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China likely to break through in two auto tech areas

Joanne Jiu From Gasgoo.com| February 27 , 2009

China is playing an increasingly critical role in automotive industry globally, but very few new technologies now take place in the Chinese auto market. The market is still maturing and  faces similar challenges as other emerging countries.:intellectual property rights issues, including patents, commitment and support from OEMs, and OEMs' sourcing strategy. In what areas the new techonologies most likely occur in China?  Dean Miles, product segment leader, audio & infotainment, Visteon Asia Pacific believed China is  likely to make significant advancements in connectivity and environment / clean energy vehicles.

Gasgoo: A brief introduction of "market drivers" for new technologies applying in the automobiles. E.g., consumer desire for safer cars or government regulations… What's the driving force behind new car technologies in China?

China likely to break through in two auto tech areasDean Miles: Consumer preference is always a key driver for innovation. In fast-growing markets, consumer preferences change quickly. Visteon's market research ('2006 Consumer Research' and '2007 Mega Trends Research') shows that as the market matures in China, consumers' taste is becoming increasingly different than that of the North American or European consumers. Taking automotive electronics as an example, consumers want to see similar electronic trends in the car as available in the consumer electronics products market. They also want to connect their consumer electronics products to their cars, such as iPod, mobile phones etc.

Government regulations and initiatives are another key driver for innovation. For example, the European regulatory framework regarding the Global Warming Potential (GWP) of refrigerants has led auto suppliers to develop new components that will meet targeted standards. We expect to see more government regulations on environment and safety, which will play an increasingly important role in driving new technologies.

Finally, similar to all other industries, the competition itself can stimulate new technology and products. Car makers need to differentiate their different car models with higher end electronics features and perceived quality of the interiors to meet market demands.

Gasgoo: What are the hindering/ unfavorable factors for the fact that very few new technologies taking place in the Chinese auto market?

Dean Miles:  While China is playing an increasingly critical role in automotive industry globally, it is still maturing and as such, faces similar challenges as other emerging countries:

A few things that could be done to improve the drive for innovation:

-Increase intellectual property (IP) rights so that OEMs and suppliers are willing to further invest in R&D

-Regulatory incentives from the government, e.g. new regulations or awards on environmentally-friendly products/technology

-Visionary approach from OEMs and suppliers to invest in the latest technologies which may not yet be recognized by the market

-OEMs' sourcing strategy that leads to increased volumes, thereby increasing suppliers' interest in committing more resources and investment.

-Develop experienced Chinese engineers.

Gasgoo:  When could the ever-new automotive technologies be developed in China? And who would be the main player-joint ventures or domestic companies, OEMs or suppliers, universities or research institutions?

Dean Miles: New technologies are already being developed in China and, in fact, many of the new consumer electronics trends are originating in China. Visteon China Technology Center (CTC) has already developed and continues to develop new technologies for China and for global applications.

Automakers, auto parts suppliers, either through joint ventures, domestic or wholly-owned companies, as well as government, universities and research institutions all play a part in driving innovation, with automakers and auto suppliers taking the lead.

Increased export opportunities to other countries will drive innovation as automakers will need to develop different technologies for different market requirements.

The last few years saw a trend where auto parts suppliers developed advanced technologies to show automakers. As an example, in 2008, Visteon and 3M jointly developed the 'X-wave' concept car featuring more than 50 innovative technologies geared to enhance the driving experience. Given the new global market challenges the industry is currently facing, we expect to see more jointly developed technologies.

Gasgoo:  In what areas do you think new technologies could occur in China? (As for the four mega-trends-- safety, connectivity/telematics, environment/alternative and affordable cars) In your opinion, which area is most likely to make a breakthrough in China?

Dean Miles: China is most likely to make significant advancements in connectivity and environment / clean energy vehicles.

Consumer electronics components are now becoming a commodity and China is already a big manufacturer of electronics products. Furthermore, consumers' desire to stay and remain connected in their cars with their consumer electronics products, such as mp3 players, mobile phones etc. These factors combined make China a perfect ground for developing unique ideas.

China also is set to make great strides in the environment / clean energy sectors. The growing global attention given to finding solutions to environmental problems, and soaring oil prices, has led China to pay more attention to 'green' technologies. China has already stepped up its efforts by unveiling a plan earlier this month to subsidize the purchase of clean energy vehicles for public transport fleets in key cities. We expect the government to act as a catalyst to help the auto industry develop green technology.

Gasgoo:  The outlook and implications of new technologies to be developed or applied in China. What are the benefits, challenges and risks for companies in developing  new technology in China?

Dean Miles:  Developing and manufacturing for the largest growing market is one of the main benefits in developing new technology and products in China.

Similar to all the other emerging market, there are challenges and risks in the overall technology development environment: intellectual property rights issues, including patents, commitment and support from OEMs, and OEMs' sourcing strategy.

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