The automotive industry in America is transforming on numerous fronts from internal combustion engines to electric drive trains, from cars that we drive today to self-driving or autonomous vehicles. Now a days, car ownership is no longer the staple model and consumers are opting for on-demand mobility.

The US automotive industry stalled in 2018 and the trend may likely prevail this year as well. The country, which was doing exceptionally well in the auto industry, why it is showing such decline in the sales? What are the reasons behind the dip? A few factors that pushed the upward swing are currently blurring. Automotive manufacturers are poised to witness some major challenges which will force them to change the way they work, specifically in 2019.

·       Surge In Raw Material Prices

US imposed 25% and 10% tariffs on imports of steel and aluminum, respectively, starting 2018. The move is expected to increase the input raw material cost of automotive manufacturers in the foreseeable future. Understanding a customer’s perception can be the key to establish the footprints and penetrate deeper in this area of the market. As an expert from market’s demand-side prospective and widespread reach in every corner of the country, TechSci Research has carried out consumer perception studies for automotive manufacturers, wherein, TechSci has showcased the major influencers of purchase, the optimal price a customer is willing to pay, impact of marketing and advertising campaigns on a consumer and factors that can influence a customer. With consumer data and insights of this quantum provided by TechSci Research, the manufacturers have been able to appropriately position their products on the opportunities available in the market.

·       Increasing Unsold Inventory On Year-On-Year Basis

Product development has become an intensified focus among automakers as leading players operating in the market are consistently introducing new technologies with improved fuel economy and reduced carbon emissions. Companies that are the leaders in the today’s innovation will need to be on top of their game in order to stay ahead in the competitive market. In the third quarter of the 2018, Tesla outsold Mercedes Benz in the US by registering sales of 69,925 units. Moreover, due to product innovation the inventory of unsold vehicles is also increasing on a year-on-year basis. American International Automobile Dealers Association (AIADA) reported that there were 3.95 million vehicles on dealership lot at the end of January, which is 4% increase from the last year 3% unsold inventory.

Another key factor is increasing number of software driven electronic components in vehicles. Now a days, almost all OEMs provide telematics services when compared with four in 2001. The upsurge in the number of electronic components in automobiles results in increase in the overall cost of the vehicle. Furthermore, increasing inclination of OEMs in adding value added electronics and software in automobiles and need to reduce the price is a challenge for the automakers. 

Furthermore, increasing penetration of smartphones is compelling automobile manufacturers to equip vehicles with advanced electronic and entertainment system that can integrate with the personal devices.

·         Increasing Demand For Electric Vehicles

The demand for diesel has been depreciating in the US for few years now. Elevating consumer awareness pertaining to environmentally sound vehicles and technologies is boosting sales of electric and hybrid vehicles. The demand for diesel in the US is anticipated to drop 12.5% from four million barrels per day to 3.5 barrels per day by 2030. Moreover, increasing inclination towards electric vehicles is further stressing on the presence of inadequate electric charging infrastructure. As of September 2018, there were 22,000 level 2 and DC fast charging stations present in the US and Canada. Year 2018 observed 81% increase in electric vehicles in US when compared with 2017. At this rate, the lack of proper charging infrastructure can be an issue in 2019.

According to TechSci Research report “Global Small Electric Vehicle Market By Technology (Hybrid Electric Vehicle, Plug-In Hybrid Electric Vehicle, Battery Electric Vehicle), By Battery Type, By Geography, Competition Forecast & Opportunities, 2022”, the global small electric vehicle market stood at around $ 6 billion in 2016, and is forecast to grow at a CAGR of 23% during 2017 – 2022, to reach $ 20.7 billion, on account of increasing consumer inclination towards electric passenger cars coupled with declining prices of electric vehicles. Moreover, the boost in demand for small electric vehicles can be attributed to favorable government policies and continuing surge in R&D investments by several OEMs to develop premium quality and affordable small electric vehicles.

·       Environmental Regulations to Define the Future of Automotive Industry

California has special permission to set standards that are tougher than federal ones. Other 15 states (CARB states) also follow greenhouse emission standards set up by the California Air Resources Board (CARB). Stringent government regulations implemented by the CARB are presenting challenge in front of automakers to reduce the amount and type of air pollution caused by trucks and cars. Moreover, current standards mandate an average fuel economy of 54.5 miles per gallon (mpg) in the United States for the 2025 model year, which is expected to negatively affect the sales of diesel vehicles.

As an expert from application prospective, TechSci Research carries out need-gap analysis wherein the company showcases the type of product line and specification wise demand from the market to streamline the portfolio. This helps automakers to create best fit portfolio with respect to the changing market behavior.

Secondly, TechSci Research also conducts focused research study on each type of product and has projected market forecast for 5 years. This research has helped automakers with identification of new untapped markets where manufacturers with specific focus on fewer top of the line products are evaluated in an independent way to lead the market rather than following competition.

Trade war between China and the US

The ongoing trade war between automotive majors, the US and China, poses a challenge before the automakers. Following, $250 billion tariff applied exclusively to China, and retaliatory $110 billion tariff applied on US by China, the prices of raw material and cars have gone up. It results in high input cost and market becomes less competitive due to high price. The existing trade war is affecting the sales of automobiles in US and China as it is elevating the overall price of the vehicle by up to 2%.

In order to register strong growth in the automotive industry, the players operating in the region are investing in research & development and adopting organic and inorganic strategies such as product launches, investments & expansions and agreements & contracts to ensure growth in the market. Moreover, governments in the region are providing subsidies to encourage the adoption of electric vehicles and growing awareness pertaining to the emission and increasing investment by various OEMs for developing affordable and premium electric vehicles is boosting the sales of the electric vehicle in the region. Technological advancements such as autonomous and semi-autonomous vehicle are expected to witness traction in the forthcoming years.

According to TechSci Research “North America Electric Passenger Car Market By Vehicle Type (Hatchback, Sedan and SUV), By Technology Type (Battery Electric Vehicle and Plug-in Hybrid Electric Vehicle), By Driving Range, By Country, Competition Forecast & Opportunities, 2013-2023”, the market stood at over $ 10.3 billion in 2017 and is projected to grow at a CAGR of more than 18% to surpass $ 31.5 billion by 2023 on account of growing demand for cleaner automobiles. Moreover, governments in major North American economies are providing subsidies on electric vehicles in order to encourage their adoption, which is consequently pushing demand for electric passenger cars across the region. Additionally, technological advancements in automotive industry coupled with continuous expansion in the region’s charging infrastructure is further anticipated to fuel growth in North America electric passenger car market over the next five years.

Additionally, the market for used vehicle is increasing for past few years, which is also posing a challenge for the new cars and trucks.

According to TechSci Research “North America Used Truck Market By Tonnage Capacity (3.5 Tons to 7.5 Tons, 7.5 Tons to 16 Tons, 16 Tons to 30 Tons and Above 30 Tons), By Fuel Type (Diesel, Petrol/Gasoline, CNG & Electric & hybrid), By Application Type, By Country, Competition, Forecast & Opportunities, 2014 – 2024”, the used truck market is forecast to grow from $ 13.7 billion in 2018 to $ 20.5 billion by 2024, exhibiting a CAGR of 6.8% during the forecast period, owing to their low cost when compared with new trucks. Increasing preference for advanced technologies such as automation transmission is resulting in consumer focus towards new trucks, as a result, used truck sellers are keeping the prices of these trucks low in order to attract customers. Fleet owners are demanding more trucks to handle rising freight demand, owing to increasing construction activities and growing e-commerce industry across the region. Moreover, North America Free Trade Agreement allows easy movement of goods in the region. Thus, several companies have set up their automotive manufacturing plants in Canada for producing and selling vehicles in the United States.

TechSci Research has conducted robust forecasting studies for automotive and other vertical majors which has helped them in planning and formulating a business strategy. It is important for automotive manufacturers to understands the historic and current grounds realities of the market and get holistic forecasting studies done which will help them to stay ahead of the market and dodge these road blocks in an efficient manner.

Author: Mr. Ruchit Mahendru, Research Manager, TechSci Research

Mr. Ruchit Mahendru is a management and strategy consulting professional with over 8 years of experience. Mr. Mahendru has been instrumental in developing and implementing business strategies for many automotive companies. He has an extensive experience in advising clients to identify and tap unearthed opportunities for its clients to lead rather than following competition.

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