Automotive

Drivers

 

All industries are being shaped by the global Megatends of Globalisation, changing Demographics, Climate change and Technology innovation.  Shaped by the these trends and now the pandemic, the industry is being shaped by five major drivers:

 Demand

Sales have declined since 2017 due to economic uncertainty, diesel confusion, Brexit and changing demographics.

COVID led to a further 20% fall in 2020. New sales have been further hit by the pandemic supply chain shock. 

Population growth and increasing wealth, especially in Asia and Africa, will create demand. Emerging market global automotive sales rose from 50% in 2012 to 60% in 2020. However, in developed countries the net growth of the driving age population (15 to 65 years old), are rapidly approaching zero. Hybrid working may shift demand to smaller electric cars.

How people buy is also changing. Most people who bought from a dealership would not do so again. Instead, 60% would buy online and 45% want a seamless aftersales experience.

Sustainability

Road transport (cars, trucks and buses) accounted for 74% of global transport CO2 emissions, and 18% of total global CO2 emissions in 2016. The car industry’s 2018 carbon footprint equals 9% of total annual global greenhouse gas (GHG) emissions. Car travel needs to fall by between 20 and 27% by 2030 to meet the UK's net zero ambitions. 

City governments have led the way on imposing bans, or punitive taxes, on users of older combustion engines. National governments are now proposing dates for banning combustion engine usage. Emissions regulations hit automakers hard in 2021 as car makers face penalties of €95 for every gram of CO₂ they are above their limit, multiplied by the number of cars they registered in the EU. VW for instance was fined €100 million for missing its target in 2020.

In response the top 29 automakers plan to invest more than $300 billion over the next 10 years on electric vehicles.

Resilience

The automotive industry has created global supply networks to leverage low-cost labour while striving for zero inventory. The supply chain (especially in the US) is highly dependent on China. 

COVID-19 caused significant disruption, with manufacturing capacity utilisations of below 75% during the pandemic. This has been exacerbated by global shortages especially of semiconductors and now the war in the Ukraine.

Most automakers are integrating electric vehicles into their manufacturing mix which will require significant redesign of the manufacturing process and supply chain.

Innovation

Advances in connected, autonomous, shared and electric (CASE) vehicles are forcing unprecedented technology and business model transformation.

The investment is huge ($500 billion+) and the skills requirements are radically different (software, batteries).

BigTech companies are also targeting the growth in CASE — and OEMs will need to keep up.

Profitability

Automotive is a significant global  industry with turnover exceeding 7% of EU GDP, 3-3.5% of the overall GDP in the US and 10% in China.

Automakers are balancing "keeping the lights on" with prioritizing growth investments. The supply chain disruption caused by the pandemic and now the Ukraine war are making it worse. Regulatory demands, and changing customer needs also increase costs.

A customer from a mature market is not going to spending more on a car in 2030 so price rises are not a long-term option.

However, mobility services profits may surpass those from vehicle sales by 2030.