Automotive Electronics Industry Growth Prospects And Strategies

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From electric vehicles (EVs) to autonomous vehicles, discover the challenges, key players, and market segments driving a $136 billion industry revolutionising vehicles and the transportation landscape

In the fast-paced world of automotive electronics, where innovation is the name of the game, businesses need to stay ahead of the curve to remain competitive. This exploration delves into the intricate world of automotive electronics, shedding light on key trends, challenges, and opportunities shaping the industry. The focus here centres on two critical components: sensors and power electronics, both of which play a pivotal role in the development of modern vehicles.

Fig. 1: Percentage of key strategies adopted

Prominent trends and drivers of growth

The automotive electronics industry has undergone a remarkable transformation in recent years. It has witnessed a surge in demand for electric vehicles (EVs), with regions like India and Northern Europe catching up with the trend. This shift towards EVs brings with it a unique set of challenges, particularly concerning battery management. To ensure the efficient operation and safety of EVs, many sensors are required to monitor factors such as battery charge, health, and temperature.

Fig. 2: Global conventional sensor market scenario—present and projected
Fig. 2: Global conventional sensor market scenario—present and projected

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The industry is experiencing a growing demand for connected and software-defined vehicles. Features like vehicle-to-everything (V2X) communication, vehicle-to-grid (V2G), and vehicle-to-infrastructure (V2I) are becoming increasingly essential. These developments have led to a surge in demand for various electronic components to support these advanced features.

Increasing usage of electronics

The adoption of EVs and the integration of advanced features in modern vehicles have led to a substantial increase in the usage of electronic components in each automobile.

Growing number of connected vehicles

As vehicles become more connected, the demand for sensors and electronic systems to support connectivity features continues to rise.

Focus on safety and automotive regulations

Governments worldwide are imposing stricter regulations to ensure the safety of vehicles, especially in areas like battery safety in EVs. This has led to a push for innovation within automotive electronics.

Autonomous vehicles

The development of autonomous vehicles introduces a whole new array of sensors and electronics, including lidars, advanced image sensors, radars, and ultrasonics. The level of autonomy directly impacts the number and complexity of sensors required.

Demand for connectivity and infotainment features

Consumers increasingly seek connected and infotainment features in their vehicles, further driving the demand for automotive electronics.

The future of automotive technology hinges on the perfect synergy between software precision and essential hardware components. While software excellence is crucial, sensors like lidar, advanced image sensors, radar, and ultrasonics play a vital supporting role.

As vehicles advance from autonomy levels one to five, the demand for sensors skyrockets. This surge is a significant growth driver, aligning with the increasing demand for connectivity and advanced infotainment in the automotive sector.

Influence of patents on sensor technologies and automotive electronics

Global industry leaders are heavily investing in research and development, particularly in sensor technologies and automotive electronics. The following chart shows the number of patents published.

Total patents published by leading automotive electronics companies: 1,300+ (2018 onwards)

• Patents play a crucial role in sensor technologies and automotive electronics, accounting for 34.9% of vital patents in the industry.

• Focus areas for innovation include sensors that drive advancements in autonomous vehicles, with a range of cutting-edge technologies like image sensors, radar systems, lidar, and various automotive processes.

• A significant portion (approximately 60% to 65%) of these patents have been filed in China since 2018, indicating a substantial shift in the industry’s innovation landscape toward this region. These statistics highlight the key technological domains and innovation areas where leading companies concentrate their research and development efforts.

Challenges in the automotive electronics industry

While opportunities abound, the automotive electronics industry also faces significant challenges that must be addressed. In the realm of automotive electronics, several challenges have come to the forefront.

First and foremost, the heightened connectivity of vehicles has given rise to mounting concerns regarding cybersecurity. The industry is grappling with the rising incidence of software threats, attacks, and recalls stemming from security vulnerabilities, posing a significant hurdle to progress. Furthermore, the intricacies surrounding the design and manufacture of scalable automotive electronics have proven formidable.

Establishing a resilient supply chain has become imperative to ensure uninterrupted production, which demands meticulous attention. Moreover, the escalating costs associated with raw materials, logistics, and the establishment of manufacturing hubs have cast a shadow on the cost-effectiveness of electronic components, warranting careful consideration within the industry.

Challenges that surfaced towards the latter part of 2021 and extended into 2022 underscored the necessity for a resilient supply chain and a robust manufacturing value chain. These vital components ensure the uninterrupted production of sensors and electronic systems.

Prominent industry players and their strategic approaches

Within the automotive electronics landscape, many vital players dot the industry’s diverse landscape. It is worth noting that this market exhibits a notable degree of segmentation. These players have been not just passive observers but active participants in engagements.

When considering some enlightening statistics, a comprehensive assessment of the critical developments reveals a strategic landscape characterised by nuanced approaches. As depicted in the pie chart in Fig. 1, over the past three years, 34.98% of the nearly 600 key strategies meticulously tracked have been centred around product development or the launch of new offerings.

Following closely behind are partnerships, collaborations, and joint ventures, highlighting the industry’s penchant for cooperative ventures. Additionally, market development and mergers and acquisitions feature prominently in the playbook of significant players, underlining their commitment to expanding their market share in preparation for the future. Notable strategies employed by these players include:

Product development

Product development is a leading strategy among key players, accounting for nearly 35% of strategies implemented in the past three years.

Partnerships, collaborations, and joint ventures

Collaborative efforts with other industry leaders are essential for growth and innovation.

Market development

Expanding into new markets and regions is a crucial strategy for market growth.

Mergers and acquisitions

M&A activities are vital in consolidating market share and expanding product portfolios.

Another valuable insight from industry experts is the evolving regulatory environment. In the past, companies faced diverse regulatory challenges, but in the last three years, governments have introduced measures to ease these burdens, creating a more favourable operational climate. Conversely, persistent challenges encompass the absence of standardisation in MEMS (micro-electro-mechanical systems) fabrication, alongside apprehensions regarding the reliability and safety of automotive sensors. These issues loom large as substantial hurdles necessitating careful consideration by industry stakeholders as they navigate the dynamic terrain of automotive electronics. Moreover, the escalating demand for AI systems and autonomous vehicles has bestowed a distinctive opportunity. This burgeoning demand aligns harmoniously with the prospects of sensor fusion and the development of diverse sensor platforms.

Segmenting the automotive electronics market

To gain a comprehensive view of the automotive electronics market, it is essential to segment it into three parts:

Conventional sensors

These include temperature, current, pressure, position, speed, and level sensors. The market for conventional sensors is projected to reach approximately $13 billion by 2030, with a conservative growth rate.

Advanced sensors

This category encompasses lidar, radar, camera ECUs, and other advanced sensors. The advanced sensor market is expected to increase, reaching $136 billion by 2029, driven by the adoption of level two and level three autonomous vehicles.

Power electronics

Power electronics include onboard chargers, inverters, integrated antenna systems, and power management ICs. The power electronics market is set to grow at a CAGR of 14.18% over the next decade due to the increased adoption of electric, connected, and autonomous vehicles.

Within the sphere of conventional sensors, recent data paints a picture of a global market valued at approximately $8.5 billion in 2022. As shown in Fig. 3, looking forward to 2030, this figure is poised to soar to an estimated $13 billion.

Fig. 3: (a) Global conventional sensors (by sensor type), value share, 2022 (% of global revenue), (b) Global conventional sensors (by vehicle type), and (c) Global conventional sensors (by application type), value share, 2022 (% of global revenue)
Fig. 3: (a) Global conventional sensors (by sensor type), value share, 2022 (% of global revenue), (b) Global conventional sensors (by vehicle type), and (c) Global conventional sensors (by application type), value share, 2022 (% of global revenue)

While this growth trajectory certainly holds promise, it is essential to note that the compounded annual growth rate characterising the conventional sensors market presently maintains a conservative trajectory. A closer examination of regional dynamics (shown in Fig. 2) reveals the Asia Pacific region, with a particular emphasis on China, as a prominent epicentre of automotive production. This region proudly claims the largest market share, propelled not only by the demand for luxury and premium vehicles but also by the sheer volume of vehicles being adopted across Asian markets. Within the categorisation of conventional sensors, temperature sensors, pressure sensors, and position sensors emerge as the primary driving forces, collectively sculpting the landscape of this pivotal sector within the industry.

In advanced sensors, numerous drivers, restraints, and opportunities are at play, including some that require closer examination. Notably, a persistent challenge is the high cost associated with advanced sensors. In the past, lidar sensors commanded prices exceeding $5000 to $10,000. However, recent advancements have seen prices drop significantly, with some companies offering lidar sensors for around $1800 or less. This cost sensitivity poses a dilemma for manufacturers, as automotive OEMs are hesitant to allocate substantial budgets per vehicle for these advanced sensors. As a result, manufacturers of lidar and advanced sensors have prioritised cost optimisation and production efficiency.

Moreover, an emerging opportunity lies in the utilisation of 5G technology and the impending 6G developments, which are poised to revolutionise connectivity and facilitate seamless cloud synchronisation. This technological advancement promises to enhance the performance of advanced sensors, enabling real-time data processing with precision. These pivotal insights surfaced during our discussions with advanced sensor manufacturers.

The market dynamics in 2022 and the preceding year have shown the advanced sensors market was valued at approximately $50 to $52 billion.

Fig. 4: Global advanced sensor market scenario—present and projected

Fig. 4 shows the global advanced sensor market scenario—present and projected. Projections point to an impressive surge, with the market expected to reach a staggering $136 billion by 2029. It is worth noting that this growth trajectory outpaces that of conventional sensors, with the compounded annual growth rate (CAGR) for advanced sensors more than doubling. This surge can be attributed to the escalating adoption of level two, level three, and higher-level autonomous vehicles, which increasingly integrate advanced sensors into their architecture. Regarding segmental shares, camera sensors dominate the landscape, especially as they find widespread use in India’s vehicles, serving various functions, from essential parking assistance to advanced driver assistance systems (ADAS).

Furthermore, passenger vehicles currently lead in adopting advanced sensors, while commercial vehicles have lagged due to cost considerations. However, this trend is expected to change as companies like Volvo and others increasingly incorporate these sensors into their commercial vehicle offerings. This shift is projected to boost their market share significantly by 2029.

Fig. 5: (a) Global advanced sensors (by component type), value share, 2022 (% of global revenue), (b) Global advanced sensors (by vehicle type), and (c) Global advanced sensors (by level of autonomy), value share, 2022 (% of global revenue)

These three categories stand out as the primary drivers, contributing to over 50% of the revenue generated by sensor manufacturers worldwide. When examining the segmentation by vehicle type, it becomes evident that passenger vehicles, owing to their sheer numbers, have consistently held the leading position and are anticipated to maintain this dominance well into 2030. Additionally, when delving into the application type breakdown, the pie chart illustrates that powertrain-based sensors within the conventional sensor category command a substantial share, occupying nearly 40% of the overall market. Regarding autonomy levels, as of 2022, level one autonomy holds the largest share, accounting for approximately 42%, with higher levels of autonomy gradually gaining ground.

Fig. 6: Global power electronics market scenario—present and projected

Turning our attention to power electronics, several key drivers, restraints, and opportunities merit discussion, focusing on points we have not yet covered. Among the observed constraints is the rising cost of raw materials. While semiconductor costs have generally decreased over the past decade, our discussions with clients have revealed that the increased raw material costs primarily stem from logistical challenges, partnerships, and manufacturing hub decisions. Many companies actively address these concerns by enhancing their global distribution networks and securing robust supplier relationships.

Regarding market dynamics, the power electronics sector has experienced substantial growth, driven mainly by the combined demand from electric vehicles, connected vehicles, and autonomous vehicles. Regardless of vehicle type, power electronics play a pivotal role. This increased adoption across the automotive spectrum is forecasted to sustain a healthy growth rate of 14.18% over the next decade, culminating in 2030.

The Asia Pacific region, particularly China, holds a dominant position in the automotive electronics market due to its high vehicle production volume. Europe and North America also have significant market shares, thanks to their autonomous vehicle manufacturing and supportive regulations. In India, factors such as rising disposable income, the growth of smart cities, stricter safety standards, and a thriving automotive electronics aftermarket have fuelled market expansion. Although India’s market is smaller than China’s, it is experiencing notable growth. The proliferation of smart cities and advanced transportation systems has driven increased demand for automotive electronics. Concurrently, government regulations mandating safety features have further boosted the adoption of automotive electronics. A noteworthy trend is the significant growth of the automotive electronics aftermarket in India over the past five years, a trend less pronounced in developed European nations. This growth trajectory is expected to continue until 2029.

Fig. 7: India’s automotive electronics market scenario—present and projected

The automotive electronics industry is on an exciting trajectory, driven by adopting electric, connected, and autonomous vehicles. Companies in this space must navigate a complex landscape of evolving technologies, regulations, and consumer demands. Ensuring stability in the supply chain, addressing cybersecurity risks, and focusing on innovation are critical factors for success. Moving forward, it is anticipated that there will be a sustained upsurge in the demand for sensors and electronic components, particularly in light of the ongoing evolution of vehicles towards advanced levels of autonomy. Those companies capable of adeptly adjusting to these evolving dynamics and wholeheartedly embracing innovation are set to find themselves strategically positioned for prosperity within the automotive electronics industry of tomorrow.

Prospects within the automotive electronics sector

Amidst the array of challenges confronting the automotive electronics industry, many opportunities beckon, promising to shape its future trajectory in profound ways.

Transition to higher autonomy levels. The automotive industry is actively transitioning towards higher levels of vehicle autonomy, led by industry giants such as Audi, Mercedes, Vaimo, and Zox. This transition promises a significant increase in the deployment of advanced sensors and electronic systems, marking a pivotal moment in automotive technology.

Emphasis on product innovation. Industry players can establish a strong market presence by prioritising product innovation and development. Companies that invest their resources and efforts in pioneering advancements are well-positioned to secure a substantial share in the automotive electronics market. A commitment to innovation and staying at the forefront of technological breakthroughs is the key to success in this dynamic industry landscape. As consumers’ expectations evolve and technology advances, the road ahead promises to be exciting and challenging for industry players. Those who navigate it successfully will be at the forefront of automotive technology, steering us into a future where intelligent, autonomous vehicles are the new norm.

Future perspectives

The market is experiencing significant growth, primarily driven by the proliferation of connected, autonomous, and electric vehicles. This growth necessitates the establishment of a stable supply chain, especially in emerging markets like India, where automotive adoption is on the rise. Furthermore, sustainability and ESG (environmental, social, and governance) goals are shaping product preferences and targets for the next decade. India, in particular, stands out as a crucial market due to its unique consumer dynamics and increasing consumer spending. Companies in the automotive electronics sector are focusing on product innovation and development as a key strategy for success.

The influence of deep tech technologies on the automotive electronics sector cannot be overlooked. The insights span various sectors, including healthcare, mobility, advanced materials, aerospace and defence, agri-tech, and ICT, in addition to the sensor technologies discussed. Through strategy reports, tailored research, and export marketplace, insights have been made with leading manufacturers to cater to their distinct requirements. The trends and key insights highlighted in this article will continue to exert a significant impact on the automotive electronics industry. Sensor developers are poised for increased market share as the demand for automotive electronics continues to surge in the decades ahead.

This article is from a tech talk session at Delhi EXPO 2023 by Dhrubajyoti Narayan, Principal Analyst, Research, BIS Research. It has been transcribed and curated by Akanksha Sondhi Gaur, Research Analyst and Journalist at EFY.

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