In 2017, the world’s automakers spent a combined $1.1 billion on additive manufacturing (“AM”), a transformative approach to industrial production which utilizes innovative resources such as 3D printing to automate the manufacturing process. By 2028, that figure is estimated to reach $12.6 billion, implying a compound annual growth rate of 25% . What is driving this increased investment? Will the proliferation of AM ultimately transform the way cars are manufactured?
Recent Trends in the Automotive Industry
Over the last several years, automotive manufacturers have seen increased demand for improved fuel economy, the use of lighter weight materials, and stricter emission regulations, all of which have contributed to higher costs . On the manufacturing side, there are over 6,000 to 8,000 different parts in each new vehicle, and that number is rising as customers expect more personalization options . For context, the cost of materials and direct labor account for a combined 68% of the cost of manufacturing a car . With new car prices forecasted to remain flat in most global markets for the foreseeable future, automotive original equipment manufacturers (OEMs) have been desperately seeking new ways to cut costs while still remaining competitive and profitable . Enter AM, which was initially used for prototyping and small batch production; however, recent technological advancements have led to mass production capability . The figure below provides a non-exhaustive overview of which parts are currently manufactured using AM and which parts may potentially be in the future .
Volkswagen Forges Ahead
Volkswagen (“VW”) is the world’s largest automotive manufacturer, with over 10 million vehicles sold globally in 2017 . The company is no stranger to AM; as a pioneer of the use of AM technology among automakers, Volkswagen debuted 3D printing at one of its manufacturing plants in Portugal in 2014 . By 2017, the company was using seven 3D printers to mass produce more than 1,000 parts each year, cutting production costs on those parts by upwards of 97% .
In September 2018, Hewlett-Packard (“HP”) announced a groundbreaking metallic 3D printing technology which is 50 times more productive than other 3D printing techniques, delivering lower cost and higher quality products . One day later, VW announced that it, in collaboration with HP and auto supplier GKN Powder Metallurgy, would be the first auto manufacturer to use the HP Metal Jet process, with the goal of producing 100,000 metal units per year using this technology in 2-3 years . Key parts to be produced include highly customized tailgate lettering, gear knobs, and keys with personalized lettering for customers (see Figure 3 below) .
Compelling Case for Scale?
While VW management has set short-term goals to incorporate this groundbreaking technology, the longer-term scale benefits remain to be seen. 100,000 units is a commendable goal in the short term, but it represents less than .0001% of the parts going into VW vehicles on an annual basis. Additionally, the parts produced by AM are niche accessories which are largely separate from the “meat” of the production process. Management even concedes, “Complete vehicle will probably not be manufactured by a 3D printer any time soon, but the number and size of parts from the 3D printer will increase significantly.” .
In the long-run, AM could represent a significant cost-out opportunity for VW and its peers. However, in its current state as a fringe technology, and without concrete plans at the management level to scale meaningfully in the medium-term, there is no evidence to support the idea that VW’s bottom line will be materially impacted by the use of AM.
Charting Volkswagen’s Path Forward
For VW and its competitors who are serious about integrating AM into their manufacturing process and benefitting from the increased scale and dramatically reduced costs, partnerships with leading AM technology companies are crucial. In particular, targeted research partnerships with these companies are crucial – rather than seeking to apply the newest AM technologies to its manufacturing process, VW should work with its technology partners to specifically design solutions tailored to auto manufacturing. This approach would speed innovation and adoption and ultimately generate value for VW and its shareholders through decreased lead times, increased efficiency, and higher profitability.
As VW contends with these decisions, several questions remain. Can AM ever scale to a point where it will materially impact these companies’ bottom line? If so, what will be the impact of increased AM adoption on VW’s and other manufacturers’ workforce? Finally, as the automotive production process continues to shift to a build-to-order model, can AM be adaptive enough to suit customers’ increasing desires for personalized solutions?
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