ADAS Technology Why Asia Interprets the ZF Deal with Harman as a Turning Point

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ZF parts with its ADAS business due to financial difficulties. Analysts see this as more than an emergency measure: the start of a new wave of future technology shifting to Asia.

Do German Tier 1 suppliers still have a long-term chance in the global market for automated driving? Or can they no longer keep up with Asian corporations in future technologies? These questions have been raised since ZF sold its ADAS business unit to Harman. The originally US-American company is now part of the Korean electronics corporation Samsung.

ZF announced in a press release on December 23 that it intends to transfer its ADAS business "with compute solutions, smart cameras, radar technology, and driver assistance software functions" to Harman. If the regulatory authorities approve the deal valued at €1.5 billion by the second half of 2026, 3,750 ZF employees would transition to Harman.

ZF Must Reduce Debt

ZF itself will focus on its core competencies in the future, the company announced. "The divestiture allows us to concentrate our resources on those core technologies of ZF, such as chassis, drive systems, commercial vehicles, and industrial applications, in which we are globally leading," said ZF CEO Mathias Miedreich.

However, ZF also honestly admits that it urgently needs cash and that the decision has been heavily influenced by this reality, rather than primarily by strategic considerations. "The proceeds from the sale will significantly help reduce the financial liabilities of the ZF Group," says ZF CFO Michael Frick.

Observers in Asia Are Surprised

In China and Asia, the decision by ZF's management has caused confusion. Moderate commentators referred to it as a "surprise," especially since the ADAS market is currently experiencing significant growth both in China and globally. Others were less diplomatic. The move by the Friedrichshafen-based company was likened to "trying to survive by cutting off one’s arm," wrote BusinessCars, a Chinese automotive blog on WeChat.

Indeed, ZF is parting ways with a business segment whose market is not only growing rapidly but also accounts for an increasing share of value creation in the automotive sector as the transformation to autonomous and connected driving progresses.

ADAS Market Growth

"The global market for sensors in driver assistance systems (ADAS) and autonomous vehicles is expected to grow significantly in the coming years, driven by the broader adoption of advanced safety features and automated driving functions," writes the market research agency Counterpoint in a forecast released on December 24. The ADAS and sensor market for autonomous vehicles could reach a volume of "61 billion US dollars by 2035," according to the agency.

If a "century-old German Tier-1 supplier" like ZF finds itself forced under high debt to part with one of its most profitable and future-proof business segments, many analysts in Asia believe this may indicate a new trend.

Value Creation Shifts to Asia

From their perspective, a further shift of automotive value creation from Europe to Asia may be emerging. Following the production of electric cars and hybrids, the production of key components for intelligent driving is now also moving in this interpretation, as part of a general exodus toward Asia.

What is seen as an opportunity for large Asian corporations like Samsung must raise concerns from a European perspective. With the reorganization of global supply chains due to software-defined driving, traditional suppliers in Germany and Europe may no longer be able to compete with the large corporations in Asia. The latter benefit from their higher stock valuations, giving them more capital for the ongoing investments in research and development required in this area.

Market Position of Bosch, Conti, and ZF

In 2024, ZF held only just over two percent of the total market for Level 2 and higher automated driving functions in China, according to a report by Research and Markets from September of this year. Aptiv had 2.6 percent. Bosch, Continental (now Aumovio), and Denso each had less than one percent.

"Foreign Tier-1 suppliers of ADAS are falling behind in the Chinese NOA market," writes Research and Markets. NOA stands for "Navigation-Oriented Assisted Driving," a commonly used term in China for navigation-based assistance systems.

Supply Chain Changing

In this context, ZF's decision to sell its ADAS segment would symbolize a profound shift in global supply chains, which is itself a consequence of the convergence between the automotive and electronics industries. Western suppliers, who have grown too slowly in China's ADAS market, could be forced to withdraw from such future technologies worldwide. They would then have to limit themselves to lower-margin hardware segments in the automotive supply chain.

Bosch and Continental would certainly not accept this logic—at least not yet, if one wishes to align with the pessimists. Both suppliers have chosen a somewhat different strategy in the Chinese market compared to their competitor ZF. They are focusing on even closer partnerships with Chinese companies.

ZF with a Different Strategy than Aumovio and Bosch

ZF itself had invested a significant amount of money in a Chinese start-up called Calmcar as recently as 2021. At the automotive exhibition in Shanghai this year, they showcased jointly developed NOA systems for the Chinese market. Now, it turns out that all these investments are being passed on to Harman.

In contrast, Bosch and Continental have opted to establish joint ventures with Chinese partners. Continental, together with Horizon Robotics, a Chinese specialist in autonomous driving, has founded the company "Horizon Continental Technology." This joint venture has launched "Astra," a Level 2+ system featuring chips from Horizon.

Bosch Invests Locally

Bosch is pursuing a "in China, for China" strategy and is heavily investing in local research and development. Bosch China is successfully selling urban NOA products and plans to offer them on the global market from China starting next year. The company is taking a bold approach that requires substantial investments over a long cycle and has so far been successful. Continental is following a similar path.

However, ZF's decision to withdraw from the ADAS business does not necessarily mean that its strategy in China was the worse one. It could simply indicate that ZF has run out of funds for this costly competition.

ZF had long fought to preserve jobs in Germany despite the known burdens of taxes, energy costs, and bureaucracy. Just recently, the company in Friedrichshafen had to announce a reduction in workforce.

ZF Will Continue to Offer Electronic Components and Systems

It should be mentioned that ZF is not completely withdrawing from vehicle electronics. The ADAS division will be sold, but electronics for chassis and passive safety systems will continue to be manufactured. The company also intends to keep offering ADAS for commercial vehicles. How this fits into the statement of "focusing" is not entirely clear.

The battle for the ADAS market in China and such corporate strategies could be more significant for the state of the German automotive industry and the overall German economy than is widely known. Bosch's low ADAS market shares in China might also raise the question of whether a healthy shrinkage similar to ZF could make sense there.

Beginning of a New Disruption Phase

It’s not quite there yet. However, if this pessimistic view from a European perspective proves to be correct in the long term, then the ADAS division currently being sold would be more than just an acknowledgment of financial weakness or a questionable management decision at ZF. It would be symptomatic of the beginning of another disruption phase in the global automotive industry.

Software-defined, autonomous, connected, and now AI-defined driving is changing value creation and generating new winners and losers in the industry. Success in individual product lines is becoming increasingly less relevant when large corporations can integrate entire full-stack systems of hardware and software, along with the corresponding competencies, under one roof.

In this new era, the car has already been referred to as a "smartphone on wheels." Even if this direct comparison is inappropriate, its mass production may be subject to similar principles as those of smartphones. Here, scaling is crucial. There is little mercy for smaller manufacturers.