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ULC vehicles: High growth but limited return

Posted: 12 Nov 2008     Print Version  Bookmark and Share

Keywords:ULC vehicles  electronics content  vehicle market  price pressure 

For those electronics vendors betting on the growth of ultra low cost cars, there is good and bad news: The good news is that this class of cars is expected to sport the highest growth of all vehicles. The bad news is that the electronics content of these cars is extremely low—perhaps lower than some expected.

According to Ian Riches, Director, Global Automotive Practice for market researcher Strategy Analytics, ULC vehicles will outgrow the total vehicle market in four the years ahead by a factor of ten. While the total vehicle market will sport an average growth of 4 per cent, Ultra Low Cost Cars, which are defined as vehicles carrying a price tag of less than Rs.2.50 lakh ($5.000), will grow at a rate of 40 per cent per year, Riches explained during an automotive conference.

The market researcher said that ULCCs and Low Cost Cars (LCCs, which cost between Rs.2.50 lakh and Rs.5.00 lakh ($5.000) and $10.000)) will combined make up about 20 per cent of the total vehicle market by 2015. India and China are expected to account for about 60 to 75 % of the ULCC production.

For electronics vendors, the market for ULCC ECUs may seem enticing—it will rise to a volume of Rs.10,007.28 crore ($2 billion) by 2015. This translates into astonishing growth rates of 59 per cent per year for the years between 2007 and 2012. However, while this seem to be a high volume, price pressure and tight margins will make it less appetizing to participate in that market. Riches expects the total profit from ECUs on ULCCs will not exceed, or at least not exceed significantly Rs.300.22 crore ($60 million). "There is very limited potential return [on investment], " he said. "So chip vendors should not get overexcited."

Besides price pressure, the vehicles will feature a far lower electronics content compared than standard cars. This effect will outweigh the fast growth of this market segment. While ULCCs will represent about 7 per cent of the global vehicle production in 2015, they will represent 3 % of the ECU market value. The biggest part of electronic components will go to the power train, Riches analysed. According to his study, security and safety applications are much less important in ULCCs compared to standard cars.

-Christoph Hammerschimdt
EE Times Europe

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