What are the key trends in the automotive industry? And how can industry intelligence help companies minimise threats, maximise opportunities and maintain a competitive edge?
The automotive industry is changing at lightning speed. For two consecutive years in 2018 and 2019, it reeled from shrinking economic activity, rising competition and dampened global demand. Then the knockout punch inflicted by the COVID-19 pandemic in the first half of 2020 had a severe impact on this globally integrated industry.
Symptoms have included disruption in Chinese parts exports, large-scale manufacturing interruptions across Europe and even the closure of some assembly plants in the United States.
In addition, sustainability issues and the transition from cars with internal combustion engines (ICEs) to Electric Vehicles (EVs) are all causing massive changes throughout the automotive industry, covering supply chain, production, sales operations and regulation.
Little wonder, then, that people involved in business communications within this industry, from CEOs to sales and marketing managers, are finding it hard to keep up with key trends and challenges impacting the sector. To stay ahead of the curve and remain competitive, tactical industry intelligence updated by industry experts, linked to the latest trends in the industry, is needed.
Understanding the global supply chain
The first port of call is to understand what is going on in the global automotive supply chain. Many manufacturers outsource work to each other as they contribute towards the creation of the final product. As OEMs (Original Equipment Manufacturers) seek economies of scale and lower risk, the drive toward vertical integration has spawned a substantial amount of merger and acquisition activity, as well as partnerships at all levels in the sector.
Global supply systems have yet to recover fully from the impact of the global pandemic. Transportation, notably shipping, is one essential aspect of the supply chain that is still underperforming. In the United States, outside of the neighbouring ports of Los Angeles and Long Beach, which accept most of the US imports from Asia, as many as 65 vessels were recorded as waiting for their cargo for nearly nine days.
As a result of these delays, the average travel time from China to the United States has increased by 75% to 71 days and the cost has climbed sharply to nearly $20,000 per container. This is certainly a concern for automakers, who have become increasingly reliant on just-in-time production models.
Evaluating the raw materials pricing landscape
Raw material prices are compounding supply side issues within the industry. For example, the demand for lithium – a key mineral in the production of the batteries required for EVs – is outstripping supply, causing prices to skyrocket. In 2020, worldwide battery production capacity was estimated to be approximately 630 GWh, with China accounting for nearly 75% of that. In late March, lithium carbonate prices in China were at 497,500 yuan/tonne, representing an 80 percent increase so far in 2022.
Since batteries account for at least 30% of the entire cost of an electric vehicle, decreasing battery prices are critical to making EVs more affordable. Contracts for lithium in China are very short-term and volatile, so automakers must collaborate internally between the COO, the VP Supply Chain, the Inventory Manager and the Purchasing Manager to ensure they have enough inventory to meet demand.
Assessing the impact on infrastructure
As the supply of electric vehicles grows, so too will the demand for charging stations. Currently, just over 4.5 million people living in the top 50 US cities – that’s just under 10% – live within a five-minute walk of a public electric vehicles charger. Even with the relatively low rates of electric vehicles ownership today, that is estimated to be 30,000 to 90,000 fewer chargers than is currently needed. (Mobilyze.ai; Toyota Mobility Foundation, 2021)
If all goes according to (President Biden’s) plan, the US will have 500,000 public electric vehicle charging stations by 2030, up from about 43,000 today. And millions more home charging ports are expected to be installed across the country as the vast majority of electric vehicles drivers charge up at home.
Given that range anxiety is often cited as one of the major concerns from consumers regarding electric vehicles, the current lack of charging capacity represents a significant challenge for sales and marketing VPs at automakers.
But despite the lack of widespread infrastructure, electric vehicles sales appear to be growing. In Norway, for example, electric vehicles made up nearly two-thirds of new car sales in 2021, with Tesla being the top selling brand. Norway is a key market for Tesla, who sold over 900,000 vehicles there in 2021.
While Tesla remains the top seller of electric vehicles, their competition is growing. Demand for the electric F-150 Lightening, Ford’s electric pickup, is surging. So much so that Ford is planning to double its production just to meet expected demand.
But it’s not just sales where electric vehicles are gaining traction, but also advertising. Automakers spent $248 million on national television commercials promoting EVs in 2021, up 282% from $65 million in 2020. While Tesla is the notable exception to this trend, legacy OEMs are sticking to what they know and are spending big to promote their electric offerings.
As sales continue to grow, automakers are facing a new challenge – whether to spin off the electric vehicles segment of their businesses from the ICE segment. OEMs with sales of gas-powered passenger vehicles are still dominating the sales mix, but cannot achieve the valuation factor of a pure-play electric vehicles company.
Spinning out the electric vehicles segment would allow investors to better understand how this sector operates and the manufacturer would have a real chance of growing the valuation of its electric vehicles business.
Regulation is continually changing to reflect lessons learned from new technology trends, accident data and increasing environmental demands. Regulations vary by country, but the worldwide nature of the industry means that high levels of safety and quality are similar across the world, therefore international standards are constantly being harmonised.
The automotive sector relies heavily on regulatory aspects. Since the sourcing of raw materials for auto products is causing environmental issues, governments may feel obligated to impose more stringent rules on automakers to encourage sustainable procurement.
Keeping up to date
As the automotive industry continues to change at pace, with major factors including the emergence of electric vehicles, supply chain issues and sustainability concerns, executives must stay up to date. That means taking advantage of the latest market intelligence in order to keep track of key industry trends, challenges and regulations across all the countries their companies operate in.
As well as identifying the different categories of automotive products and grasping the different strategies that influence design and production, they also need to engage with the main areas of change, growth and risks in the industry. Sales executives also need to understand the different emerging sales models, such as online sales and subscriptions.
In addition, people who are responsible for employees` professional development should make use of training services that lead to industry certifications and proof of expertise in the industry.
Disruption in the automotive industry is definitely here to stay – and executives would be wise to stay ahead of the curve in order to maintain a competitive edge.
Cambashi provides access to self-paced e-learning courses for a number of vertical industries, including automotive, that establish the foundational vertical knowledge needed to build overall industry competency and engage effectively with key roles from the industry. Courses link to Cambashi Industry Insights, which offer tactical industry intelligence updated by industry experts. A set of online industry-specific “just-in-time” support tools provide the latest information from across the globe on the news, key trends, products and services within the automotive sector. Industry terminology is also available through the Cambashi Industry Glossary.
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