Don't want to be a Tier 0.5 supplier, not a good automotive supplier?
In the current automotive circle, parts suppliers are estimated to be embarrassed to go out if they do not say that they are in the transformation of Tier 0.5.
Major suppliers claim that they want to be Tier 0.5 of the present, in a recent industry forum, McKinsey summed up this as one of the three major trends in the Chinese auto market in 2025, McKinsey global director partner Guan Mingyu predicted: intelligent electric vehicle parts of the new army is ready to develop, "Tier-0.5" gradually popular.
01 Tier 0.5 is more advanced than Tier 1
If you search on the Internet, you will find that BorgWarner, Desay Siwei, Mobileye, Hive, Topu, Gecko Technology, Zhongqi Chuangzhi, Ekatong, Uisee Technology, Chase Technology and other suppliers are all rushing to the Tier 0.5 camp.
When asked what is Tier 0.5? Zhang Liqiang, general manager of Arte, explained to the reporter of China Automotive News that Tier 0.5 is a figurative expression and has no accurate definition. Before this, car companies were responsible for vehicle integration, Tier 1 was responsible for parts supply, and Tier 0.5 was in between, providing both parts and part of the integration function. Its characteristics are summarized in two aspects: vertical integration and horizontal expansion.
Vertical integration is the provision of bottom-up total solutions in one area, typically autonomous driving and smart cabins. From the lowest level of hardware to basic software, middleware, communication services, and then to the highest level of application software, some will even involve the construction and operation and maintenance of data ecology.
Horizontal expansion means providing integrated, integrated solutions in adjacent areas, such as powertrain and chassis systems. The integration of power system is a hot spot at present, which can deeply integrate the dimensions of motor, electronic control, transmission system, electricity, heat and control.
In addition, the cooperation mode between Tier 0.5 and auto companies also has a relatively big change. Before Tier 1, it was more about providing parts sales, while Tier 0.5 was involved in the whole life cycle of products, including technology research and development in the early stage, parts supply in the middle stage, and even vehicle operation in the later stage.
02 The result of the automotive supply chain shifting from "chain" to "network"
Why is Tier 0.5 generated? Zhang Liqiang believes that with the continuous development of automobile electrification, intelligence, networking and digitalization and the continuous intensification of market competition, the ecological pattern of the automobile industry is being continuously rebuilt.
On the one hand, the "new four modernizations" promote the deep integration of the automotive industry with other industry technologies, such as artificial intelligence, communications, semiconductors, big data, cloud computing, etc., and the rapid application of these technologies in the automotive industry has spawned a number of new product and service providers. These technologies often appear in a hybrid form, that is, a number of technologies are applied at the same time, which requires a relatively high technology integration ability, which is not available in the automotive industry before this.
On the other hand, in recent years, the sales volume of new energy vehicles continues to rise, and the market penetration rate continues to increase, making the competition on the product side become white-hot, which can be seen from this year's Shanghai Auto Show. Naturally, the competitive pressure is also transmitted to the upstream, and Tier 1 is actively thinking about the future development. An important direction is to expand its capability boundary, and the component supply is developing to the system supply direction, and the system supply is developing to the cross-system integration direction.
In this context, the original division of labor and collaboration relationships in the industry are changing, and the automotive supply chain is shifting from "chain" to "network", and the emergence of Tier 0.5 is an inevitable result.
Zhao Chunzhang, senior consultant of Reese Strategic Positioning Consulting, also holds a similar view, he believes that new energy vehicles will have a tremendous impact on the service model, sales model and profit model of the automobile industry, and will reshape the entire automobile industry. In the process of the transformation of the automotive industry, new supplier brands will be born, which may come from the Internet industry and technology industry, such as Baidu, Huawei, etc. Compared with traditional parts suppliers such as Bosch, BorgWarner, etc., the new companies have more advantages in automatic driving, vehicle machinery system, intelligent network connection. It is also one of the manifestations of the core competitiveness of new energy brands and automotive products.
03 Tier 0.X is an advance in the automotive industry
So, is "Tier 0.5" already the trend of The Times?
Zhang Liqiang bluntly said that at present, the head suppliers he has come into contact with are actively moving towards Tier 0.5, and many have achieved very good results. Mainly distributed to intelligent cockpit, intelligent driving, intelligent car control, power system, drive-by-wire chassis, thermal management, interior system, data ecology and other tracks, the follow-up may involve more fields.
He introduced that Arte is the first listed independent automotive design company in China, with automotive research and development services as its main business, and has accumulated a lot of experience in vehicle development over the past two decades. With the change of the industry and the development of the company, in 2016, Arte began to think about the development of key parts from the perspective of the vehicle, so that the parts are more in line with the performance and functional requirements of the vehicle, which coincides with the current concept of Tier 0.5.
Up to now, Arte has made good progress in the power system, the future will follow the technical trend in the field of electronic and electrical appliances, and successively develop a series of cross-domain fusion controller, central computing platform products, to provide car companies with a full range of combination services including vehicle EEA, hardware, middleware, application software, data management and so on.
"Of course, the current division of labor in the industry has not entered a steady state, some suppliers may be aggressive, some are stable, and everyone's business boundaries are still optimizing and solving." But in any case, the process will make the entire industry more efficient. So Tier 0.5 or Tier 0.X will definitely be an important part of the automotive ecosystem because it's a step forward for the industry." Zhang Liqiang said.
Zhao Chunzhang also believes that the automobile has gradually shifted from the original "hardware-based" products to "software-based and hardware-based" products, and the original "Tier 1" era supplier service model is difficult to meet the needs of new energy vehicles integration, software, intelligence and interconnection. At the same time, compared with traditional car-making brands, The continuous influx of new power brands, but lack of experience in building cars, also need suppliers to provide deeper and more complete solutions.
Cao Wenming, chief strategy and supply officer of Gecko Technology, also mentioned in an interview with a reporter from China Automotive News that Gecko Technology positions itself as a Tier 0.5 supplier in the automotive industry, and specifically mentioned that its digital chassis technology is particularly suitable for new entrants in the automotive industry and can help new car companies grow rapidly. Therefore, Gecko Technology's customers are mainly commercial vehicle enterprises, new forces in car manufacturing and overseas customers.
New category of opportunities belong to the new brand, the whole car brand has been reshuffled, many hundred years of car brands in the impact of the new forces of car crumbling, the same, the auto parts industry will usher in a new round of reshuffle. Under the wave of new energy vehicles, the gradual transformation of "Tier 1" suppliers to "Tier 0.5" suppliers has become a major transformation trend, and parts suppliers will be deeply bound with Oems, from product research and development to user information sharing, the cooperation between the two will run through the entire link of automotive research and development, manufacturing, sales and service.
04 "Want to be" and "can be" are two different things
Of course, not all parts companies are anchored to Tier 0.5, and becoming Tier 0.5 is not suitable for all parts companies.
According to Liu Bo, Strategy director of 础石, 础石, Guoko adheres to its Tier 1 position and has always clearly positioned itself as a R&D supplier of automotive technology software and tool chain. Guoko will focus on the research and development of basic automotive software and contribute core technical and engineering capabilities to the fields of operating system and middleware. And create an open source and open ecology, promote the establishment of factual standards, and promote the industrialization and platform of domestic automotive operating systems.
Liu Bo believes that "want to be" and "can be" Tier 0.5 are two different things. First, there are four competencies required to become Tier 0.5:
First, we must have a vision of to C and whole-vehicle product planning ability, not only to serve the technical needs of car companies, but also to have a deep insight into consumers, user demand-oriented, and find the trend of product and technological change; Second, it is necessary to have system-level or even vehicle-level research and development capabilities, and have the ability to integrate hardware and software delivery; Third, it is necessary to have the technological foresight of similar technology companies to ensure that they go faster than car companies, make up for the disadvantage of weak technology genes of traditional car companies, and lead the technological transformation of car companies; Fourth, Tier 0.5 should have a very strong strength, and huge investment in capital and personnel.
At present, most enterprises are still far from these capabilities.
Secondly, due to the extremely high capability requirements and huge resource investment requirements, suppliers need to have high income and premium support in order to match the positioning of Tier 0.5. At the same time, the Tier 0.5 model of product and technology integration research and development based on the differentiated needs of automobile enterprises will result in the integration and closed product system, lack of scale economy, difficult to spread the cost, and push up the overall research and development cost of the industry. In the last year, the terminal sales of smart cars have seen fierce price competition, and the universality of Tier0.5 will damage the ability of car companies to control costs.
Third, in the asset-heavy, high-barrier auto industry chain, auto companies will always occupy a dominant position. In the current weak software research and development ability of car companies, some car companies are willing to use the power of Tier 0.5 to accelerate the transformation, but if the most valuable, most differentiated, and most competitive parts of intelligent cars in the future are occupied by each Tier 0.5, car companies will face the risk of being out. Liu Bo quoted a line from Zhou Runfa in the movie "Let the bullets Fly" to express the possible situation of car companies: Bad, I became a substitute!
Based on this, Liu Bo further judged that the most likely form of Tier 0.5 model in the future is R&D enterprises incubated by car companies themselves. The positioning of such enterprises is to plan forward, design the vehicle hardware and software technology architecture, coordinate the management of the supply chain, and jointly promote the development of the vehicle full stack technology with suppliers.
Originally published by China Automotive News, July 4, 2023