Expansion of electromobility presents new business opportunities for the industry, but also major challenges

• Joint study by VDMA and Roland Berger Strategy Consultants shows that new production facilities for battery cells will provide EUR 4.8 billion in potential business for the mechanical engineering industry by 2020
• By 2025, electrical and hybrid vehicles will achieve a global market share of around 40% of new registrations
• The automotive sector is one of the main customers for German engineering firms and will become even more important in the future
• The mechanical engineering sector will play a key role in optimizing manufacturing technologies for electric motors and batteries to reduce costs and raise quality standards
• Batteries will also be manufactured in Europe and the USA
• New product and technology portfolios as well as collaborations and alliances will arise throughout the mechanical engineering sector

The German production systems industry will benefit strongly over the next few years from the expansion of electromobility. The introduction of vehicles with electrical powertrains demands areas of expertise in mechanical engineering that were once rarely required for automotive production. This is because cost-cutting production technologies are now in urgent demand. This will present attractive market opportunities to companies making machines and production systems. In terms of new production plants for electric batteries, the industry is looking at EUR 4.8 billion in potential business by 2020.

On the other hand, the industry will have to face some major challenges in developing new business models. Collaborations and alliances among the engineering firms will be essential in order to offer turnkey production systems from one supplier and to secure key competitive advantages. These are the core findings of a joint study by the VDMA and Roland Berger Strategy Consultants on "E-mobility – Opportunities and risks for Germany's production systems industry".

"The automotive industry faces enormous changes," explains Ralf Kalmbach, Partner and Member of Roland Berger's global management team. "The need to reduce CO2 emissions as we go forward will lead to a rapid increase in electromobility on markets worldwide. That means a big shake-up – not only for the automotive sector, but also for the production systems industry." VDMA President Dr. Thomas Lindner notes, "With our advanced production technology, we are the industry that will make it all possible. The mobility of the future has to be produced."

Automobile production – crucial growth opportunities for Germany's production systems industry

Automotive engineering already plays a key role for Germany's mechanical engineering sector. In 2010, around EUR 14 billion was directly earned in the automotive sector. But there are also many indirect relationships: Machines and production systems are often supplied to the upstream stages of the automotive sector's value chain. And the importance of mechanical engineering can only increase: While around 72 million cars were sold worldwide last year, the figure for 2020 is forecast at 100 million.

Vehicle demand is showing very rapid growth in the BRIC economies (Brazil, Russia, India and China) in particular. "We estimate that in 2025 some 40% of new vehicles will be equipped with hybrid or fully electric motors. And automakers are currently working very hard on these developments," says Berger expert Kalmbach. For Germany's production systems industry it will mean additional potential business of EUR 4.8 billion by 2020 from new systems for producing battery cells.

New production technologies in demand

"We don't expect to see any substitution effect in the medium term," points out Lindner. "Traditional production technology for combustion engines will not suddenly disappear, because hybrid concepts will dominate for a long time to come." But the increasing spread of electromobility will ensure additional business opportunities for mechanical engineering companies: New production systems to make the components of the electric powertrain will be in strong demand. The mechanical engineering sector will, above all, play a major role in meeting the quality and cost objectives for the production of batteries and electric motors. For instance, around 50% of battery costs are incurred in production. The use of intelligent production systems will create major optimization potential in this area. VDMA President Lindner predicts, "The global race will be won by those who can make the biggest contribution to cost reduction by offering intelligent, automotive-appropriate manufacturing technologies. This is an immense opportunity for our company".

Electric drives require not only new components but must be made with new production technologies which the automotive industry has hardly used before. "Metal processing used to play a key role," says Kalmbach. "Now, completely different technologies are required for battery production. We only have to think of the coating of electrodes. Consequently, engineering companies are having to realign their product portfolios."

Regional markets gaining importance

"Components for e-motors and, above all, batteries will soon be produced in the respective vehicle markets, such as in Europe and the USA," explains Roland Berger Partner Kalmbach. "With such a high level of automation, wage costs play only a minor role in production, so relocating to low-wage countries doesn't make much sense from this perspective." Moreover, the transport risks are an important factor with battery cells because environmental influences like temperature fluctuations can impair the quality of cells. "By expanding production capacities close to the respective vehicle assembly plants, carmakers can circumvent these obstacles – some initial steps have already been taken," notes Kalmbach. "This is good news for the mechanical engineering sector. In the case of production systems for battery cells, for example, we will see a considerable market opening up for German companies," says Lindner.

New business models, new product portfolios: A huge challenge for mechanical engineering companies

In view of the huge market potential and the proximity to the industry's existing technological competency – like photovoltaic and semiconductor manufacture – the German mechanical engineering sector is well positioned to take advantage of electromobility. But this also involves quite a challenge, especially for small and mid-size companies. Partnerships will therefore have to be forged between machine makers in order to push ahead with the joint development of turnkey systems and put innovative, customized solutions on the market. "Our VDMA platform E-MOTIVE is clearly important here. This internationally leading innovation network is helping to advance electromobility – through cross-industry, pre-competitive cooperation and with real benefits for industry and science," adds the VDMA President.