Recent Tier 1 design center openings in Asia suggest the market has moved eastwards to where car sales and production are growing.  Evidence of this trend, over the past year, can be seen in the latest Strategy Analytics "Tier 1 Vendor Regional Design Center Database": http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=5943.  Examples of new openings include:  China Bosch is to open a technical center and manufacturing facility in Changsha, Hunan, by 2012.Hangsheng-Intel joint venture will develop and supply of remote keyless entry systems from Shenzhen, Guangdong.Harman is to open two technical centers in Dandong, Liaoning and Suzhou, Jiangsu.

• Furthermore, new players in the global automotive industry have arrived, in the form of Delphi divestments: BWI (Beijing West Industries) - the former braking and suspension business; Nexteer - the former steering business was recently acquired by Pacific Century Motors.

India Denso is to open a technical center in December 2011 at its facility in Gurgaon, Haryana.  Japan Autoliv has recently expressed its intention for a possible acquisition in Japan.  Gentex opened its Kitakyushu technical center to offer electro-chromic mirrors and high beam assist systems to its Asian customers.

• Furthermore, Bosch has opened two software development centers in India (Bangalore and Coimbatore) and another in Vietnam by 2015.

Strategy Analytics has linked the increased R&D activity with growing car production in Asian markets: 

• According to JD Power, both sales and production volumes in China will increase dramatically - destined to become the world's largest market by volume. 
• India, a fellow emerging market, is also experiencing increased activity.  This includes: the launch of the market-specific Ford Figo and Toyota Etios models; the OEM expansions that have taken place with General Motors (engine plant in Talegaon) and Toyota (assembly plant in Bidadi) and those that have been planned by Ford, Kia and Maruti-Suzuki; as well as the Tier 1 vendors who will supply this expansion, such as new assembly plants from Autoliv and Brose.

Some renewed activity has also been observed in Japan and Korea.  Foreign Tier 1 vendors are making further in-roads at supplying Japanese OEMs, while Korean OEMs are keen to expand their market shares in Europe and North America.  As with Chinese OEMs, albeit on a larger scale, Korean OEMs like Hyundai-Kia are adding more electronic features.  The Strategy Analytics report "Chinese OEMs: Rapid Advance In Quality Bodes Well For Automotive Electronics", covers the rise in automotive electronic demand among Chinese OEMs: http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=5501, while worldwide electronics demand is covered by the "Automotive Electronics System Demand Forecast 2008 to 2017: Q3 Update": http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=5815.    While there is a rush to bring R&D capability in order to serve their customers' needs, Tier 1 vendors need to be aware that such growth will be more uncertain for 2011 - Incentives in certain markets will be curtailed and thus affect car production growth.  For example, the sales tax reduction for engine capacities below 1.6-liters will not continue in China beyond December 31, while the incentive for fuel efficient vehicles in Japan has already ended.    Strategy Analytics advises caution before vendors commit to further expansion. 

Strategy Analytics has been tracking the deployment of both types of stop-start systems and concludes that the modified starter-based system, mainly supplied by Bosch, is gaining the upper hand. 

Also because of increased interest from the emerging markets, Strategy Analytics has raised its forecast for all stop-start systems worldwide.

The reasons behind the changes to the market are:

• Consumer demand in the automotive market has shifted towards compact models, due to the recession and the "cash-for-clunkers" incentives that has made compacts better value for money.  Therefore, when purchasing a stop-start model, modified starters have become more attractive because of its lower cost and greater likelihood of deployment in the compact segment.

• The growing consumer demand for more fuel efficient models has raised the profile of efficiency sub-brands such as BMW's "EfficientDynamics".  As more OEMs join the bandwagon, so the desire to offer a model with stop-start increases.  Development of a model with a modified starter is usually shorter than for a model with a starter-alternator, thus enabling the rapid marketing of an efficiency sub-brand.

• Government incentives and mandates are putting further pressure on OEMs to bring in efficiency improvements to a higher level or to bring them earlier than previously planned.  For example, BMW is also implementing the modified starter system on six-cylinder mid-segment models as a more cost effective way in meeting the tough European mandates on carbon dioxide emissions rather than deploying costlier hybrid powertrains.  Through volume purchasing and from previous experience in the compact segments, BMW is hoping to deliver efficiencies that do not adversely impact its bottom line.

• Also such government measures are also being adopted in the emerging markets domestically, and not just to comply with the demands of an export market.  China is planning a corporate average fuel economy limit that is tougher than the one set in the US earlier this year.  Modified starters are ideally suited for emerging markets, being the more cost effective solution available. 

• Starter-alternators have found favor by only a handful of OEM customers: Daimler, PSA and Toyota.  Deployment has been limited to a few models, with wider PSA deployment only to commence next year.  Furthermore, the recently growing development of mild and full hybrid powertrains, such as the new Honda Insight, will raise competition for starter-alternators.

For clients wanting to see the full revised forecast on stop-start systems, please go to http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=5112 to download the relevant Insight report.

Figures just published by Strategy Analytics show that the surge in small car demand during 2009 has had a noticeable impact on the demand for automotive electronics. Government incentive programs around the world have fuelled a one-off boom in the sales of smaller, lower-cost vehicles, as the incentives on offer have typically been for a fixed amount, regardless of purchase price.  A €2000 discount is thus far more attractive on a €10,000 car than a €50,000 one. The result has been an interruption in the otherwise fairly smooth rise in the value of electronic control units (ECUs) fitted to vehicles, with the 2009 value essentially unchanged at just over $650. The incentive effect is expected to reverse next year, however.  With demand for small cars at such a high level in 2009, 2010 is likely to see sale of these vehicles fall back.  Coupled with the growing electrification of the powertrain and the increased sophistication of vehicles produced in fast-growing regions such as India and China, the average value of ECUs fitted to global light vehicles is expected to start growing again in 2010. While some effect on profits will be felt by car makers (there is typically a lower margin on smaller cars) it's the electronic tier ones and semiconductor suppliers that are feeling the full impact of the temporary slow down in electronics demand. Details of the full data table can be found here.