Workers at Daimler’s Sindelfigen, Germany, plant make S-Class vehicles that are easily customized to various regulatory structures in different countries.
Photo courtesy of Daimler AG

As if paradigm-shifting developments such as the electric powertrain, autonomous vehicles, and mobility-as-a-service weren’t enough for auto manufacturers to reckon with, now a highly politicized territorial skirmish over fuel economy and emissions regulations has thrust even more strategic uncertainty upon them.

Auto manufacturers find themselves in the middle of an escalating clash over the types of vehicles they’ll be required to build and sell, with a contingent of states led by California resisting the Trump Administration’s efforts to roll back certain tailpipe and fuel efficiency standards and limit states’ latitudes to set their own vehicle requirements (see News/Regulations, page 8). What automakers clearly want to avoid is bifurcation – having to tailor their production and planning to comply with a patchwork of rules requiring them to build certain types of vehicles for some U.S. markets but not for others.

“Automakers support year-over-year increases in fuel economy standards that align with marketplace realities, and we support one national program as the best path to preserve good auto jobs, keep new vehicles affordable for more Americans, and avoid a marketplace with different standards,” Dave Schwietert, interim CEO and president of the Auto Alliance, says in response to the Trump Administration’s announcement in September that it plans to revoke California’s longstanding authority to establish greenhouse gas standards for light-duty automobiles.

While auto manufacturers can hope – and lobby – for a single, nationwide set of standards, they also must prepare for a reality in which the vehicles they’re required to build for the states that follow California’s rules differ significantly from the ones they’re building for the rest of the U.S. market.

Facing immense strategic uncertainty amid what could be a protracted legal conflict between California-aligned states and the Trump Administration, the best move for automakers is to create certainty in their own manufacturing operations. They should be confident their supply chains and their manufacturing operations are agile enough to respond to any regulatory outcome. And that confidence comes from a digitally intelligent, Industry 4.0 approach to manufacturing, where every aspect of the business and every link in the supply chain are connected, where data-driven insight flows freely throughout the enterprise, where factories are automated, Internet of Things (IoT)-networked, and smart, and where innovative production approaches and business ideas can be scaled up quickly.

Daimler AG/Mercedes Benz already are taking decisive steps in that direction. “Digitalization enables us to make our products more individual, and production more efficient and flexible,” says Markus Schäfer, a member of the divisional board for Mercedes-Benz cars, manufacturing and supply chain management. “The challenge is to plan for the long term while remaining able to respond rapidly to customer wishes and market fluctuations.”

That rapid response capability also could prove valuable in responding to regulation-driven market dynamics. Here’s a look at three of the Industry 4.0 digital approaches that can help auto manufacturers keep pace with changeable and unpredictable regulatory conditions:

Smart factories – Mercedes-Benz says it’s rare for two identical S-Class vehicles to roll out of its Sindelfingen, Germany, plant.

“There is also an increasingly wide range of drive variants – alongside petrol and diesel engines, hybrid, and fully electric drive systems are increasingly popular,” Schäfer says.

Profitably producing such a variety of vehicles at a single facility is possible only with a smart factory, where processes are digitally automated and machines are IoT sensor-equipped and connected to one another as well as to a central digital platform, feeding the system with data for subtle and larger-scale shifts in production. Therefore, electric vehicles bound for the California market could be produced alongside SUVs destined for Texas, for example.

Auto manufacturers also are turning to smaller factories to support more agile manufacturing. Electric vehicle manufacturer Karma Automotive is building its business on a smart mini-plant manufacturing model pioneered by European luxury automakers. Likewise, Local Motors is producing its Olli driverless microbuses at microfactories in the U.S. and Europe. Using 3D printing and other advanced digital production techniques, the company says it can build the 13ft electric-drive buses 24x faster than traditional manufacturing processes.

Intelligent digital supply chain for responsive manufacturing – “At its core,” the consulting firm IDC says in a 2019 white paper commissioned by SAP, “an intelligent digital supply chain is a single, integrated entity that encompasses the key data, analytics, and business processes involved in designing products through to servicing the consumer post sale. The goal is to move to a supply chain that serves as an open platform for closed-loop communication, collaboration, and planning that begins with research and development and ends with post-sales support.”

An enterprise-wide digital platform with artificial intelligence (AI) and machine learning-driven analytics tools allows an automaker to capture and analyze data from internal and external sources, then run many simulations to see how various regulatory scenarios might impact the business from end to end. If a new federally sponsored consumer tax credit for electric vehicle purchases were to take hold, for example, how would that impact demand and what would it take to profitably and sustainably meet that demand? How could potential battery component supply issues be identified by predictive analysis? A powerful digital platform can enable an automaker to quickly find clarity around regulatory and production hypotheticals like this. As IDC explains in its white paper, that platform “essentially ties together all enterprise applications, data, and tools used to design, plan, develop, manufacture, and service products in one set of connected systems.”

Local Motors’ Olli autonomous vehicle awaits customers in Columbus, Ohio. The automaker plans to build the autonomous bus in small factories in multiple locations.
Photo courtesy of Local Motors

This includes:

  • Extension into front end of innovation to sense demand and manage intellectual property
  • Value chain of knowledge (internal, external) for new product ideas
  • Manufacturing for rapid production, accuracy, quality; supply chain for collaboration, rapid time to market, ongoing assurance of quality service and customer experience

Digital twin – Pairing the virtual and physical worlds with data supplied by sensors and equipment connected to the IoT to map processes and systems in real-time creates a digital representation of the physical world that can be used to glean valuable insight into how that physical asset or process would behave under various conditions.

Data produced by a digital twin allow manufacturers to evaluate technical and cost feasibility before series production begins. For example, a manufacturer could identify how processes and equipment on the factory floor would need to be adjusted to produce an engine that conforms to certain emission or fuel-economy parameters. Daimler is among the first major automakers to use digital twin technology in its manufacturing facilities. Such an approach will “revolutionize how we develop, manufacture, market, and service our products,” Daimler CIO Jan Brecht writes in a 2018 blog post.

Automakers likely will need to rely on revolutionary digital technologies like these to thrive and become intelligent enterprises amid so much regulatory uncertainty.


Jim Davis is the director-Americas for the SAP Automotive Industry Business Unit. He can be reached at Mark Landrosh is a solutions manager for SAP.