Smarter ways of financing the development of future cars

Siemens says that digitalisation will transform the automotive sector

After a dramatic decline during the financial crisis in the latter part of the last decade, the UK motor vehicle industry has made a strong recovery. November 2016 saw a 9.6% increase in the number of cars produced in the UK compared to the previous year and a record number of cars were exported during 2016 – representing 77.3% of total production.

Like the rest of the manufacturing sector, the automotive industry is currently in the process of digitalisation, a journey that introduces the benefits of a digital, connected, automated, data-rich world to the manufacturing environment.

For example, virtualised product and process modelling can reduce the time-to-market of new products. And, at the production stage, robotics and automation allow manufacturers to produce the same product volume at less cost or to manufacture more and/or better products for little or no increase in costs.

Digitalisation can also provide data relating to production patterns which can be analysed to identify cycles of demand, allowing for better resource planning and reduced wastage. Additionally, predictive modelling, based on data from manufacturing processes, can increase uptime by initiating pre-emptive equipment servicing. Similarly, whilst energy is often one of the largest and most ambiguous expenses for manufacturers, digitalisation can help manufacturers track energy consumption patterns, and by doing so gain insight into waste, available efficiencies, impending equipment failures, regulatory compliance and more.

The results of embracing digitalisation are already coming to fruition. For example, manufacturers are competing to develop the fully connected car - a vehicle able to optimise its own operation and maintenance as well as the convenience and comfort of passengers using on-board sensors and internet connectivity. It is estimated that the impact of such a vehicle on the global market for connectivity components and services will increase the market’s value to €170bn by 2020 from €30bn in 2014.

The growth and development of alternative fuel vehicles is another trend which automotive manufacturers are keen to embrace. Registrations were up 38.0% in the second quarter of 2017 compared to the same period in 2016. To support this advance, highly efficient drive technologies, such as electric powertrains, are being developed that will shape the mobility of the future. For example, Siemens’ innovative motor technology for hybrid and electric vehicles, applies the company’s extensive drive technology expertise toward advancing electromobility.

Such developments have already been embraced by car manufacturers such as Volvo. Collaboration with Siemens resulted in an electric powertrain for the  7-seater Plug-In Hybrid SUV – the Volvo XC90 T8 Twin Engine. Clearly then, the possibilities for manufacturers in the sector to benefit from digitalisation are wide-ranging.

To put innovative ideas into production, however, automotive manufacturers are dependent on expensive, custom-made equipment of high specification that can be difficult to acquire without having to commit scarce capital. Against this backdrop, more and more manufacturers are turning to a range of smart and appropriate financing techniques – known as Finance 4.0 – to help them to sustainably invest in the new fourth-generation of digitalised technology and automation equipment. Finance 4.0 covers a range of requirements from the acquisition of a single digitalised piece of equipment, right through to financing a whole new factory. These financing methods can seek to align payments for the new generation technology with the benefits they produce.

The benefits of digitalisation are significant and far-reaching, meaning that manufacturers in the automotive sector are racing to keep up with multiple and continuous technological trends and developments. Whilst this can be a challenge, companies that delay investment and fail to embrace digitalisation, risk being left behind by the competition.

Brian Foster is head of industry finance at Siemens Financial Services in the UK