Advanced driver-assistance systems: Challenges and opportunities ahead
Semiconductor companies can help take ADAS applications to a new level—provided that they are ready to embrace change.
Demand for advanced driver-assistance systems (ADAS)—those that help with monitoring, warning, braking, and steering tasks—is expected to increase over the next decade, fueled largely by regulatory and consumer interest in safety applications that protect drivers and reduce accidents. For instance, both the European Union and the United States are mandating that all vehicles be equipped with autonomous emergency-braking systems and forward-collision warning systems by 2020. A recent McKinsey survey also suggests that car buyers are becoming even more interested in ADAS applications that promote comfort and economy, such as those that assist with parking or monitoring blind spots.
Although ADAS applications are still in their early days, original-equipment manufacturers (OEMs) and their suppliers realize that they could eventually become the main feature differentiating automotive brands, as well as one of their most important revenue sources. And the same technologies that enable today’s ADAS offerings could also be used to create fully autonomous vehicles, which are now a major focus of research and development, both at OEMs and at high-tech players that have recently entered the automotive sector, including Google. Any ADAS technology that gains early support could therefore have an advantage if self-driving cars reach the market.
Many semiconductor companies—even some that have not traditionally participated in the automotive sector—now offer ADAS products or are developing them. As with any new technology, however, much uncertainty persists about the market, including how consumers will respond to more advanced applications in which a computer controls or assists with steering and other critical driving functions. In the first part of this article, we address some of the most pressing questions about ADAS, touching on future demand, technical challenges, and the evolving competitive landscape. The second part of the article looks at ADAS from a semiconductor perspective, describing how companies can capture more value by expanding their offerings beyond hardware, collaborating directly with OEMs, and differentiating their technologies based on safety and security features.
The opportunities and challenges ahead
Although ADAS technology has the potential to transform the automotive sector, its current annual revenues—which range from about $5 billion to $8 billion, according to most sources—are modest compared with those for other automotive systems. For instance, 2015 revenues were about $30 billion for audio and telematics and about $60 billion for climate control. Part of the problem is that many of the most promising ADAS applications are still being refined or have not yet hit the market; still others are expensive and mostly available in premium cars. But one of the most important factors inhibiting demand may be a lack of consumer awareness. In a recent online survey of more than 4,500 car buyers in five countries conducted by McKinsey, many respondents were unfamiliar with ADAS applications, and few purchased cars with this technology (Exhibit 1). The survey offered reason for optimism, however, since it revealed that the repurchase rate for those who did buy a vehicle with ADAS was quite high, ranging from 87 to 89 percent. This finding suggests that once consumers become familiar with ADAS, they will prefer cars with these features.
Even though industry experts hold different opinions about 2015 revenues and growth prospects for ADAS, most expect to see an annual increase of more than 10 percent from 2015 to 2020. For instance, one leading analyst predicts 16 percent growth during this period, and a second predicts 29 percent growth (Exhibit 2). This could give the segment one of the highest growth rates in the automotive sector and related industries. However, with the base price for cars remaining relatively stable (with a compound annual growth rate of about 1 percent), semiconductor companies and other suppliers may face pressure from OEMs and customers to keep ADAS costs low, even as the technology becomes standard. In consequence, we predict that growth in ADAS value may proceed at a slower rate than growth in unit volume.
ADAS technology: Overcoming limitations to ensure active, autonomous safety
One factor that could influence ADAS uptake is the rate at which the technology advances. Although semiconductor companies and other players have made important enhancements in recent years, there is much room for improvement. For instance, forward-collision warning systems still have difficulty identifying objects when a vehicle is traveling at high speeds. A typical ADAS application incorporates many technologies, as shown in Exhibit 3, but four stand out with regard to the challenges they present: processors, sensors, software algorithms, and mapping.