Recent reports suggest that fuel economy mandates, such as Corporate Average Fuel Economy (CAFE), may soon be implemented in more emerging markets, while the US is to impose tougher mandates for the long term.

• There have been conflicting reports on how China will set future fuel economy standards, but at present, minimum fuel economy standards are set for 16 different weight categories.  Plans for the next phase are to set tougher minimum levels for an averaged equivalent of 42.2 mpg (5.6 l/100 km) by 2015 (an 18 percent improvement), with reports suggesting an averaged equivalent of 52.3 mpg (4.5 l/100 km) by 2020.
• India will also be planning a fuel economy mandate on car makers, also with varying limits depending on the weight of the vehicle.  This will replace the current Vehicle Excise Duty that varies on the size and engine capacity of the vehicle.  The change marks a shift in government policy, to persuade car makers to use technology to raise efficiency than merely to force consumers to buy smaller vehicles.
• The US Department of Transportation and the Environmental Protection Agency are planning to raise US CAFE levels to 62 mpg by 2025, having recently implemented the 35.5 mpg level for 2012.  Consultations are under way for a possible, additional carbon dioxide (CO2) emission mandate.
• Japan and Korea have also implemented fuel economy mandates based on vehicle footprint, while Europe has corporate average mandates on CO2 emissions.

Should more fuel economy mandates be implemented in emerging markets, this will mean that vendors have to quickly prepare to offer fuel efficiency systems at a lower cost and in greater volumes than is presently been offered to mature markets.

• Stop-start is now being featured on almost every new model launched in Europe, since the summer of 2010, realizing greater volumes and cost reductions through economies of scale.  According to the Strategy Analytics System Demand Forecast (Q3 2010), penetration rates for these systems are rising rapidly.
• As a result of these and other improvements, OEMs, such as FIAT and Toyota, are likely to lead the way in meeting the first European CO2 target of 130 g/km by 2012.  This is according to a report on new cars manufactured in 2009 by the European Federation for Transport and Environment. 
• The recently-launched tandem starter-alternator from Denso promises a more compact solution over current belt-driven systems.  Denso’s new stop-start starter motor is also lighter than its predecessor.
• Johnson Controls and its subsidiary, VARTA, are offering a more cost effective Enhanced Flooded Battery (EFB) as well as their current Absorbent Glass Mat (AGM) battery for stop-start applications.
• In North America, the General Motors eAssist mild hybrid system was previewed on the Buick LaCrosse. It uses a smaller battery pack and electric motor to realize a 25 percent fuel saving over the conventional four-cylinder version.  As more unit sales come from China than from the US for GM, then eAssist may see wider deployment there.
• At the same time, more hybrid and electric concepts are being previewed.  Chinese domestic car makers, such as Jianghuai (JAC), have launched EV models on the back of the Chinese government’s US$15bn plan to promote EV technology.  As consumers have less disposal income to purchase vehicles in China than elsewhere, then developments in hybrid and electric vehicles will be more cost driven.  For further details, go to the Strategy Analytics report, China Aims High For Plug-In Electric Vehicles.

This analysis is drawn from the latest Strategy Analytics EV/HEV Technologies Supply & Fitment Database and Hybrid Technologies Legislation/Support database.

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. 

On June 4th, KPIT Cummins and Bharat Forge announced the formation of a joint venture to offer the REVOLO hybrid powertrain system to the Indian aftermarket.  Strategy Analytics has analyzed the sales potential of this system.

• KPIT Cummins are specialists in product engineering design and is one of the world’s leading automotive software developers.
• Bharat Forge is a division of the Kalyani Group, a leading manufacturer of engine and chassis components. 
• Both companies are based in India and have considerable operations in both their home and export markets.

The REVOLO system is a parallel hybrid solution that can be installed to the crankshaft of the internal combustion engine by an aftermarket dealer, in a minimum of four hours.  It can even be installed to engines that do not have an Engine Management System (EMS) and engines fuelled by carburetors.  REVOLO is a mild hybrid system with a small 15-22 hp (11-16 kW) AC induction motor-generator and so it cannot propel the vehicle on electric power alone, but offers torque assist, brake regeneration and engine stop-start.  Its simplified design minimizes the need to make modifications to the host vehicle, just requiring the addition of a small battery pack and various sensors.  The battery can either be a low-cost valve-regulated lead acid or a lithium-ion version, both capable of recharging from an external power supply. 

• REVOLO is being retailed at Rs. 65,000-145,000 (US$1,380-3,090) fully fitted.
• Some 11 patents have been filed for this system.
• The system, fitted to vehicles equipped with an 800 cc gasoline engine, an 800 cc diesel engine and a 1.4-liter gasoline engine, was tested by the Automotive Research Association of India (ARAI).  It confirmed that the REVOLO system enhanced fuel efficiency by more than 40 percent. Furthermore, under city driving conditions the increase in efficiency had exceeded 60 percent and that reduction in Greenhouse Gas (GHG) emissions had exceeded 30 percent.
• According to Ravi Pandit, Chiarmand and Group CEO of KPIT Cummins, “it will give vehicle owners the option of upgrading their vehicles to a higher level of fuel efficiency and performance, without the expense of having to buy a new one”.

For its initial launch, the sales potential for REVOLO is mainly positive.  Advantages for Indian deployment include:

• The relative ease in which this system can be retrofitted to any vehicle, with all electronics and software algorithms integrated into the module.
• The relatively low cost (when compared to other hybrid systems), thus lowering barrier to consumer acceptance and possibly enabling a faster return on investment.
• The increased level of efficiency, as confirmed by the ARAI tests.  Most driving by passenger cars in India is conducted on urban roads at low speed that would benefit from a stop-start system.  The same driving conditions may exist in other emerging markets.
• It could target deployment for vehicles that are the least efficient and most polluting currently on Indian roads – namely those not benefitting from electronic powertrain control and fuel injection.
• It negates the need for costlier new vehicle purchases (and thus ties-in with KPIT Cummins’ involvement in supporting used car sales and car servicing with CLICKSERVICESMILE.com).
• For vehicles with larger than 1.2-liters gasoline and 1.5-liters diesel engines, the hybrid system could also bring about a reduction in vehicle excise duty, reduced from 20 to 10 percent.

Concerns for REVOLO include:

• The system’s highest cost level (US$3,090), as the system may have to compete against purchases of entire, new less-polluting vehicles, such as the Tata Nano priced at around US$2,500.
• That in certain emerging markets, governments have stabilized fuel prices and so lengthens the payback period for owning a hybrid vehicle.

Depending on the success in the aftermarket, discussions with OEMs may lead to further success for REVOLO.  To see the latest Strategy Analytics forecast for OEM hybrid powertrain demand, please go to the Automotive Electronics System Demand Forecast 2008 to 2017: Main Data Tables. 

Strategy Analytics has recently updated its Advanced Entry and Start System Supply and Fitment Database.  It revealed increased interest for Passive-Entry-Go (PEG) systems in the emerging markets, in particular from Chinese car makers following model launches at the 2010 Auto China (Beijing) show.  The updated Advanced Entry and Start System Supply and Fitment Database is now available from the Strategy Analytics website.  The new entrants in the Advanced Entry and Start System Supply and Fitment Database include various new models launched at the 2010 Auto China show.

• BYD’s new models have been deployed with PEG systems.  They include the electric minivan E6 now being offered to fleets, and the gasoline-driven G3 compact sedan.
• Geely also announced on May 02, 2010, that its new Emgrand EC8 mid-size sedan, among its new model line-up, will come with a PEG system.

Furthermore, joint venture car makers linked to global OEMs are also offering PEG systems, as well as other electronic systems.

• The deployment is not confined to high segment models like the Buick LaCrosse luxury sedan, but also the compact segments such as the Chevrolet Cruze.  Both models are assembled in China by Shanghai-GM.
• The Chevrolet Cruze is also being assembled in India and Korea by General Motors.  The PEG feature will also be offered to these markets, thus enabling a greater spread for PEG systems.

This strategy is in contrast to previous models assembled and sold in emerging markets, namely to reduce specifications in order to be more affordable.  The average Chinese consumer is not only more discerning than before, but has a higher disposable income and greater willingness to purchase vehicles with more features.  Recent information on the Chinese automotive market is available from the following Strategy Analytics reports,  Chinese OEMs: Rapid Advance In Quality Bodes Well For Automotive Electronics and Chinese OEMs Fast Catching Up On Powertrains.  Further updates in the Database include more car models assembled in Korea with PEG systems fitted.

• Renault Samsung Motors has PEG on its models, based on common platforms with the Renault Laguna and Nissan Teana.
• New models from the Hyundai-Kia group with PEG systems include the YF generation (MY 2010) Hyundai Sonata being assembled in Korea and in the United States.

Penetration rates and demand levels of PEG systems by region, and other types of entry systems, is available from the Strategy Analytics Automotive Electronics System Demand Forecast 2008 to 2017: Main Data Tables.  Finally, Delphi launched its new key fob in April 27, 2010 at the 2010 SAE World Congress.  It boasts two-way communication to approximately 1 kilometer (3,333 feet).  Using Bluetooth connectivity with the driver’s mobile handset, much of the vehicle’s systems can be controlled remotely through applications downloaded on to the mobile handset.  Near Field Communication (NFC) enables similar functionality for the European market.  Delphi’s new two-way communication fob can enable the driver to:

• Discretely locate the vehicle, with additional GPS support if beyond the 1 km RF range.
• Remote readings of vehicle diagnostics and thus provide warnings should the vehicle need servicing or repair.
• Remotely control infotainment systems prior to entering the vehicle, such as selecting radio channels.
• Remotely control operation of the doors, seat positions, sunroof and windows.
• Remotely start the HVAC system, to cool or to warm up the cabin, with temperature read-outs.
• Remotely start the engine to defrost windows and windshields.
• Warn of doors being left unlocked, and of the sunroof and windows being left unclosed.
• Warn of intruders either in the cabin or in the near vicinity of the vehicle through exterior and security cameras fitted to the vehicle.
• Warn of low fuel levels and low tire pressures, as well as electric vehicle support.

Further information on PEG systems is available from the Strategy Analytics report, Vehicle Entry and Go: Passive Systems Set To Challenge RKE, while information on the Delphi fob is available from the Strategy Analytics Automotive Blog, Delphi Smart Key Fob Enables App Access Without Subscription.  Model availability for PEG systems is beginning to expand beyond the mature markets and beyond the luxury segments.  This could lead to greater volume demand and result in lower cost and widespread demand for Passive Entry systems. 

• At present, the higher costs in purchasing PEG systems over the standard Remote Keyless Entry (RKE) systems has precluded widespread uptake from consumers.

As for two-way communication fobs, this is yet another functionality where the mobile handset has made in-roads into the automotive space.  Development of these systems has only just started, but in the future such systems will surely make an impact on the automotive industry.  Further information on mobile phones in the automotive space is available from the Strategy Analytics Automotive Blog, including articles such as InkaNet – Mobile-Based Infotainment Comes To Chinese Autos.

In association with DSK Toyota, KPIT Cummins has developed CLICKSERVICESMILE.com, an internet-based information system that will make car ownership easier for Indian consumers. 

The service aims to provide consumers with:

• Accurate information for fault detection.

• Locations of the nearest dealers for servicing.

• Ability to specify the time and date for servicing.

• Accurate estimates of servicing costs include retail prices for spare parts.

• Accurate information on vehicle data and service history, assisting the sales of used cars.

• Convenient methods of payment and accurate billing information.

The dealer pays a Rs 50,000-150,000 (US$1,100-3,200) fee a year, or in monthly instalments, but the consumer pays nothing.  The system is being trialled in Pune, India, but essentially this system could operate anywhere in the world and is later going to be rolled out to motorcycle owners as well.

This development is significant for the company as it is its first consumer-based product.

The reasons why are: 

• While its embedded software business to global players is guaranteed to grow (mainly in safety systems, efficient low-emission powertrains and infotainment), its business in the burgeoning Indian automotive industry has yet made much headway.  KPIT Cummins may receive more domestic business from vendors wanting to enter the CLICKSERVICESMILE.com market place.  In 2007, KPIT Cummins sales by region were US 61.9 percent, UK 29.2 percent and Rest of the World 8.9 percent. 

• The Indian car market is set to grow further with the recent arrival of the Tata Nano and other low-cost models, and thus expand the used car market as well - this will require a more convenient, safer and cost effective means of purchasing and servicing vehicles for consumers who are likely to be new to owning a car.  JD Power has forecasted an increase in Indian car production from 2.4m units in 2009 to 4.0m units in 2016. 

• For the OEM customer and for the dealer, CLICKSERVICESMILE.com gives it an advantage over rivals.  As electronic content grows in emerging market vehicles, so more specialised help is required from dealers.  KPIT Cummins' strength in automotive embedded software will enable it to offer dealers the expertise in dealing with this.

KPIT Cummins' industry-based approach and new vertical focus strategy have led to a consumer-based product as a means to tap into domestic demand for automotive embedded software. At present, around a third of KPIT Cummins' business covers automotive and over 90 percent comes from sales in the mature markets.  As a result of this approach, it is attempting to diversify its business geographically and to expand its automotive business further.

Strategy Analytics has published an earlier report on the Indian automotive market: http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3251 and on the low-cost car market: http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=4038.  Also its recent System Demand Forecast highlights demand levels for specific electronic systems in India and elsewhere: http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=5073.

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.