Finding a niche automotive segment

24 September 2014

Qatar’s guaranteed supply of automotive-grade aluminium means it has the potential to tap into a niche market and become a manufacturer of advanced technologies such as lightweight composites

As the most financially powerful of the Gulf states, Qatar has been at the forefront of efforts to find a place in the global automotive supply chain. This drive started with the signing of a landmark memorandum of understanding (MoU) in March 2010 between Qatar Holding with Qatar Science & Technology Park (QSTP), Volkswagen and Porsche to set up research and development (R&D) facilities in the country.

With Qatar’s sovereign wealth fund owning minority holdings in the two German carmakers, officials saw scope to get more value from their equity interests by establishing a local R&D presence, deploying the collective technical strengths of the two firms.

QSTP entertained high hopes for the R&D venture. Its executive chairman, Tidu Maini, said QSTP was involved in the development of a range of proprietary technologies with applications in the automotive sector and access to infrastructure necessary to undertake further applied research with leading organisations such as Volkswagen and Porsche. He outlined “substantial potential synergies in working together in areas such as materials technology, driving simulators and engine efficiency.

Joint venture

That MoU was followed by another automotive project two years later in the shape of Qatar Automotive Gateway (Qatar Ag). Qatar Ag entered into a deal in January 2012 with the UK’s Prodrive, an automotive technology and motorsport specialist, to build and develop a cutting-edge automotive industry value chain in the country. The two sides agreed to establish a strategic partnership in the carbon fibre composite industry. Announcing the deal at the 2012 Qatar International Motor Show, Qatar Ag said the two companies will jointly work for the development and production of advanced carbon fibre composite automotive parts and assemblies.

Carbon fibre composites are now set to play an increasingly important role in the automotive industry. Formerly used in high-value, performance vehicles, the emergence of new materials and production technologies are paving the way to a far broader range of usage – in mainstream vehicles and initially in electric cars. By reducing the mass of finished products, the materials contribute significantly to improved fuel efficiency — meeting one of the key goals of the industry.

The overriding aim was to build a platform to develop a cutting-edge automotive industry value chain in Qatar and turn the country into an international hub for future technologies by 2020, by investing in the manufacturing of innovative automotive components – a sector that is witnessing increasing demand worldwide.

Automotive cluster

The demand for lightweight carbon composite-based products is especially robust, being utilised in applications within the automotive, aerospace and marine sectors. The aim is to build an automotive cluster in Qatar by 2020, in line with the Qatar National Vision 2030. Qatar Ag CEO Ahmed Sorour pledged to find partners to come to the country to set up research centres for aluminium components and lithium-ion battery materials, the latter used in electric and hybrid vehicles. Applications are well-established in the sports industries, particularly motorsport, and are rapidly extending into the aerospace, marine, and automotive and wind energy generator.

The two projects represent an ambitious bid to galvanise a domestic knowledge-based industry by tapping into foreign partners’ technical expertise. As yet, they are still some way from seeing light.

Although the Qatar Automotive team was subsequently welcomed to Prodrive’s facility in Milton Keynes in the UK to see how it could produce composite structures and components for a variety of vehicle manufacturers, that project is not yet in fruition. “We are continuing to explore opportunities with them, not only for carbon composites but also for electric and hybrid vehicle technologies,” Prodrive chairman and CEO David Richards tells MEED.

Economies of scale

Getting a head start in the automotive industry is never easy, even for a financially powerful state such as Qatar. “Automotive wouldn’t necessarily come to mind as the first sector in which the Qataris would enjoy a competitive advantage,” says Giyas Gokkent, an analyst at the Washington-based Institute of International Finance.

For one thing, the requirement for a broader supply chain is compelling, and is not something Qatar currently enjoys.  

The key for success would be to achieve economic scale, because unit cost in auto production comes down sharply the larger a manufacturing plant is, says Gokkent. “Qatar has a small population, so a large manufacturing facility would only make sense if the output from such a facility could also be exported. It is part of the GCC customs union and could tap into demand in Saudi Arabia.”

Qatar already has metal manufacturing facilities. The one component where the country does enjoy a local production capability that could feed an automotive industry is aluminum.  Qatalum, a joint venture between Qatar Petroleum and Norway’s Hydro Aluminium, has a local production capacity of 640,000 tonnes a year (t/y). The certification of Qatalum for automotive-grade aluminium is one reason why Qatar’s ambitions to become an automotive manufacturing cluster are not in the realm of fantasy. Market usage of Qatalum’s aluminum is automotive; about three-quarters of all foundry alloy production feeds the automotive industry.

“Metal manufacturing is energy-intensive, so Qatar has a comparative advantage in this, and it imports the raw material,” says Gokkent. “The other bits of the supply chain are an issue, however.”

Realising potential

The Qataris have achieved a correct analysis of the areas where they have a competitive advantage, according to Pierluigi Bellini, an analyst at the US’ IHS Automotive. “More expensive cars use more aluminium, and Qatar has decent aluminium industries,” he says. “So their ambitions are not baseless. And with the interests in Volkswagen and Porsche, they have some leverage in decisions such as locating innovation centres in Qatar.”

The challenge is realising that potential. “It’s one thing to say they have these advantages,” says Bellini. “But making it a success is another story. This Volkswagen special relationship can jump-start the supply chain, but from there to say they will be successful is a hard call. They’ll need a specialised work force, and while Qatar does have an aluminium smelter, other countries also have those. They will need strong incentives to get industries to set up in the country.”

Qatar’s new-car market of 40,000 a year is small by international comparison. However, the regional marketplace is an attractive and growing one, and the country should be well-positioned to serve it. The Middle East automotive market is forecast to grow twice as fast as those of Western European and North American markets from 2012 to 2022, according to IHS. In 2022, it forecasts that light vehicle sales in the GCC will jump 25 per cent to 1.7 million.

Advanced technologies

ProDrive’s Richards contends that mass vehicle production need not be a key aim for Qatar in order for it to succeed. “While I do not necessarily see mass vehicle production taking place in Qatar or the development of a traditional automotive supply chain, the region has a great opportunity to become a hub for a wide range of advanced automotive technologies,” he says. 

These would include high-value components such as lightweight composites, which were once only the domain of exotic sports cars, but are now increasingly being used in premium vehicles and in particular the new generation of electric cars, adds Richards.  

Despite the many challenges, there is room in the automotive supply chain for Qatar to find its niche. As a global leader in developing power electronics using silicon carbide componentry – making electric and hybrid vehicles a more viable proposition through improving efficiency and cost-effectiveness – Richards sees no reason why Qatar Ag cannot become the global centre for research and development of technologies such as this.

Qatar is not about to rival Japan as a mass market car producer. But in time, if it sticks to its plans, it may well find a suitable niche in the global automotive supply chain.

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