The Emergence of the Tier 0.5 Supplier in the Automotive Supply Chain

ECARX used its first appearance at IAA MOBILITY to display the cutting-edge Makalu digital cockpit display, along with an accompanying computing platform and software stack. While boasting impressive hardware and performance, what initially sets it apart is how it collects the expertise of several suppliers across the automotive and other consumer industries, presented in a convenient package to Original Equipment Manufacturers (OEMs).

The companies ECARX has partnered with include:

• Epic Games: For its Unreal Engine Three-Dimensional (3D) graphics engine, which will be used for real-time 3D animations and Augmented Reality (AR) displays
• SiEngine: For a design collaboration of the 7 Nanometer (nm) SE1000 System-on-Chip (SoC) that integrates the Operating System (OS) and software stack, allowing for the support of up to seven High-Definition (HD) displays and 3D surround sound, as well as multi-zone voice recognition and high-end gaming
• HaleyTek: A joint venture between Volvo and ECARX that develops software for Android-based infotainment systems; developed the Cloudpeak digital software stack
• AMD: For its advanced computing power and graphics rendering capabilities

These partnerships allow OEMs to outsource the resource-intensive work of hardware and software development, during a time when building in-house teams of automotive software specialists is especially difficult due to the global shortage of software engineers. Historically, Tier Ones have been squeezed from above by the OEMs as they attempt to develop these in-house teams; and also from below by Tier Twos as OEMs increasingly went straight to them for the products and personalization they were seeking. The Tier 0.5 can, therefore, be seen as a reaction to this pressure as they grew into a role that is, so far, unique to the automotive industry. While it is not unusual for an OEM-facing supplier to source components from Tier Two suppliers, this role involves a collaborative effort with the OEM itself in the design and manufacturing process—this is the defining factor of the Tier 0.5, and it allows them to personalize their product offering to the OEM’s brand identity.

ECARX fills this role by operating as a “partnership ecosystem” with Tier Two suppliers, while also facilitating extensive customization for the OEM. It has enabled this by ensuring that its SoC design collaboration with SiEngine has a modular platform, which enables OEMs to collaborate with ECARX to customize the digital cockpit platform with their own vision of the in-vehicle experience, according to their branding.

Outsourcing crucial in-vehicle experience features can be a source of concern for OEMs, so the customization and long-term, collaborative development offered by ECARX is what makes it so appealing, and so necessary. OEMs get the best of both worlds as they benefit from the technological expertise of dozens of companies being collected on their behalf, which reduces their time and reduces Research and Development (R&D) costs, without sacrificing the control of their brand identity. This particular kind of collaboration between OEMs and suppliers is not unheard of in the automotive industry; one of the most successful examples is Amazon’s white label Alexa, detailed in an ABI insight, “Has Apple Gone Too Far? Why Carmakers Should Be Apprehensive about the New CarPlay.” However, the extent of the partnerships ECARX has undertaken is certainly pushing collaboration to another level, and this blueprint can be the way forward for OEMs and their suppliers. ECARX itself has placed systems in 5.2 million vehicles and more than 20 car brands worldwide, including Lotus, Volvo, and Changan Mazda. Marelli is another company that is outspoken in its desire to be a Tier 0.5 automotive supplier, seeking to provide integrated vehicle energy management systems.

The benefits of integrating Tier 0.5 suppliers into the supply chain do come with some challenges. First, as OEMs seek to monetize connectivity and infotainment systems through features like in-vehicle advertising and commerce, complications could arise from deciding which parties are entitled to what share of revenue.

Second, by tying so much of its supply chain to a single company, an OEM could introduce significant risks to its operations. For example, the financial stability of the Tier 0.5 is key to monitor; if it goes out of business or must scale back operations, a range of OEMs will have their production and release schedules affected. To minimize this risk, OEMs could only enter into agreements with suppliers with proven records of stability and capacity, or in the case of ECARX, which is backed by Chinese automotive giant Geely, ones that are backed by other large companies. The longevity of the software-defined vehicle also means that cars will require many years of after-sales support; the Tier 0.5 must be committed to the industry and OEM for its entire lifecycle to keep users updated with new and relevant applications via Over-the-Air (OTA) updates.

Furthermore, if multiple OEMs want to scale up production at similar times due to exogenous market demand booms, the Tier 0.5 may not have the resources to support the deployment of their products across all of its customers. This is tempered by the fact that many of its offerings are software-based, but a digital cockpit, for example, requires deploying high-end hardware, so the industry is not completely insulated from this problem. Astute management of the supply chain is needed to ensure minimizing the risk of failing to meet demand, with the Tier 0.5 having to build a deep understanding of the sub-components and materials that affect its production schedule, coupled with concrete plans to mitigate disruptions on the OEM’s behalf.

The growth of the Tier 0.5 supplier represents an important evolution within the automotive supply chain, fulfilling the changing needs of consumers and OEMs. Acknowledging all of these problems is necessary if OEMs and suppliers want to continue this trend of partnerships and collaboration to fuel future innovation.