems, such as those in autonomous vehicles (AVs).
Covid-19 and the multi-year semiconductor shortage ultimately spurred partnerships between automotive OEMs and global distributors. When chipmakers were unable to supply semiconductors for a sudden spike in vehicle demand, car makers turned to distribution. Many were surprised they had to wait in line as smartphone, computer and industrial customers received allocated components. Car makers had become accustomed to bullying supply chain partners because of their market prowess, only to find consumer electronics companies had eclipsed them as large, dependable and strategic customers.
For several quarters now, publicly traded global distributors have noted new relationships they’ve secured with automotive OEMs. Most are fulfillment-related, but distributors’ expertise in components and wireless communications is also being utilized by automotive OEMs, tier-1 suppliers and device manufacturers in the design chain.
“We work with the OEMs, tier-1s, EMS providers and technology developers who are getting into the technologies associated with autonomous vehicles,” said Jason Skoczen, sales director for Lightspeed and Transportation at Avnet Inc.
Everything everywhere
AVs rely heavily on sensors for the data that allows them to operate with little or no driver intervention. “We supply everything from the sensors, communication ICs, memory components, microcontrollers and many other surrounding technologies for AV systems,” Skoczen said.
“There are a multitude of sensors at every level of autonomous driving and customers initially might just want help with finding the right sensor,” said Gabe Osorio, director of Transportation Marketing Americas for TTI Inc. “We can also provide sensors that are available from multiple vendors. When you deal directly with component manufacturers, you are limited to that supplier. We steer customers to the option that works best for them.”
The connectivity aspects of AVs alone are fertile ground for distributors, Osorio added. “Think of the data within the AV itself—information coming from sensors, cameras and lasers—that has to be moved around in the system. So, we are talking Ethernet, connectors, assemblies and wire harnesses, and then the data we can move to wireless,” he said. “There’s a communications infrastructure that falls within our wheelhouse—5G or another wireless standard, whatever it looks like—as vehicles have to receive and process increasing amounts of incoming data.”
Partnerships required
By 2035, autonomous driving could create $300 billion to $400 billion in revenue, according to McKinsey. Success in this sector will require a technology ecosystem.
“No one player alone can span all relevant core competencies and easily invest a minimum of $70 billion to stand out with regard [to the AV/EV market],” the consultancy said. “To be able to reach across technologies and business models, players will need to think strategically about which areas to partner in, how to identify the right partners and settings, and which [partnership structure] best suits their needs.”
Automotive customers of TTI, which is a specialty distributor, usually engage in the design phase and may deepen their relationship with supply chain engagements. “A lot of time it starts with one component—a capacitor, resistor or a wire harness—all the way to a finalized solution, such as a display or camera,” TTI’s Osorio said. “We engage on multiple levels. These customers are not necessarily OEMs or even tier-1s; they are tier-2 or device developers.”
OEMs, he added, are not designing all their AV solutions in-house. “They’re looking for creators they can partner with and integrate into their systems.”
In the case of global broadline distributors, the relationship usually starts with a supply chain management engagement. But distributors’ expertise in component interaction can optimize or streamline designs. “Our services are mainly focused on the hardware side of the design, but we do provide our customers with the ability to connect the hardware to the customers’ software platforms,” Avnet’s Skoczen said.
At the chip level, automotive companies are also taking a more active role via in-house chip designs or closer collaboration with semiconductor companies. Many OEMs now have difficulty obtaining the silicon that exactly matches their needs. “[Custom] chips are more efficient, enable rapid performance increases within vehicle systems, and allow the execution of complex software functionalities and analytics, such as those that enable sensor fusion of cameras, laser, LiDAR and other devices,” according to McKinsey.
Electronics content surges
There are 5 levels of autonomy in AVs and demand for components increases with every level. Vehicles with LiDAR-based Level 2+ capabilities contain approximately $1,500 to $2,000 in component costs, and even more for cars with Level 3 (L3) and L4 options, McKinsey reported. Based on consumer interest in automated driving (AD) features and commercial solutions available on the market today, advanced driver-assistance systems (ADAS) and AD could generate between $300 billion and $400 billion in the passenger car market by 2035, according to McKinsey.
Car makers and electronics companies have grown distant in recent years as car makers began sourcing consumer-off-the-shelf (COTS) components to save costs. As chip quality improved, there was little incentive for either industry to dedicate R&D or capacity toward chip development. The evolution toward AVs and EVs has affected that dynamic. General Motors (GM) and GlobalFoundries (GF) recently announced a partnership; Ford formed a pact with GF late in 2021. GM also plans to work with Qualcomm, STMicroelectronics (STMicro), Taiwan Semiconductor Manufacturing Co. (TSMC), Renesas, NXP, Infineon, and onsemi, and Volkswagen is collaborating with STMicro.
Succeeding in AD may require OEMs to make a mindset change, McKinsey suggests. OEMs should focus on building up in-house competencies, such as software development. Although the automotive industry has honed its ability to split development work among multiple partners and suppliers, the sheer complexity of an L3- or L4-capable AD stack limits the potential for partnering with many different specialists.
OEMs would also benefit from holistically managing their road maps for developing AD features and portfolios of offerings, McKinsey added. They should ensure that the AD architecture is flexible, reusable and easily upgraded. This is one of the reasons the auto industry may be stuck with semiconductor shortages for a while—their systems are based on chips that are being phased out by semiconductor companies in favor of smaller and better-performing devices.
At the same time, distributors have been stepping up their engineering acumen. Sales staff are trained by component makers and distributors are hiring engineers. “We certainly have more resources allocated to design upfront,” TTI’s Osorio said. “Along with our suppliers, we are focusing on design opportunities.”
Distributors are incentivized by suppliers to get their components designed into an OEM’s product or system.
“The main advantage is we have the ability to be technology agnostic, and truly look at our customer’s problem statement and offer them a variety of solutions with many different technologies that have different peripherals to meet our customers’ needs,” Avnet’s Skoczen said.
The electronification of vehicles is one of the industry’s biggest growth areas, ranging from lawn mowers and tractors to entire fleets of trucks, Osorio concluded. “As we move new era of smart controls, constant focus how find new tech and options to support those business find more tech and fill those niches.”
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