Paper by Dr. Bernd Bohr Chairman of the Bosch Group Automotive Technology business sector" />

Mobility Solutions

Bosch as systems supplier: A driving force in an automotive industry in flux Paper by Dr. Bernd Bohr Chairman of the Bosch Group Automotive Technology business sector

  • at the Automotive Press Briefing, June 2011
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  • June 08, 2011
  • Mobility Solutions
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press release

Ladies and Gentlemen,

There is one business cycle that is crisis-proof – and that is the never-ending business of producing forecasts about how the automotive industry will change. But this change process began some time ago. The three-, two-, or one-liter car, the electric car, the increasing number of cars driving on the streets of Asia: we no longer need to be shown the path toward them, as we've already been heading that way for a long time. And Bosch is a driving force in this movement. At the automotive press briefing of two years ago, two points stood out as particularly important to us:
  • that we can reduce fuel consumption in diesel and gasoline vehicles by at least another 30 percent, and
  • that we will need pooled efforts and volumes if we are to make the changeover to electromobility.
Progress on both of these points continues apace, with only a brief lull on account of the economic and financial crisis. We are also approaching the goal of accident-free driving. My colleagues and I will be talking to you about all these endeavors today. But first I would like to clarify how it is that a systems supplier such as Bosch is an engine of change in the automotive industry. Our know-how is not only spread across a variety of domains, we are also networking it more than ever – and that is precisely what gives us the extra innovative strength to support the automotive industry in tackling the enormous changes it faces, as well as to make those changes come about more quickly. Bosch is pooling its many strengths.

Performance indicators:
growing sales, rising associate numbers
For an initial impression of what we can bring to the streets, it is enough to look at the figures: sales in our Automotive Technology business sector will pass the 30-billion-euro threshold for the first time this year. We are expecting growth of over ten percent. Year-on-year growth in the first quarter of 2011 in our automotive technology business was an even more impressive 15 percent. Employment is also increasing as a result. Having begun the year with 167,000 associates in automotive technology, by the end of the year we will have 177,000. Asia Pacific is responsible for most of this increase, but other parts of the world are also seeing growing numbers of associates. We are close to our customers all around the world – and that is important to us. It is particularly true of our engineers. Looking at the more than 26,000 associates that were working in research and development for our automotive technology business at the start of this year, one in two was working in Germany, but almost one in three was based in Asia. The budget for this activity is well above the industry average. We will be investing over 3.2 billion euros in automotive technology research and development in 2011.

Goals for the core business:
lower fuel consumption, more safety
This is how much we have to spend on a campaign on many fronts: not only to come up with the mobility solutions for the near and more distant future, but also to make driving here and now even cleaner and safer, more economical and more comfortable. Our business benefits from the fact that the technology we produce is, as our strategic guiding principle puts it, “Invented for life.” Our core business areas in automotive technology will benefit not only from this year’s 7 percent growth in global vehicle production. We also see strong potential for growth beyond this year:
  • To begin with, there is the vision of accident-free driving. The United Nations has proclaimed the Decade of Action for Road Safety. Its ambitious aim is to save five million lives worldwide by 2020. This can only be achieved if everyone has access to safety technology – also in countries such as India, where annual road deaths have risen from around 80,000 in 2000 to nearly 115,000. One of the measures we are taking is to make antilock braking systems more affordable in emerging markets. That is why we have set up ABS manufacturing facilities in India and in Brazil. Safety features are increasingly also becoming mandatory. For example, this year sees legislation coming into effect that requires the ESP® electronic stability program to be fitted in Europe, the United States, and Australia. That means there will soon be no more new cars without the anti-skid system first developed and introduced by Bosch.
  • We are also ahead of legal requirements when it comes to driving that protects the environment and conserves resources. In response to climate change, the European Union has for instance set itself the ambitious goal of limiting average carbon dioxide emissions from new vehicles to 95 grams per kilometer by the end of this decade. This will be achieved above all through enhancements to internal-combustion engines. Because even if we include hybrids, over 95 percent of new vehicles around the world in 2020 will still be powered by diesel or gasoline. It is precisely for this reason that it is so important for us to reduce their consumption by another 30 percent. This in turn will spur demand for our fuel-saving technology. Unit sales of our common-rail diesel-injection systems will rise by a good 10 percent annually up to 2015. Sales of our gasoline-injection systems will triple between 2010 and 2013; in conjunction with turbocharging, these systems allow smaller engines to deliver the same performance while consuming less fuel. And at the end of the year, our joint venture Bosch Mahle Turbo Systems will begin series production of exhaust-gas turbochargers. We are implementing a wide variety of measures to make the internal-combustion engine more efficient than ever before. One final, but no less important, example is the start-stop system, which reduces average fuel consumption by 4 percent. We will be shipping some 2.6 million units of this system this year – twice as many as last year. But development doesn’t stop there: We are working on a start-stop system that temporarily switches off the engine to allow vehicles to coast, for example when approaching an area with a lower speed limit. This makes a total fuel saving of 9 percent possible.
The road to electromobility: together we are stronger
However much additional efficiency we squeeze out of the internal-combustion engine, the future belongs to the electric drive. The only question is: when is the future? If we consider either high battery costs or limited range, there are many indications that the switch to electromobility will take well over a decade. But even more evidence points to it not being simply a case of either/or when considering internal-combustion engines and electric drives. If we take a more nuanced approach, we will see that the medium-term outlook for plug-in hybrids is good: a relatively small, cost-effective battery for urban trips that can be recharged from a power socket, combined with a gasoline or diesel engine for longer journeys. But this combination requires systems expertise, and thus the kind of networked knowledge of the core areas of powertrain and chassis that a global supplier such as Bosch has to offer.

And we are making this expertise stronger by doing in electromobility exactly what makes us so strong in internal-combustion engines – i.e. applying know-how that is not only broad but also detailed:
  • First, we manufacture power electronics. We even produce our own power semiconductors in our wafer fab in Reutlingen, in which we will have invested a total of 600 million euros when it is finally completed.
  • Second, we manufacture electric motors at our Hildesheim plant.
  • And third, our joint venture SB LiMotive began production of lithium-ion batteries in Ulsan, South Korea, at the end of 2010.
The success of our strategy of relying on broad and detailed knowledge speaks for itself: by 2013 at the latest, we will start series production of nearly 20 projects for 12 automakers, involving products for electromobility across our entire portfolio. What’s more, we are developing new services related to all aspects of electric cars. Directing drivers to the nearest charge spot, or taking care of billing procedures with the utility company – that’s what we call “mobility solutions.” We are testing this sort of internet-based business model with our “e Mobility system” in Singapore, trials of which will begin in the next few weeks.
The upfront investments for electromobility are, however, considerable. Bosch spends 400 million euros each year on powertrain electrification. 800 engineers are working in this area of development at Bosch. We have consciously set out to recoup these costs through economies of scale. That involves pooling production and standardizing components. The automotive industry, though as competitive as ever, has nonetheless recently begun to show an increased interest in cooperation. And it is not only Germany’s national electromobility platform that demonstrates this. Specific cooperation projects have been in existence for some time – not only among manufacturers but also between manufacturers and suppliers. For instance, we are planning to establish a joint venture together with Daimler that will develop, manufacture, and sell motors for electric vehicles. This will lead not only to greater volumes but also to a sharing of the burden of development costs. In addition, both sides stand to benefit from each other's technical know-how and improve their overall systems competence. This is a win-win situation which is in the ultimate interests of all our customers.

More generally, there will be competition to secure a share of the value added. The automotive industry is currently still at the stage where many players are eagerly trying to build up their electromobility expertise. In the medium term, however, the main concern will be to ensure that plants run at full capacity – in other words, it will be all about employment. In general terms, suppliers such as Bosch are likely to do well out of this competition. Their field of expertise is electrical and electronic systems; together, these have a share of value added in today's vehicles of 40 percent, but this share will rise to 75 percent in tomorrow's electric cars.
But this does not mean we can take growth for granted, as the technological shift taking place in the automotive industry gives new entrants a chance to capture a share of value added. Taking the lithium-ion battery as an example, here we are making use of our partner Samsung SDI's experience in consumer electronics. But it is still up to suppliers such as Bosch to guarantee the quality and robustness of the electricity storage element of cars as a complete system. And we can definitely take a number of major steps toward this goal. For instance, we will implement even more effective system architectures. In addition, we need to adapt the service life and safety of batteries to an automotive context. This is a context where extreme conditions prevail, and it demands a lot of experience in systems design. This expertise is something we are deliberately taking from other domains and applying to the new area of automotive battery technology.

This may seem nothing more than a technical detail, but in fact the topic is just as central to the success of electromobility as battery costs are. Of course, the required level of quality cannot be ensured unless we work together with strong partners, but more importantly that that, the various expert areas within the company need to collaborate effectively.

In-car e-mail: infotainment and autonomous driving
Not only are the technical challenges formidable, the market is also changing rapidly. A new generation of drivers is emerging – a generation for which the internet has been just as formative as the car. At all events, car ownership is reducing in the under-30s, and demand is shifting toward smaller vehicles. And not least, environmental concerns are becoming a selling point. That is why it is so important for us to show that eco-friendliness and engine performance are not mutually exclusive – whether by reducing engine displacement without reducing elasticity or by giving electric cars excellent torque even from a standing start. But at the same time, recent studies show that vehicles' internet capability is becoming a crucial factor in purchase decisions. Young buyers of new vehicles want access to the internet while they’re on the road – ideally just as easily and securely as from home. This is where two factors that Bosch is working on equally intensively come in: infotainment and autonomous driving.
  • Let’s look at mobile communication first. The internet is increasingly making its presence felt in the car through devices such as smartphones. But it is not so much a question of how the internet is finding its way into the car as how the car is finding its way into the internet. In concrete terms, we need to integrate the new consumer electronics functions into vehicles in a way that will make them easy for drivers to use. To this end we are developing head-up displays and freely programmable combined instruments. The decisive factor is the design of the central control panel. This must feature an open architecture that allows it to control internet-based functions and devices whose innovation cycles are markedly shorter than the car’s service life. In technical terms, we will succeed in integrating consumer electronics components and open-source software such as the Linux operating system into our products. However, it is also clear that however much such components enhance the attractiveness of the driver’s workplace, their quality does not comply with the automotive industry’s standards and specifications. In this respect, the onus is on both manufacturers and suppliers. But above all, connectivity requires novel user interfaces, such as acoustic email input and output, which clearly make life easier for the driver.
  • Drivers’ lives are also being made easier by a second trend: the refinement of assistance systems. This refinement improves both comfort and safety. Over the next two decades, this will lead to autonomous driving – a shift that is in essence comparable to the switch to electric drive. Fundamental acceptance of driver assistance systems will increase in line with the internet generation’s approach to mobility I spoke of earlier. At the same time, the relevant systems and components are becoming more affordable simply through economies of scale. This year, for instance, our sales of radar sensors will rise fourfold over last year's figures. But above all we foresee technological leaps, whether in combining data from ultrasound, radar, and video sensors or in faster and more accurate image analysis. We already make image analysis possible in real time – 25 times a second, using a chip that is integrated into the camera. A single research group is developing the algorithms required both by in-vehicle video sensors and by the video surveillance products made by our Security Systems division – this kind of joined-up thinking is natural at Bosch. In all, there are more than 600 engineers working on driver assistance systems in our company. But where is our product development leading? In our opinion, autonomous driving will first become established in relatively discrete situations – not only as an invisible hand guiding the parking process, but also with automatic longitudinal and lateral vehicle guidance in stop-and-go or heavy traffic. We will expand on these kinds of specific applications over successive vehicle generations to embrace higher speeds and more complex situations. Autonomous driving will come about step by step.
The Asian growth region: success through local development
However, we must not merely drive forward technological advances at the cutting edge, we must also ensure they are taken up on a wide scale. Not least, this means developing innovations specifically for emerging economies, where the middle-class products that are so popular there generally cost 30 to 60 percent less than in advanced economies. The days are long gone when European solutions could simply be transplanted wholesale into other regions of the world. That is precisely why we already have a large team of engineers in Asia Pacific – which is home to 18 of our Automotive Technology business sector’s 51 research and development locations. At the same time, we place great importance on manufacturing locally. The production of ABS I mentioned earlier is just one example. In Diesel Systems, one in three associates is based in Asia Pacific. This is a business that is likely to experience annual growth of around 25 percent in China between now and 2017. And by 2014, we expect the number of passenger-car common-rail systems manufactured in India to double from its 2010 level. The significance that this growth region has already taken on for Bosch is evident if we look at the long-term figures: Asia’s share of Automotive Technology sales has more than quadrupled in just 12 years, from 6 to 26 percent. In absolute figures, this equates to an increase from just under 1 billion euros to 7.4 billion euros.

We are continuing to grow our business by networking ever more tightly on an international level. There are basically two sides to the collaboration between our engineers in advanced and emerging economies:
  • First, we enter new growth markets with products that meet local needs.
  • Second, we apply this local knowledge to global platforms, adjusting these to reduce costs or simplify specifications.
By applying this systematic approach, for example, we were able to nearly halve the number of parameters required for an engine management system for Euro 4-compliant vehicles in Europe. We did so on the basis of our experience in India, where we achieved Euro 3 with a mere third of the original number of parameters. So the experience we garner in Asia also bears fruit in other major economic regions. The link between our developers in advanced and emerging economies is no one-way street. Rather, to stay with the image, it is a highway with ideas traveling in both directions.

Bosch domains: broad-based and well-positioned
In conclusion, whether we look at Bosch Automotive Technology according to its international structure or its technical domains, we see that it is not just broad-based but also well-positioned. There are two pieces of evidence that support this claim:
  • On the one hand, we are increasingly seeing networking effects both between regions and between business areas. A systems supplier’s innovative strength is based more than ever on the ability to combine competencies – whether in electrical systems, electronics, and power semiconductors, or in radar technology, video analysis, and vehicle dynamics control.
  • On the other hand, we are not losing sight of today’s cars by focusing too much on the future of the car – or vice versa. We have a strong presence in advanced economies and in emerging ones, both for internal-combustion engines and in electromobility. We are seizing long-term growth opportunities without neglecting short-term ones.
Like any structural shift, the changes that are sweeping the automotive industry will most likely see winners and losers. There are many reasons to think that, as a systems supplier, Bosch could be one of the former. But “could” is not good enough for us, which is why we are doing all we can to make sure that this prediction becomes a reality.

RF00113 - June 08, 2011

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