The bi-annual IAA Frankfurt is far more than just a motor show. It’s a true industry show in which OEMs and suppliers share the big stage. Serious business discussions go on behind the bright lights—with a lot of walking and client meetings for yours truly. Those discussions at the 2017 event underscored significant developments within the supply base.

Total system integration, a trend we witnessed decades ago, is again gaining steam. The OEMs are shifting greater design and integration responsibility to suppliers, due to changes related to emissions legislation (read electrification) and vehicle autonomy. There is a growing interdependence of these technologies, but no single defined technology path or implementation timetable to integrate them, yet.

As a result, risk, capital deployment, efficiency and cost will be front and center, presenting a perfect opportunity for the large players—particularly the ‘super Tier 1s’—to emerge as solution providers.

Many companies used the 2017 IAA to underscore their rising capability in electrification, connectivity and autonomy. It seemed that everyone, no matter what their core business, was displaying some hybrid or EV component or system with thick orange power cables attached to it. Some of this may have been intended to impress German chancellor Angela Merkel during her visit to the show, but clearly there is a race to not be left behind in EVs and self-driving technologies. That race is manifest in the flurry of M&As, tech collaborations and other new business relationships being conducted by the super-Tier 1 players Aisin, Bosch, Continental, Delphi, Denso, Mobis, Valeo and ZF and their emergent Silicon Valley allies.

My conversations at Frankfurt this year confirmed that more and more vehicle and infrastructure value is shifting away from traditional systems. Having a foothold as an integration leader is invaluable. Astute suppliers understand the need to expand and refine their capabilities. They know that new sourcing decisions based on demand for electrification and capability to attain SAE Levels 4 and 5 autonomy will impact their product development plans well into the next decade. So, they’re staking out their turf.

Adoption and integration of these technologies vary by region and segment. Increasingly stringent emissions legislation in Europe and China is driving changes in propulsion. In Europe, 48-volt hybrid systems are already booked for significant volumes. North America and others will be fast followers. The march towards greater vehicle autonomy will follow a parallel path driven by various consumer and safety requirements.

Why would OEMs enlist suppliers to serve as systems integrators for either of these areas? Because of the speed of technology turnover, the threat of not utilizing the latest innovations and the lack of true system integration required—especially in vehicle autonomy. Many OEMs are willing to balance the loss of control with the prospect of higher capital risk of internal product development and manufacturing.

Unlike the cost and speed of traditional combustion-engine development, which is amortized over decades, electrification and autonomy technology is moving much faster.

The growing power and influence of the super Tier 1s in the coming years will drive further separation within the supply tiers. It will also add incremental pressure to build a global development and production footprint.

Many regional suppliers without the deep pockets to develop system capability will need to seek partnerships to keep pace or exit. Economies of scale and the flexibility to quickly integrate innovations will underscore the competitive landscape.

In my view, the 2017 IAA Frankfurt signaled an industry turning point. The dynamics of vehicle electrification, autonomous driving and the growing power of the mega-Tier 1 suppliers to deliver these integrated systems set the stage for the future.