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Resumen ejecutivo Bjoern Klaas, vicepresidente y director ejecutivo de Protolabs Europa La industria del automóvil afronta un periodo de oportunidades y cambios sin precedentes. Esto es así por varios motivos: la revolución digital que atraviesa todos los rincones de la industria, los retos medioambientales cada vez más urgentes y la aparición de nuevos competidores con la continua evolución del mercado mundial. Nunca había habido un momento de cambio como este. Por esta razón, Protolabs, el fabricante digital más rápido del mundo de prototipos personalizados y tiradas cortas de producción, ha llevado a cabo un estudio de mercado para conocer de primera mano el grado de innovación del sector automotriz en Europa. A raíz de una encuesta realizada entre 300 altos ejecutivos, y reforzada por amplios debates con líderes de opinión, hemos descubierto las tendencias que afectan al sector y hemos analizado las medidas que se están tomando al respecto. He aquí algunas de las principales conclusiones de este importante estudio:

El 52 % de los encuestados cree que un fabricante de automóviles emblemático cerrará sus puertas en los próximos tres años.

El 55 % considera que la preocupación más acuciante a corto plazo (en los próximos 12 meses) es la aplicación de una legislación ambiental más estricta.

El 52 % también cree que un nuevo fabricante irrumpirá en el mercado con un vehículo revolucionario en los próximos tres años.

El 71 % considera que las empresas deben adoptar la industria 4.0 para sobrevivir.

Para el 56 %, es probable que los consumidores compartan cada vez más sus coches en lugar de comprarlos.

El estudio deja claro que la industria europea se encuentra en un punto de inflexión, ya que casi siete de cada diez participantes afirman que nunca hasta ahora se habían visto tan obligados a innovar. Además, el 48 % de los encuestados cree que la amenaza de que surjan nuevos competidores de Asia o América podría llevar a la pérdida total del negocio en Europa. Con un 68 %, los encuestados del Reino Unido son los que más alarmados se muestran por esta amenaza, pero también parecen ser los más decididos a la hora de explorar nuevos horizontes y tecnologías de nicho para impulsar la innovación. Alternativas como el carsharing, el ridesharing, el carpooling y el alquiler entre particulares también son vistas en Europa como factores que influyen en este cambio de paradigma. A pesar de todo, se respira un ambiente de verdadero optimismo en gran parte del sector.

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En Italia, el 88 % de los encuestados afirma que están bien posicionados para satisfacer la demanda de los consumidores, una cifra muy similar a la de sus colegas en Francia (87 %). Los italianos son también los que más confían en su capacidad para competir con sus nuevos rivales (86 %), mientras que los galos son los que ven con más optimismo las perspectivas de crecimiento (80 %). Y estos últimos creen también estar cada vez más comprometidos con iniciativas nuevas y audaces como la mayor eficiencia del combustible y la experimentación con nuevos modelos de negocio. Los encuestados alemanes son los que llevan la voz cantante en los vehículos sin conductor en Europa. No obstante, detrás de este optimismo se perciben ciertos indicios de autocomplacencia que podrían convertirse en un obstáculo en la carrera por la innovación. A primera vista, puede parecer positivo que el 69 % de los encuestados afirme que sus empresas pueden resistir cualquier cambio en la industria automotriz mundial. Sin embargo, este dato habría que ponderarlo con el hecho de que el 51 % afirma que sus homólogos actúan en gran medida con autocomplacencia ante los cambios que se avecinan.

La capacidad de innovar con rapidez está en riesgo cuando el 48 % de los encuestados afirma que ahora es más difícil conseguir talento que hace 10 o 20 años. Además, la discrepancia en el uso de la fabricación aditiva en Europa sugiere que algunos países están respondiendo a la necesidad de innovar más rápidamente que otros.

En conclusión, del estudio se desprenden algunos mensajes claros:

Las viejas certezas se han ido para no volver; es hora de abrazar la nueva realidad Los consumidores quieren cada vez más coches eléctricos y sin conductor, y en el futuro puede que prefieran compartir un vehículo en lugar de comprarlo. Las marcas de automóviles deben aprovechar con entusiasmo las oportunidades que se les presentan, adoptar nuevas tecnologías y desarrollar nuevos vehículos y modelos de negocio sin dilación.

Evitar la falacia de invertir a fondo perdido

Los fabricantes no pueden argumentar que el hecho de haber invertido miles de millones en la tecnología existente les impide invertir ahora en terrenos desconocidos. La vacilación abre la puerta a nuevos participantes y ninguna compañía es inmune a la nueva era.

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Hay crisis de talentos en el sector

El éxito pasa por la existencia de mentes creativas capaces de prever y satisfacer las demandas cambiantes de los clientes. Parte de la solución a largo plazo depende de que se establezca una cultura favorable a la innovación. De forma más inmediata, las marcas pueden recurrir a nuevos socios y proveedores que les proporcionen las competencias que necesitan.

La rapidez lo es todo en la carrera de la innovación

Por rápido que parezca el cambio a día de hoy, en el futuro se acelerará aún más. Los fabricantes de automóviles necesitan saber urgentemente cómo acelerar la innovación, ya sea haciendo borrón y cuenta nueva, cambiando de rumbo o aprovechando las nuevas oportunidades más prometedoras.

Es evidente que existe una voluntad real de innovar en todo el sector. Pero el ritmo del cambio obliga a que incluso los grandes protagonistas estén encontrando dificultades para seguir adelante y enfrentarse a los desafíos.

Externalizando competencias secundarias o utilizando el conocimiento externo, pueden obtener una ventaja competitiva clave en un mundo cada vez más digitalizado como el de la fabricación.

The innovation raceChallenge and opportunity for Europe’s automotive industry

ContentsForeword

Section 1: A time of unprecedented change

Section 2: Bumps in the road: innovation challenges

Section 3: Speed is of the essence: a new way forward

Conclusion: The once-in-a-generation opportunity

About the research

Acknowledgements

We would like to thank the following for sharing their time and insight, which was invaluable to the development of this report:

Guillermo SalazarSenior Resident Engineer, Volkswagen

Aram KradjianChief Research Engineer, Jaguar Land Rover

Sebastian SchelperFounder & President, QBrio, Inc.

Renato BisignaniDirector of Communications, Formula E Holdings

Matt WindleExecutive Director, Sports Car Engineering, Lotus

Huw OwenDirector, Future Mobility & Strategic Partnerships, Lotus

Graeme HacklandChief Information Officer, Williams F1 Team

Senior Manufacturing EngineerDaimler AG, Germany

Product Development DirectorMultinational tier-1 system supplier, Italy

In addition, we would like to thank the 300 senior executives from across the European automotive sector who were interviewed as part of our telephone survey, including from the following companies:

DENSO Corporation

Jaguar Land Rover

Lear Corporation

Magneti Marelli

Mercedes Benz

Volvo Group

You can find more information about our respondents in the ‘About the research’ section.

4

6

12

17

20

22

have neverbeen under as much pressureto innovate as they are today

expect a newplayer to

disrupt themarket with arevolutionary

vehicle

expect consumers

to increasinglyshare their cars rather

than buy them

believe they cansatisfy newand evolving

customerpreferences

say their business

urgently needs to update itsapproach toinnovation

say it’s harder to find

innovators than it was 10 or 20 years ago

believe therest of the

industry isn’t ready for the

disruptionahead

Innovation ismore critical

than ever

The marketis changing

fast

Customersare changingtheir ways

Automotivefirms areconfident

But theyneed to get

better atinnovation

They needfresh

thinkers

There areopportunities

ahead– if you canmove quickly

69%

52% 56%

82%

61%48% 49%

How cancar-makers

seize bright newopportunities?

“Foreword

Applied to Europe’s automotive sector, his words proved to be prescient. Over the next hundred and twenty-odd years, European automotive brands refined, reimagined and reinvented the combustion-engine-driven car. In turn, they set the gold standard for the global industry.

But the world is changing fast. As technology enables undreamt-of possibilities in electric and driverless mobility, and as new rivals reshape the market, what is the state of innovation in the European industry? Are the car-makers of Germany, France, Italy and the UK upholding the love of invention and reinvention that brought them such success in the past?

It was with questions like these in mind that we embarked on our new research. Through a survey of 300 senior executives, reinforced by wide-ranging discussions with industry thought leaders, we explored the trends affecting the sector and evaluated the actions it is taking in response.

Above all, our findings signal that the industry is at a turning point. Over the next few years, executives anticipate upheaval and opportunity on an unprecedented scale. Ultimately, this will be driven by a shake-up in customer preferences and expectations, all of which is enabled by rapid, dramatic and unpredictable advances in technology.

As this report makes clear, the challenge for industry players boils down to a single dilemma: do we double down on what worked for us in the past, or do we take a bold leap into the unknown? And, if we do take that leap, how can we do so faster than our competitors – what are the strategies, approaches and materials that will give us the edge we need?

We hope you enjoy reading our findings and would be delighted to discuss them with you in greater detail.

Bjoern KlaasVice President and Managing Director EMEAProtolabs

The love of inventing never dies.So said Karl Benz, creator of the world’s first modern automobile.

4

The innovation race300 senior executives give their view on the innovation

challenges facing Europe’s automotive industry

5

“

6

A time of unprecedented change

SECTION 1

People are saying that the industry will change more in the next five years than it has in the last 50. It will probably be even bigger than that.Sebastian Schelper, Founder & President, QBrio, Inc.

Europe’s automotive sector may have led the global industry for generations, but now they are asking themselves some difficult questions: how can we hold on to our position in the face of new competition? And how do we secure tomorrow’s opportunities?

Their soul-searching is appropriate to the current climate. The car industry is going through a period of unprecedented change that will produce new winners and new losers. In Protolabs’ latest research, one in two (52 %) respondents expects at least one iconic European brand to collapse within the next three years. A similar proportion (48 %) anticipates the wholesale loss of Europe’s business to Asia and the US.

“Some of the biggest innovations that we’ve seen recently have been people who have had a vision and believed in it, bringing people with them with their passion. It’s about knowing what the customer wants.”Graeme Hackland, Chief Information Officer, Williams F1 Team

The principal driver of market change, according to Guillermo Salazar, Senior Resident Engineer at Volkswagen, is the technology that has enabled major advances in electric and autonomous vehicles.

“Traditional car-makers should learn from the innovations developed by technology companies,” he advises. “If they are not innovating, they could stay behind their competitors.”

The situation is far from desperate, however. Beyond the figures above, our respondents are notably upbeat – at least when it comes to their own prospects. They see this as an exciting time for the industry and are looking forward to fresh growth and success on a global scale. Moreover, they are confident that they can compete against new entrants and satisfy evolving consumer trends (see Figure 1).

Europe’s automotive companies are confident about their ability to compete

Ability to satisfy changing customer preferences

Ability to compete against new entrants

Growth prospects for your organisation

Ability to enter new markets

82%

77%

75%

69%

Figure 1. Q: Please indicate your level of confidence in the following over the next 12 months

Causes of upheaval

As we explore in this report, thriving in today’s industry depends on being able to identify opportunity, think differently, and rapidly shift focus. Seven in 10 respondents tell us that, in their entire career, they have never been under as much pressure to innovate as they are today.

Why do they feel that way? Our research tells us that the upheaval in today’s car industry is coming from three main sources: disruptive consumer demand, the rise of new competitors, and shocks to the core business model.

1. Disruptive consumer demand As a result of widespread social trends, consumers have started to reassess what they look for in their vehicles. In increasingly pedestrianised cities, where parking is scarce, the prospect of a driverless car – which can park itself at a distance then return to its owner when needed – is a case in point. Matt Windle, Executive Director, Sports Car Engineering, Lotus, explains why these vehicles are a good match for modern urban living. “There are condominiums being built in London that house thousands of people but have no facilities for cars,” he says. “The council will say, ‘Well, the

36%Expertise and fresh ideas from another industry, such as technology or aviation

36%Pioneering use of new technology (such as in driverless and electric vehicles)

35%Innovation within the manufacturing process (using new materials, adopting 3D printing)

35%Can produce vehicles more cheaply

27%Flexibility in the supply chain

Four in 10 European respondents are concerned about their competitors’ agility

Ability to respond more quickly to customer demand

39%

Figure 2. Q: What specific advantages do you worry about your competitors having over your business?

supermarket is a minute’s walk away and a hundred-odd buses go by, so what do you want a vehicle for?’ But if you look at the profile of people living there, a high percentage will tell you that a vehicle is an important part of their life.”

At the same time, as consumers take more responsibility for their personal environmental impact, automotive companies are under pressure to respond. With that in mind, we find more than seven in 10 respondents developing electric or hybrid vehicles (72 %) and pioneering new approaches to fuel efficiency (70 %).

7

8

If we assume that demand for traditional combustion-engine-driven cars has peaked, brands need to develop desirable new vehicles at pace. Among our respondents, about half (52 %) expect the market to be disrupted by a revolutionary new vehicle in the next few years. Others fret about their competitors’ ability to respond to customer preferences and deploy emerging technology in their vehicles (see Figure 2).

“The trend for buying electric vehicles has been incredible,” confirms Renato Bisignani, Director of Communications at Formula E Holdings. “Sales have increased by approximately 1,000 % within the last eight years and continue to rise quickly.” Furthermore, he expects future sales to be supported by a reduction in battery prices, an increase in public charging outlets and ongoing innovation in the cars themselves. “In our own Formula E Gen2 cars, we have been able to double the energy capacity of our batteries – they now have double the range and double the performance,” he says.

2. The rise of new competitorsAutomotive is a truly global industry, and European brands have long competed against rivals from Asia and the US. Today, slow-moving incumbents are at a disadvantage, and the conditions are set for start-ups and new entrants to seize market share.

Some of these new competitors have been compelled by government stimulus, as the Product Development Director at a multinational Italian tier-1 system supplier explains. “The Chinese car market is directly driven by government,” he says. “When the Chinese government said that 20 % of its economy needed to be electric in five years, automotive brands knew which direction they needed to move toward.”

Even outside China, it is US companies like Tesla and Japanese brands like Nissan LEAF and Toyota Prius that sell the most electric vehicles in the world,1 despite high-profile European launches such as the Jaguar XJ and BMW’s iX3.

It is a similar story for autonomous vehicles, but here the threat is not just from competitors from other regions, but also from players from outside the industry. European companies will soon be competing with the likes of Alphabet’s Waymo and start-ups Aurora and Zoox.2 This is a daunting prospect (see Figure 3).

Aram Kradjian, Chief Research Engineer at Jaguar Land Rover, groups together the key automotive disruptors – including Tesla, Uber and Waymo – as autonomous, connected, electrified and shared (ACES). “Any new

For Europe’s car-makers, there are new competitors on the block

19% 22%

52%28% 26% 30%

53%51%

18%

27%17%

31%

31%

14%

29%

42%

69%

39%

Non-automotive sectorSouth East AsiaEast Asia

Latin AmericaNorth AmericaEuropean Union

Concerned Neutral Not concerned

Figure 3. Q: How concerned are you about competition from the following regions and sectors?

disruption will continue to be in these areas, so that is primarily the driver of innovation activity at Jaguar Land Rover,” he explains.

3. Shocks to the core business model One of the consequences of these changes is the impact on the traditional business model. Although firms will continue to earn revenue by selling vehicles to customers, it is a stream that may need to be supplemented by other initiatives – and, in some cases, that will demand a reimagining of the business model.

It is telling, for example, that 56 % of respondents to our survey expect consumers to start opting out of buying cars within the next few years. This continues a consumer trend for sharing products3 that will grow as driverless vehicles become widespread and the mass-car-buying baby-boomer generation gets smaller.4 As that happens, consumers will expect to access vehicles through subscription plans or new ride-hailing models.

“In the next five or 10 years, consumers will be renting cars or sharing ownership,” says Sebastian Schelper, Founder & President of start-up QBrio and the creator – before taking sabbatical from BMW – of BMW-Innovationswerk, which focused on predicting consumers’ future needs. Schelper adds that the shift started in the very regions – that is, the US and Asia – that most threaten Europe’s position. “The attention is shifting from the person behind the wheel to the person in

1 https://autowise.com/electric-cars/2 https://www.ft.com/content/dc111194-2313-11e9-b329-c7e6ceb5ffdf3 https://www.cass.city.ac.uk/faculties-and-research/research/cass-knowledge/2017/march/liquid-consumption-why-the-consumer-increasingly-prefers-access-to-goods-and-services-over-ownership4 https://www.forbes.com/sites/forbesfinancecouncil/2017/11/30/as-the-auto-industry-slows-targeting-baby-boomers-may-be-the-most-effective-strategy/#28442ee97aa9

the back seat due to the massive success of ride-hailing services like Lyft and Uber in the US and Didi in Asia.” Meanwhile, the tier-1 Product Development Director we spoke to anticipates a world where sharing plans afford consumers even greater flexibility. “I see the possibility of moving toward a real car-sharing scenario, in which you use certain vehicles for the working week and then rent an SUV or sports car for the weekend,” he says.

“We could provide services to people who don’t want to own our cars but want access to them.” Matt Windle, Executive Director, Sports Car Engineering, Lotus

Many respondents are optimistic about these developments. UK-based Matt Windle is one of them. “We could provide services to people who don’t want to own our cars but want access to them,” he says. “It’s a great opportunity for Lotus to partner with start-ups that can help us provide rental, concierge or short-term-lease services to customers. If you’re a Lotus owner and you go abroad, we could provide you an equivalent product. When you’re abroad, you could rent out your UK-based car.”

If car-makers can take a risk on these new approaches, the opportunity is vast. That opportunity does not only lie in sharing models, but also in consumers’ growing interest in personalization, in-car entertainment, and new streaming services.

Innovation in action – but is it enough?As the industry evolves, it is reassuring to find Europe’s car-makers increasing their focus on innovation: six in 10 (61 %) accept that they need to upgrade their innovation activity. We also see significant numbers investing in and experimenting with bold new initiatives (see Figure 4).

However, are Europe’s car-makers doing enough, considering the scale of the upheaval under way? Are they overconfident – complacent, even – in their ability to outsmart the rising stars of Asia and Silicon Valley? Are the successes of the past giving them a false sense of security?

Many are investing in transformation – but investment in driverless vehicles lags behind

Exploring new possibilities in electric or hybrid vehicles

Pioneering new approaches to fuel efficiency

Upgrading the entire production process

Experimenting with new business models

Upgrading the entire design process

Developing driverless vehicles or parts for driverless vehicles

72%

70%

70%

67%

67%

53%

Figure 4. Q: Are you dedicating time and resources to the following initiatives?

9

About half of respondents say the industry is unprepared for new competitors, supply-chain disruption, and a shist to Asian and US markets

are prepared for a significantly stricter environmental regulation

69%are prepared for consumers turning against automotive brands due to

concern about emissions

65%

are prepared for one of Europe’s iconic brands going

out of business

61%are prepared for consumers

increasingly sharing cars rather than buying them

56%

are prepared for a new player disrupting the market with a

revolutionary new kind of vehicle

53%are prepared for a major loss of Europe’s business to Asia

and the US

51%

Figure 5. Q: Are industry players prepared for the following threats?

After all, as we see in Figure 5, plenty of respondents believe that their peers are unprepared for what is to come. Are they missing the gaps in their own preparation?

With this in mind, Section 2 looks into the specific innovation-related challenges that companies in Europe are grappling with.

Q: Please indicate your level of confidence in the following over the next 12 months

Growth prospects for your organisation

Ability to compete against new entrants

Ability to satisfy changing customer preferences

71%

86%

78%

78%

77%

77%

71%

80%

75%

78%

81%

88%

79%

87%

82%

UK Italy Germany France Total

Respondents from Italy and France are the most confident overall in their prospects. The UK and Germany are more reserved about their ability to compete and respond to changing customer demand

A time of change – key differences by country

10

The UK stands out for its concerns about disruptors bringing new technology into the market. Firms in the country worry about their rivals’ level of access to unfamiliar expertise and manufacturing innovation

Ability to respond more quickly to customer demand

Expertise and fresh ideas from another industry

Pioneering use of new technology

Innovation within the manufacturing process

Q: What specific advantages do you worry about your competitors having over your business?

45%

44%

38%

22%

39%

41%

32%

35%

36%

36%

42%

30%

38%

29%

36%

45%

32%

28%

40%

35%

UK Italy Germany France Total

11

Respondents from France consistently believe they are leading the way in bold new initiatives, while Italy and the UK do not have the same degree of confidence. Germany appears to be leading the charge towards driverless vehicles in Europe

Q: Are you dedicating time and resources to the following initiatives?

Developing driverless vehicles or parts for them

40%

54%

63%

53%

53%

Experimenting with new business models

62%

62%

68%

78%

67%

Upgrading the entire production process

65%

58%

75%

82%

70%

Pioneering new approaches to fuel efficiency

64%

76%

70%

78%

70%

UK Italy Germany France Total

Bumps in the road: innovation challenges

SECTION 2

The European industry risks missing the bus. Almost all European auto brands are struggling to define their orientation.Sebastian Schelper, Founder & President, QBrio, Inc.

Europe’s car industry is confident that it is rising to the challenge of a disrupted and rapidly evolving marketplace. And its automotive companies are investing in innovation and rethinking tried-and-tested approaches. This is to be celebrated.

Four roadblocks But that positive attitude is no guarantee of success, or even survival, in an unpredictable industry. To thrive, car-makers must overcome four obstacles: fear of change, an industry-wide talent shortage, increasingly strict regulation, and a lack of agility in the marketplace.

1. The fear factorIt is not surprising that Europe’s car-makers have confidence in their businesses. Despite healthy competition from Asia and the US, Mercedes, BMW, Volkswagen, Porsche, and Audi all feature among the 10 most valuable car brands in the world.5

But tomorrow’s car industry will be very different. The strengths that put Europe’s car-makers ahead – particularly their ability to produce unbeatable combustion-engine-driven cars – will no longer be enough. They will have to co-exist with new capabilities in non-traditional vehicles and services, and with the

ability to rethink the role that cars play in people’s lives. “When it comes to powertrain and transmission, German and other European car-makers are leading the market,” says a Senior Manufacturing Engineer at Daimler AG. “However, many customers – especially in the Chinese market – want a more connected vehicle, with big-screen displays, a Wi-Fi interface and other digital technologies. The fact that European car-makers cannot meet these demands fast enough is going to be a problem for them.”

“Many customers want a more connected vehicle, with big-screen displays, a Wi-Fi interface and other digital technologies.” Senior Manufacturing Engineer, Daimler AG

The industry needs to accept that it has vulnerabilities that did not exist until recently, and it needs to be willing to change. Worryingly, however, many car-makers appear to think their businesses are “disruption proof”, and that change may not be necessary.

It should be a cause of real concern, for example, that seven in 10 (69 %) say that their businesses can

125 https://brandfinance.com/images/upload/brand_finance_auto_tyres_100_report_2018_locked.pdf

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withstand any change in the global automotive industry. And a little over half (51 %) say that their peers are largely complacent about market disruption; their peers may be thinking the same about them.

Asked why they think they can withstand any change in the industry, respondents point first to their technology capability – something that will face tough competition when more Silicon Valley firms enter the market. Respondents also believe that their brand strength will help them through – a sentiment once shared by Saab, HMV and print newspapers across Europe.

“If you look back to the eighties, nobody would have thought IBM would disappear from the forefront of technology,” notes Dirk Rathsack, Commercial Vice President, EMEA Protolabs. “Look back to the nineties, and everyone assumed that Nokia would be making cell phones forever. It’s hard to imagine a household-name German car brand disappearing, but it could happen.”

And respondents are satisfied in their abilities across most key areas – whether responding to consumer trends or scaling up a new product (see Figure 7). Yet satisfaction, by its nature, encourages inertia – it will hamper their ability to innovate at high speed. Moreover, just one in five (21 %) says their organisation has fully accepted the need to rethink the core business model. It is urgent that car-makers challenge that kind of hesitancy around innovation.

Half of respondents expect their technology to help them withstand industry changes

Technology development capability

Strength of our brand

We can rapidly develop and roll out innovation

Farsighted leadership

Robust governance

Loyal customer base

Resilience in the supply chain22%

34%

32%

41%

38%

40%

51%

Figure 6. Q: Why are you confident your organisation could withstand any change in the global automotive industry?

When it comes to their ability to innovate, a sense of satisfaction is pervasive among respondents

Discontinue an unsuccessful product without suffering a negative impact (fail fast)

54%32%14%

Achieve first-mover advantage in the market

61%27%12%

Take a new innovation to market

68%26%6%

Innovate at speed (from ideation to execution)

26%7% 68%

Measure the ROI on innovation

71%20%9%

Rapidly scale up on new innovation

69%24%7%

Incorporate customer insight early into the design process

74%20%5%

Unsatisfied Neutral Satisfied

Figure 7. Q: How satisfied are you in your firm’s ability to do the following?

13

points out, the problem is compounded when we factor in the threat from competitors outside Europe. “Their society as a whole is much more open to connected technologies,” he says. “At the same time, in Europe, there are young people with innovative ideas, but there are also old people who have the power to block those ideas.”

It’s worth noting, however, that not everyone agrees that automotive firms are facing a talent shortage. This may suggest that the challenge is more pronounced in some parts of the industry than it is in others. “I don’t think there is a talent shortage for innovation in the industry,” asserts Renato Bisignani at Formula E Holdings. “Automotive companies have much more exciting products than technology firms.”

3. The changing rulebookEuropean car-makers are subject to regulation that simultaneously encourages and limits innovation. Environmental regulation is a good example. Climate change and emissions have been on the policy agenda for several decades, but efforts have ramped up significantly in recent years. From 2021, phased in from 2020, Europe’s car-makers must ensure that their cars emit, on average, less than 95 grams of CO2 per kilometre.6

Respondents are feeling the effects of policymakers’ efforts: they expect environmental regulation to become significantly stricter in the next 12 months, before decreasing over the following two years (see Figure 8). They also expect consumers to become more forgiving of their environmental impact in the years to come – probably on the assumption that policy measures will

European automotive companies expect environmental regulation to grow stricter in the coming year

Environmental regulation will become significantly stricter

55%35%

Concern about emissions will make consumers turn against automotive brands

48%37%

15%A major natural catastrophe will disrupt the global supply chain

37%

Next 12 months Next 3 years

Figure 8. Q: Please specify which events you consider likely to happen in the next 12 months, and also those that you consider likely in the next 3 years.

2. A crisis of talent The most important ingredient in innovation is the ability to come up with new ideas and make them work. Unfortunately for car-makers, the direction of travel for much of the brightest talent in recent years has been away from traditional industries and towards Silicon Valley.

About half of respondents (48 %) say that talent is harder to come by than it was 10 or 20 years ago. Respondents are also less sure about their ability to source talent than they are about other areas of their business: eight in 10 say they can comfortably satisfy customer demand, but a much more modest 67 % say they can secure the talent they need. The latter jeopardizes the former: there is only so much a company can do to satisfy its customers if it doesn’t also have the right people onboard.

“Ultimately, innovation comes down to diversity and inclusion. A diverse workforce – in terms of gender, culture, background, experience, different demo-graphics – drives innovation.” Aram Kradjian, Chief Research Engineer, Jaguar Land Rover

As the Senior Manufacturing Engineer at Daimler AG

146 https://ec.europa.eu/clima/policies/transport/vehicles/cars_en7 https://www.telegraph.co.uk/finance/newsbysector/industry/11923471/Volkswagen-emissions-scandal-has-shattered-trust-in-car-makers-say-MPs.html

158 https://www.volkswagen.co.uk/e-mobility/en/id-family/id.html

help to rebuild the public’s trust in the industry, which has suffered since the Volkswagen emissions scandal.7

A potential complication here is that one in three respondents anticipates a major natural catastrophe within the next three years, compared with 15 % who expect one in the next 12 months. In light of consumer concern about climate change, a severe weather event may create a new wave of public criticism. That will make the prospect of ever-stricter regulation and controls more likely and will put even greater pressure on innovation teams, which will reduce their flexibility.

“How laws will impact on the data collected from connected vehicles is another challenge to innovation.”Product Development Director, multinational tier-1 system supplier

But environmental regulation is not the only compliance-related challenge that car-makers face. There is currently a lack of clarity about regulation regarding autonomous and connected vehicles. “It is not clear when regulations will come into place,” says the Product Development Director at a multinational tier-1 system supplier. “This is having a negative impact on research into autonomous and connected vehicles in Europe. How laws will impact on the data collected from connected vehicles is another challenge to innovation.” And there is another structural factor to consider: car-makers have to plan for the

impact of populist trade restrictions and tariffs on their supply chains.

4. Speed trap “The speed of innovation is the biggest challenge for traditional players,” says Protolabs’ Dirk Rathsack. “The innovation cycle for a traditional car manufacturer is normally quite long, while the new players can do this a lot faster.”

Respondents to our survey are broadly upbeat about their innovation capabilities overall, but they show markedly less confidence when it comes to their agility and speed of response in the marketplace.

If we look again at Figure 7 (p. 13), for example, respondents rate their ability to claim first-mover advantage and to fail fast much lower than their other innovation capabilities. This is worrying at a time when the market is being disrupted by new entrants that may be able to respond rapidly to evolving consumer trends.

Our research suggests that Europe’s car-makers are more comfortable following standard innovation processes, or updating their branding, than dramatically changing course. The new look and feel of some new electric models,8 for example, suggests that they are depending more on rebranding than on rethinking core processes. This is understandable: established manufacturing businesses rely on large and inflexible infrastructure, which can make them wary of investing in new, unproven innovations.

8 https://www.volkswagen.co.uk/e-mobility/en/id-family/id.html

Bumps in the road – key differences by country

Respondents from France and Italy are the most satisfied in their innovation capabilities, particularly when it comes to speed of response. The UK is less positive, with less than half confident in their ability to fail fast

Q: How satisfied are you in your firm’s ability to do the following? [Showing ‘satisfied’ only]

Take a new product to marketInnovate at speed (from innovation to execution)

Achieve first-mover advantage in the market

60%52%

61%71%

61%

52%78%

65%93%

68%

Discontinue an unsuccessful product without suffering a negative impact (fail fast)

62%76%

65%78%

68%

42%58%

56%64%

54%

The UK is most alarmed overall about the changes ahead – whether relating to disruption, environment or regulation. Italy is strongly anticipating car-sharing to take off, while Germany is more circumspect

A new player will disrupt the market with a revolutionary new kind of vehicle There will be a major loss of Europe’s business to Asia and the US

One of Europe’s iconic car brands will go out of business due to global competition

Q: Please select the events that you consider likely to happen in the next three years

Consumers will increasingly share cars rather then buy them

62%

43%

62%44%

47%56%

52%

72%

58%56%

64%44%

50%47%

52%

66%46%

38%44%

48%

UK Italy Germany France Total

16

Speed is of the essence: a new way forward

SECTION 3

We are only looking to introduce new technology and components if they add value for the driver. New services are also considered if they improve customer service.”Huw Owen, Director, Future Mobility & Strategic Partnerships, Lotus

To compete with unfamiliar disruptors and seize the opportunities created by new vehicles and emerging trends in mobility, car-makers have to get faster. They know they can innovate – they have led the world for decades in the development of combustion-engine-driven cars – but now they need to do it continuously and rapidly.

Four acceleratorsWe have identified four steps or “accelerators” to help car-makers innovate with the requisite urgency. This will enable them to guard against complacency and maintain their industry-leading position for the years to come.

1. Ignite the innovation culture Automotive is an industry where innovation is routinely listed among companies’ core values, so it takes extra commitment for a business to out-innovate its rivals. But many European car-makers are reluctant to challenge the status quo and make fast, decisive changes. That requires a culture of innovation – particularly for firms to get behind the most radical initiatives.

As Figure 9 shows, only a minority of firms has fully embedded that kind of culture. For it to take hold, it is our view that the CEO needs to take ultimate responsibility for innovation. This does not mean that they have to get involved in every product development meeting, but they should routinely champion innovation and celebrate change.

Just 35% of respondents have embedded an innovation culture

Appetite to consider rethinking the core business model

Appetite to experiment with new materials in manufacturing

Innovation is led by CEO

A firm-wide culture of innovation

15%

9%

24%

29%

26%

29%

29%

35%

36%

25%

30%

21%

28%

20%

35%6%

Not in place In the early stages of development

Fully embedded practiceRecently introduced this practice

Figure 9. Q: Are the following in place in your organisation?

17

“

Figure 13. Q: Which of the following new materials are you exploring or incorporating in the manufacturing process?

18

2. Embrace additive manufacturing at scale3D printing and other additive manufacturing techniques help firms to prototype and test new ideas faster than ever before. As we saw in Section 2, automotive firms are struggling with agility, which is often due to the inflexibility of their legacy infrastructures. So, using new technologies to experiment at scale with new approaches could have far-reaching benefits.

As Figure 10 shows, different countries have adopted additive manufacturing to different degrees, with French brands the pioneers. Brands elsewhere would do well to catch up: as shown in Figure 11, additive manufacturing

French automotive companies are most likely to be significant users of additive manufacturing technologies

Additive manufacturing has become a significant part of our manufacturing process

We have carried out trials but not adopted

We have incorporated additive manufacturing to a limited extent

We have no experience of additive manufacturing

24%

52%

52%

29%

40%

21%

2%

3%

2%

8%

24%

10%

18%

40%

22%

31%

36%

25%

29%

29%

UK Italy Germany France Total

Figure 10. Q: Has your organisation incorporated additive manufacturing technologies, such as 3D printing, into the manufacturing process?

Additive manufacturing is helping automotive firms in four vital areas

Improve efficiencies in the manufacturing process

Respond more quickly to competitors

Develop prototypes more rapidly

Provide greater personalisation to customers

13%

23%

8%

19%

47%

44%

54%

48%

39%

33%

36%

32%

No improvement at all It’s too early to say Significant improvementSlight improvement

Figure 11. Q: In what ways has additive manufacturing improved your ability to do the following?

has made a significant contribution to innovation, helping firms develop prototypes more rapidly (90 %), provide greater personalisation (80 %) and – crucially – respond more quickly to competitors (77 %).

“We already use 3D printing for custom and prototype plastic components, and the next breakthrough may be in affordable 3D printing of metals,” says Jaguar Land Rover’s Aram Kradjian. He also explains that 3D printing allows for the production of complex components. “It’s something we are researching to support our innovation in the future, including applications in our manufacturing sites. One such example is with a 3D printed glove, designed to prevent musculoskeletal disorders.”

4. Experiment with new materialsBusinesses are using new materials – including graphene, nanoparticles, and polymer composites – to enhance fuel efficiency, improve sustainability, cut costs, comply with regulation, and ensure competitiveness.

Graeme Hackland, Chief Information Officer at Williams F1 Team, is optimistic about the potential for these materials. “We look at the technologies we have and ask where else we can apply our knowledge, such as with light-weight materials and their impact on energy efficiency,” he says. “If we can apply that knowledge to the world’s most interesting problems, then it will also be good for our business.”

There is, however, more that some businesses can do to make use of these materials. “I don’t see enough energy from car-makers to differentiate vehicles using new materials through weight reduction, with a view to creating a new class of vehicles in Europe,” says the Product Development Director we spoke to at an Italian tier-1 system supplier. “They could make very light, simple vehicles, perhaps just dedicated to the city – for commuting.”

Guillermo Salazar, Senior Resident Engineer at Volkswagen, also sees innovation around new materials, as a way to develop lighter vehicles – albeit with the caveat that any change inevitably brings process and skill-related challenges. “There are some automotive components that, in previous years, we were manufacturing with iron or steel, and as a result they were very heavy,” he says. “The focus now is to develop these parts with the same quality, of course, but with lighter materials.”

3. Bring in outside thinking As we saw in Section 2, the automotive industry is in a talent crisis. A long-term fix might be to create a culture that is so innovative it rivals Silicon Valley for its attractiveness (see ‘Ignite the innovation culture’, above).

But a more immediate solution would be to bring in innovation from outside – by tapping into an ecosystem, outsourcing innovation to suppliers, or forging partnerships with specialists. “It’s critical to be well connected externally, building strong relationships with suppliers, strategic partners and institutions to leverage new technologies and innovation,” says Aram Kradjian.

Another priority, especially when working with emerging and niche technologies, should be to bring in non-traditional talent. In Section 1 we saw how social trends are influencing consumer decision-making. Car-makers can attempt to get ahead of these trends by seeking out anthropologists, futurists and other unconventional thinkers. As Figure 12 illustrates, the UK and France are making more progress in this initiative than Germany and Italy.

19

Automotive companies across Europe are taking different approaches to driving innovation

Tapping into the ecosystem of niche technology providers (such as futurists, anthropologists)

Horizon scanning/scenario planning

75%

54%

43%

38%

53%

69%

38%

20%

51%

42%

UK Italy Germany France Total

Figure 12. Q: Which of the following approaches are you taking to improve innovation?

Respondents are not making the most of new materials

Glass fibre reinforced plastic

Carbon fibre reinforced plastics

Polymer composites

Graphene

Nanoparticles as functional fillers

59%

54%

53%

24%

19%

The once-in-a-generation opportunity

CONCLUSION

Our findings send a clear message to Europe’s car industry: customer preferences are changing fast, the industry is transforming itself to satisfy demand, and businesses that cannot keep up face disruption and a wholesale loss of business.

And yet, the situation is far from bleak. If companies can use innovation to their advantage, they face a once-in-a-generation opportunity to win new market share.

It’s also a story that is very much under development. As Dirk Rathsack, Commercial Vice President, EMEA Protolabs explains, car buyers in the next 10 years will have a different mindset and understanding of mobility than the car buyers of today.

“This is going to be completely different consumer behaviour than what we have seen or currently see,” he says. “They’re going to make different decisions compared to my generation or even the next couple of generations after me. They will have a different understanding of what the world is about and what is important more generally.”

20

As they approach the future, car-makers should bear in mind some of the key takeaways from our research:

The old certainties are gone – it’s time to embrace a new reality. Consumers increasingly want electric and driverless cars, and their preference may well be to share rather than buy vehicles in the future. For car-makers, the right response is enthusiasm for the opportunities ahead. This means embracing new technologies and developing new vehicles and business models at pace.

Avoid the sunk-cost fallacy. In recent decades, Europe’s car-makers have invested or “sunk” billions in developing powerful combustion-engine-driven vehicles. As a result, there may be reluctance – even fear – when it comes to investing in unfamiliar avenues. Hesitation by incumbents can, however, lead to displacement by new entrants. There is no such thing as a disruption-proof company.

The industry is in talent-crisis mode. Simply investing in technology is not enough; success relies on creative minds that can anticipate and satisfy changing customer demand. Part of the long-term solution relies on getting an innovation-friendly culture in place. More immediately, brands may look to new partners and suppliers to provide the skills they need.

Speed is everything in the innovation race. In the future, industry executives will look back to the early 2020s and marvel at just how slowly the market was evolving. Simply put, the industry will only get faster and car-makers urgently need to understand how they can speed up their innovation activity – whether failing fast, shifting direction or seizing the brightest new opportunities.

About the research

The data in this report is based on a telephone survey of 300 senior executives in the European automotive sector, which was carried out with Longitude in summer 2019. We also conducted in-depth interviews with seven thought leaders and senior executives.

Respondents’ regions Job titles

• Chief Information Officer

• Chief Technology Officer

• Chief Innovation Officer

• Chief Strategy Officer

• Senior Strategy Manager

• Chief Engineer

• Senior Manufacturing Manager

• Senior Research Engineer

• Senior Technology Manager

• Head of Design

• Senior Designer

• Head of Innovation

• Head of IT/Technology

• Director/VP of IT/Technology

• Head of Supply Chain

• Senior Supply Chain Manager

• Head of Project Management

• Senior Project Manager

• Head of Research

• Head of Manufacturing

15%

28%

17%

40%

Organisation types Total annual revenue

27%

73%

Automotive brand Automotive parts manufacturer $1bn or more

$400m to $499m

$300m to $399m

$200m to $299m

$100m to $199m

$600m to $999m

$500m to $599m

19%

7%

12%

6%

15%

20%

21%

22 23

Northern Europe

Halesfield 8, TelfordShropshireTF7 4QNUnited KingdomP: +44 (0) 1952 683047E: customerservice@protolabs.co.uk

Sickla industrivag 3, 131 54 NackaSweden P: +46 (0) 8408 391 86E: customerservice@protolabs.se

Southern Europe

Savoie-TechnolacParc Ouragan Bâtiment CRue du Lac Majeur – BP 33173377 Le Bourget du Lac CedexFranceP: +33 (0)4 56 64 80 50E: customerservice@protolabs.fr

SpainP: +34 (0) 932 711 332

Via Biandrate, 2428100 NovaraItalyP: +39 0321 381211E: customerservice@protolabs.it

Central Europe

Kapellenstraße 1085622 FeldkirchenGermanyT: +49 (0) 89 90 5002 22F: +49 (0) 89 90 5002 90E: customerservice@protolabs.de

Alte-Neckarelzer-Straße 2474821 MosbachGermanyP: +49 (0) 6261 6436 947F: +49 (0) 6261 6436 948E: customerservice@protolabs.de

Blauänger 682438 EschenloheGermanyT: +49 (0) 8824 91033 0F: +49 (0) 8824 91033 95E: customerservice@protolabs.de