Automotive industry, which contributes to roughly 3 % of global GDP, is a major industrial and economic force worldwide. The global automotive industry stalled in 2018, registered low sales in 2019 and the trend is likely to prevail throughout 2020 as well due to SARS CoV-2.

Advent of self-driving or autonomous vehicles, transformation from IC based engines to electric drivetrains, growing use of AI and connected cars, among others, are set to revolutionize the sector during the next two quarters of the year, 2020. In fact, change in trend of vehicle ownership, growing demand for mobility on demand and mobility as a service, point towards increasing technological investments in the sector. At the similar front, automakers such as BMW and Ford have made massive investments in the acquisition of several technologies. Internet-related service major Google and Uber are also following the bandwagon as the new buyers are more tech savvy and desire for improved, efficient, vehicles these days.

Like every other sector, automotive sector also witnessed massive dip in sales this year but the industry is all set for recovery in the second half of the year. India witnessed nil automotive sales in April 2020, sales for China and United States also dipped but the pandemic has presented industry with several tailwinds, which will force automakers and allied sectors to change the way they operate.

     1.      Outbreak of COVID-19

First half of the year has already ended and the WHO has confirmed that the COVID-19 is here to stay. The outbreak of the novel virus that started from China has now spread worldwide. Economies enforced lockdown but customer footfall post reopening is still low, which is majorly due to decline in consumer confidence and halted automotive production. Companies such as Tesla, General Motors and Volvo have opened their production plants but shortage of auto components and workforce is negatively affecting the production. Shortage of auto components is primarily due to heavy reliance on China. In fact, push by governments of various economies to cut GHGs by incentivizing adoption of electric vehicles has further pushed the imports from China as the country holds dominant position in electric vehicle and electric vehicle components market. For instance, several tier I suppliers and OEMs have increased imports from China as it is the major hub for battery technology, drive transmission and steering, which are utilized in electric vehicle production, thereby, contributing to the increased trade deficit with China.

Another challenge is lack in coordination with logistics partner, capital investment requirement and insufficient manpower for production. Solution to the problem can be switching to other countries for meeting the demand for automotive components. However, permanent solution is reducing reliance on China and focusing on domesticized production plants, which will open new employment opportunities. Domestically produced auto components can also help to reduce the overall cost of vehicle, as heavy import duties are levied whenever the product is shipped from China.

     2.      Evolution of Connected Vehicles and Growing Prominence of Autonomous Vehicle

Just like any another industry, automotive and allied sectors are going through fast paced technological innovations. Increasing funding in R&D of connected vehicles and autonomous vehicles, launch of semi-autonomous vehicles in recent years and growing integration of IoT in automobiles validates the aforesaid fact. Connected vehicle technology refers to collection of data and communication by automobile with its surroundings. United States Department of Transportation is developing connected vehicle safety applications and European Commission is planning to deploy Cooperative Intelligent Transport Systems for implementing connected vehicle technology throughout the US and EU, respectively. In fact, average microprocessor/microcontroller per vehicle rate has witnessed rise in growth and the rate is forecast to shoot up during the next decade on the wake of growing demand for connected features such as internet connectivity in vehicles, V2V communication and rollout of 5G in the coming years.

Autonomous vehicle may sound like a new advancement but the idea and development started over 80 years ago. Now, we have segregated SAE level from level 0, which is no automation to level 5 which is full automation.

Level 3 which is conditional automation accounted for the largest share in 2019 and the trend is expected to continue in the upcoming years. Owing to large scale testing and growing adoption of autonomous vehicles, governments in several countries like Switzerland and United States have permitted driverless testing of autonomous vehicles on public roads. Although, autonomous vehicle market is a multi-billion-dollar market but the top spot for first fully autonomous vehicle is still up for grab. Google parent Alphabet's Waymo subsidiary is ahead in the race, in terms of miles covered. The company’s fleet has covered over 16 billion kilometers in simulation and 32 million kilometers in real world. Some of the leading companies operating in the autonomous vehicle include GM Cruise, Waymo, Argo AI, Tesla and Baidu.

 

According to published report by TechSci Research, “Global Semi & Fully Autonomous Vehicle Market By Automation Level (Level 0, Level 1 & Others), By Component (Embedded Systems, Cameras & Others), By Vehicle Type, By Region, Competition Forecast & Opportunities, 2030” global semi & fully autonomous vehicle market is expected to exhibit a CAGR of over 21% to reach US$ 64 billion by 2030. Growing focus of automotive OEMs on enhancing safety features and increasing government support for developing driverless vehicles are the major factors anticipated to aid the growth of global semi & fully autonomous vehicle market during the forecast period. Moreover, foray of technology giants such as Google and Intel, among others, in autonomous vehicle market is further encouraging adoption of autonomous vehicles, thereby positively influencing the global semi & fully autonomous vehicle market.

     3.      Modification in Powertrain and Increasing Demand for Electric Vehicles

Depleting fossil fuels and increasing concentration of COx and SOx in atmosphere necessitates on looking for the alternative of existing fossil fuels. Alternative fuel vehicles and electric vehicles are few high-priced substitutes for the same. All major worldwide car markets have in place, progressively rigid legislations, aligned on controlling carbon dioxide outflows and exhaust gas emissions such as particulates and nitric oxide and improving fuel economy. A key challenge for the industry is to form the proper powertrain and innovation choices within the settings of quickly changing societal preferences and within the ever-changing regulatory environmental norm. The worldwide car industry is under constant pressure from environmental and client demands. The industry is confronting issues with respect to fuel economy, gas emissions, security and affordability of the vehicle. In addition, the competitive pressures on price, quality, execution and manufacturability of the vehicles nowadays is greater than ever. The reaction of the vehicle industry is primarily dependent on the choice of lightweight materials that meet these executions and cost prerequisites and improve the effectiveness and fuel economy of vehicles. 

An electric vehicle produces 50% less CO2 emission than an average automobile and as part of reducing carbon footprint, automakers are retorting to electric vehicles and governments are offering subsidies to promote that. Increasing consumer awareness and technological advancements are expected to boost the sales of electric vehicles although, inadequate electric charging infrastructure is still a challenge.

According to recently published report by TechSci Research, “United States Electric Commercial Vehicle Market By Propulsion Type (BEV, HEV, PHEV and FCEV), By Range (0-150 Miles, 151-250 Miles, 251-500 Miles and 500 Miles & Above), By Component (Electric Motor, EV Battery and Hydrogen Fuel Cell), By Company and By Geography, Forecast & Opportunities, 2025” United States electric commercial vehicle market is expected to grow at a double digit CAGR during the forecast. Since, trucks need heavy hauling power, they have avoided electrification until recently but now battery manufacturers are working on improving the battery efficiency and ones that could pull significant weight and bringing down both size & cost, which is boosting the demand for electric commercial vehicles in United States.

     4.      Modifications in Supply Chain and Business Model:

Disrupted supply chain has also brought the production of vehicles to a standstill. For instance, below mentioned figure indicates Chinese exports of motor vehicle parts and components in 2018.

Novel coronavirus outbreak has not only affected exports but also impacted the working mechanism inside production plants. Maintaining social distancing inside production facility will involve movement of complex machineries, which stresses on the demand for digitization of supply chain. Digitization in turn, is expected to automate the process while improving the productivity and safety of workers.

Additionally, companies need to modify their business models. For instance, Tesla, a leading electric vehicle company, sells vehicles through digital retailing. Doing so helps the company to cut cost by reducing or removing dealer commissions. Also, it helps to improve the customer engagement and experience as they are directly in touch with the customers without any third party. Surging sales of electric vehicle companies in Q1, 2020 may encourage other automakers to follow similar path.

     5.      Increasing Y-o-Y Unsold Inventory:

With new consumers being tech savvy, automakers are consistently introducing new technologies with improved fuel economy and reduced GHGs, to maintain their competitive position in the market. Due to continued product development, unsold inventory is also increasing on Y-o-Y basis. For instance, American International Automobile Dealers Association (AIADA) reported unsold 3.95 million vehicles on dealership lot at the end of January 2019, which was 4% higher from the 2018’s 3% unsold inventory. Besides, economic slowdown amidst SARS COV-2 is expected to further aggravate the situation. The solution to the problem can be introduction of automotive scrappage policy by the government for encourage buyers to replace old vehicle and purchase new ones.

Automotive companies must begin thinking beyond their traditional benefit offerings and overcome the deterrents standing within the way of speedy adoption of new technology in order to stay afloat in the market. Effectively bringing innovative connected vehicles to market is expected to open new income streams as well as offer more productive, more cost-effective, and more customized transportation opportunities for customers.