Automakers turn to EMS providers to build high-tech electronics systems

James Carbone, contributing editor

Strategic buyers need to qualify contract manufacturers skilled in computer production that can build products to stringent automotive standards, By James Carbone.

Over the past 20 years outsourcing to electronics manufacturing services (EMS) providers has been an integral strategy for electronics OEMs in the computer, telecommunications, industrial equipment and consumer electronics industries.

Purchasers involved in outsourcing decisions at electronics OEMs often help choose which EMS providers their company should use and how many contract manufacturers their companies should have.
Now strategic buyers in the auto industry are being entrusted with similar responsibilities as more carmakers and their key tier 1 suppliers are outsourcing production to EMS providers.

Dan Panzica, chief analyst, outsourced manufacturing intelligence service for IHS Markit Technology, said that while the percentage of EMS business from the auto industry is relatively small, it is growing as more high-tech, computer-like systems such as infotainment systems are being installed in vehicles. Panzica said about 6 per cent of EMS revenue is derived from the automotive industry. Ten years ago, automotive accounted for about 1-2 per cent of EMS sales, said Panzica.
In addition, automotive EMS revenue will rise at a compound annual growth rate of 7 per cent through 2021, while total EMS revenue will increase about 2 per cent through the period, he said. “Automotive is the fastest-growing EMS segment,” said Panzica.

Of course, some EMS providers such as Foxconn, Flextronics, and Jabil Circuit have been involved in the auto industry for years. For instance, Jabil’s first customers were automotive OEMs when the EMS provider was founded in 1966. Jabil manufactured for Johnson Controls, Webasto and General Motors Co. and automotive has grown into a major focus for the St. Petersburg, Fla., -based company.

“Jabil’s automotive group is a strategic growth area for the company,” said Lisa Bahash, senior vice president, automotive & transportation. “Jabil builds ‘automotive certified high-quality printed circuit board assemblies, electronic modules and end-items to OEMs and tier 1 suppliers around the world,” she said. The boards and modules are used in a variety of systems, including engine control, battery management systems, in-car entertainment systems, multimedia in-dash systems and hands-free cellular communication among others.

Transitioning to automotive
Now, some EMS providers that have serviced the computer industry are also building products for automakers. One recent example is Pegatron, based in Taiwan.

Pegatron was recently tapped by automaker Tesla to make control computers for Tesla’s Model 3 electric vehicle which is expected to go into production and ship to customers later this year. “And the reason Pegatron was chosen is the EMS provider cut its teeth in notebooks, tablets and all-in-one computer production,” said Panzica. “If you look at the in-dash infotainment system the same manufacturing technology involved in the computer industry is applied to the automotive infotainment system so it is a natural,” he said.

With shipments of notebooks and tablets decreasing, Pegatron can “fill the factories with the assembly of the infotainment systems” to help make up for sluggish computer manufacturing demand, said Panzica.

Switching from manufacturing desktops and notebooks to making control computers and infotainment systems for vehicles “is not very disruptive to the factory. It’s more of what they are already doing with tablets and PCs,” said Panzica.

He said many EMS providers build camera modules for other industries and now such modules are also being built for the auto industry as more cars are equipped with cameras.

Panzica said EMS providers build subsystems for the auto industry and some are vertically integrated which is useful in servicing the auto industry. “For example, with infotainment systems there’s printed circuit boards, stamped sheet metal, displays, touch-screen technology, connectors and wires” that are assembled and shipped by the EMS provider.

The perfect manufacturer
EMS business in the auto industry is growing because automakers and their tier 1 suppliers are discovering EMS manufacturing capabilities. They realize that EMS companies are “very good at assembling the type of electronics” that carmakers need, said Panzica. EMS companies have perfected the manufacturing of computers and cell phones and now that technology is being used in vehicles, he said.

“Automotive has unique requirements in terms of supplier quality management and production part approval process (PPAP) and logistics vs. other segments,” said Lisa Bahash, senior vice president, automotive & transportation for Jabil Circuit

In addition, EMS providers “can do it at better cost than tier ones,” said Panzica. At the same time, the computer manufacturing capacity of EMS providers is underutilised because of sluggish growth in the computer industry so “you have EMS companies that are hungry to build things and are very capable of doing so. It’s a combination of all that” which is driving automotive EMS growth, said Panzica.

While automotive is an opportunity for the EMS industry, it is also a challenge because automotive requirements are more rigorous than most other industries in terms of quality, reliability and traceability of parts, said Panzica.

“The requirements are more stringent than computer. They are more comparable to medical,” said Panzica. He said manufacturers must meet the TS16949 specification, an ISO standard aimed at the development of a quality management system that provides for continuous quality improvement, defect prevention and reduction of variation and waste in the supply chain.

Automotive has “unique requirements in terms of supplier quality management and production part approval process (PPAP) and logistics vs. other segments,” said Lisa Bahash, senior vice president, automotive & transportation.

PPAP is used in the auto industry to show that a component supplier has developed a design and production process that meet a customer’s requirements to minimize the risk of failure. Requests for part approval must be supported in official PPAP format and with documented results when needed.

The idea of PPAP is to ensure that a supplier can meet the manufacturability and quality requirements of the parts supplied to the customer and to provide proof that the customer’s engineering design record and specification requirements are understood by the supplier. In addition, the supplier must demonstrate that its manufacturing process has the potential to produce the part that consistently meets all requirements during actual production.

Besides PPAP, delivery in the auto industry is “really different, as a customer line down has to be absolutely avoided,” said Bahash.

She said the qualification of a new supplier is focused on meeting quality requirements, while being competitive and having the “appropriate logistics organisation to support the automotive business.”

“One thing about automotive customers, once you qualify then you’re considered to be a supplier,” said Panzica. “You are in although you have to prove yourself every shipment.”

Monitoring roadmaps
Another supply chain industry challenge in the automotive industry is changes in semiconductor technology. “Technology roadmaps change roughly every four years with each of the semiconductor suppliers, so it’s crucial to understand what the different companies will be doing in the future,” said Amanda Willis, General Motors global purchasing and supply chain director, electrical systems. It’s important for automotive purchasers at automakers, tier 1 suppliers and EMS providers to monitor technology roadmaps of key chip suppliers to keep abreast of technology developments that could impact automotive systems in the future.

“Miniaturisation is also a trend in this space as it closely follows the consumer industry” and needs to be monitored, she said.

Panzica added that supporting long product lifecycles in the auto industry is also challenging. He noted that many electronic products have nine-month to two-year product lifecycles.  “Automotive lifecycle requirements could be 10 years,” said Panzica. Long product lifecycles mean that suppliers, including EMS providers, need to continue to build components and subsystems for vehicles for as long as it is in production.

Quality and reliability of components and systems in the auto industry are more challenging than many other customer segments. Panzica noted that quality requirements for products built for automotive applications are high and are now measured at the parts per billion level.

While initial quality of automotive products is important, reliability may be more important because parts and systems need to function at a high-quality level in a variety of conditions over a lengthy period of time.

“For instance, you may drive a car to Colorado in winter when it’s 20 below zero and then drive it to Death Valley in the summer when it’s hundred 115°,” said Panzica.  “It also has to survive in high and low humidity and withstand the shock of bumpy roads and vibration,” said Panzica.

Because of the need for parts and systems to perform in those conditions, testing requirements need to be more stringent for an automotive component than a component used in a smart phone or computer.

While the automotive purchasers face challenges concerning quality, reliability and delivery, they are also exposed to the supply chain risks of the electronics industry. For instance, in electronics critical components are sometimes single-source parts. If the supplier of a single-source component has a manufacturing problem, there is a risk of a production line shutdown. Bahash said the risks in electronics are “not specific risks to the auto industry, but centre around general capacity as the world continues to consume more electronics,” she said. In the electronics industry lead times can stretch and some part may go on allocation at times and buyers need to scramble to find parts to keep production lines running.