Cycling 4.0: Business Migrating to Electronics & Software and IoT
FRIEDRICHSHAFEN, Germany – What this year’s Eurobike is making clear to all is that the business is migrating on an enormous scale. It is shifting from the traditional groupsets and mechanical parts to an integrated electric-assist motor/transmission, disc brakes and a push-button electronic shifting. At the core of this transformation is a migration of value to a platform based upon electrical and software-based components.
Electrical components are the essential precondition for software components and the algorithm will be the most valued piece of the puzzle leading to the shift to intelligent components and to fully autonomous cycling vehicles. Not anymore will a purely mechanical system be the differentiator. Intelligent electromechanical components will be the drivers with software as the enabler and remote analytics, upgrades and new apps as the cash-flow machines.
Over 100 million code lines in cars
Such a transformation in Cycling 4.0 is pictured in the illustration on this page. While there will be many doubters and naysayers all anyone has to do is look at the same transformation that has been taking place in the automotive industry that has also migrated down to the motorcycle industry. An average new automobile contains 50 to 100 or more electronic control units (ECUs) with over a 100 million lines of code—requiring as much as a 2.7 km of wire to connect them over several different networks. The premium models of the leading motorcycle OEMs contain 5 to 10 electronic control units (ECUs with over 10 million lines of code-requiring several meters of wire to connect over one or more networks.
Value shift in automotive
Of course, we all know what has happened as the value in the automotive industry has shifted to electric vehicles dominated by software making Tesla the most valuable USA car company and fourth most valuable in the world. The top automakers, their recent market caps, and 2016 worldwide sales are:
1. Toyota, USD 155.88 billion market cap, 10.1 million sales
2. Daimler, (Mercedes-Benz), USD 70.35 billion, 3 million sales
3. Volkswagen, USD 67.24 billion, 10.3 million sales
4. Tesla, USD 60.28 billion, 76,230 sales
5. BMW, USD 54.77 billion, 2.4 million sales
6. GM, USD 51.45 billion, 9.6 million sales
7. Ford, USD 44.65 billion, 6.7 million sales
While this transformation of the automotive industry has shocked the market it has been overshadowed by the acquisition of the next generation in intelligent components in the automotive industry such as the USD 15.0 billion acquisition by Intel of Mobileye – a leader in computer vision for autonomous driving technology. Startling is the value Intel placed on Mobileye which only had USD 104.6 million in revenue in 2016. The driving force behind the wave of consolidation is the pressure to keep up with the shift toward autonomous driving that started about five years ago.
Automotive suppliers bring bike innovation
Of course, the global automotive industry is a USD 5.0 trillion industry compared to the global cycling industry that by our best estimates is roughly USD 100.0 billion industry. So, it is unlikely we are going to see this level of M&A activity especially from existing OEMs and Tier 1 suppliers. Only Garmin has come from the outside like Intel to pay in the millions of dollars in the global cycling industry for the acquisition of MetriGear and Backtracker purely for the technology as both companies were pre-revenue.
But, we have seen Robert Bosch (with USD 85 billion in sales) become the new leader in this transformation with a total investment over the last several years that we’ve estimated to be a minimum of USD 50-100 million. As a result, it has dominated the e-assist mid-motor market and, recently, accelerated its efforts with the release of the world’s first electro-hydraulic anti-lock brake system (ABS) for e-bikes. We have no doubt that Bosch along with Continental and other Tier Automotive Suppliers will continue to bring innovation to the global cycling market.
Shimano able to keep up
As for existing players in the global cycling industry only Shimano really has similar financial resources to keep on the same level as these automotive players. But, it’s been slow to capitalize on this transformation even though it had the edge with the introduction of its Di2 electronic shifting in 2009. But, they are improving their e-assist mid-motor and we have seen a patent it filed in 2016 for an integrated electro-hydraulic ABS into its e-assist mid-motor. So, it’s probably not far behind Bosch in that area.
Will there be any outsiders such as a kickstarter or venture-backed startup that will rise-up and become a player in the global cycling market? Of course, there will be a few of these that will make a difference out of hundreds we’ve tracked over the last five years. So, don’t be surprised by it as this disruption is the essence of Cycling 4.0!