MUNICH, Germany — The imminent market entry of low-cost cars made in emerging countries such as India or China has triggered thought processes in the automotive electronics supply industry. The expectation of significant market shifts forces them to rethink their approach of sophisticated automotive electronics and ever-increasing electronics content for the vehicles.

The sheer size of the market for low-cost cars sends shock waves through the industry; the companies hectically evaluate if the new perspective is more a thread or a business chance. This became apparent at the 12th Euroforum annual congress on automotive electronics that presently takes place in Munich. In a presentation, Karl-Thomas Neumann, President of Continental AG's Automotive Division, called 'Affordable Cars' the most dramatic trend in today's automotive electronics business.

Dramatic for several reasons. First, the industry expects that this class of cars will very quickly constitute a huge market. Neumann said the industry expects that within ten years this segment will reach the size of today's US automotive market in terms of units, about 15 million cars annually. Though not all experts agreed on the exact definition of an 'affordable car' or 'low cost car', Tata's recently announced model Nano which carries a price tag of $2500 seems to set the standard. "The Nano opened my eyes," Neumann admitted.

The second reason why the industry calls this development dramatic is that this class of cars gets by with much less and much simpler electronics than the western type of automotive landscape these companies serve today. While the electronics content in western cars will continue to rise — as also became quite clear during the congress —, low cost cars require a complete re-thinking of design and manufacturing processes in the automotive electronics industry.

This begins with the different requirements list for automotive buyers in western countries versus emerging markets. Reliability, criterion number one in Europe and North America, ranges only fifth in emerging markets. For a buyer in the emerging markets, price is paramount, explained Neumann.

While the low price does not go totally at the expense of the electronic content, it becomes clear that a Nano-like vehicle is not exact the right place for a FlexRay data bus, an advanced telematics and navigation subsystem or the latest development in x-by-wire.

The size of this new market, however, is tempting enough for Continental to try and get its piece of the low-cost-cake anyway. The company which during the past years has strongly increased its Asian presence, now bets on local design and manufacturing in the emerging markets. "We have seen competitors which simply dug in their archives and pulled out old designs in order to adopt their components to the needs of these markets," Neuman said. "However, this model is doomed to fail. One needs to really design from scratch the components for these markets. It may be difficult, but the designers have to 'reset' their minds to take on this challenge. We need to listen to the local requirements."

While today's low cost cars come with almost no electronic equipment at all, this will change rapidly, Neumann believes. In terms of exhaust gas control and safety regulations, China and India will catch up rapidly with Europe and Northern America, which will lead to an increasing demand for electronic components — but at a very low price. In order to reduce costs, Neumann even believes that hardware reuse and Autosar will be adopted by the emerging markets car industry rapidly — which, however, will strengthen Indian and Chinese manufacturers' ability to export their products to Europe and North America.

Not all participants believe that this scenario ever will come true. In a Q&A session, Willibert Schleuter, Chief Executive Engineer Electrics/Electronics for car maker Audi AG, demonstrated skepticism. "If you extrapolate the predicted number of vehicles and their presumable fuel consumption, you will discover that these figures simply are not possible," he said.

On the question if Audi is prepared to roll out a low cost car, he referred to the company's market position in the premium segment. "But within the Volkswagen concern of which Audi is a part, there are certainly accordant concepts," Schleuter answered.