Combatting disruption in the automotive industry: taking an intelligent approach

Combatting disruption in the automotive industry: taking an intelligent approach

11 Aug 2022

This informal CPD article Combatting disruption in the automotive industry – taking an intelligent approach was provided by Cambashi, a leading global industry analyst & consulting firm. It will aim to provide an overview of how industry intelligence can help companies keep on top of the key trends in the automotive industry.

Combatting disruption in the automotive industry

Change is happening fast in the automotive industry. According to McKinsey, digitization, increasing automation, and new business models have revolutionized other industries, and automotive will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity.

Most industry experts agree that the four trends will reinforce and accelerate one another, and that the automotive industry is ripe for game-changing disruption. Given the widespread understanding that this disruption is already on the horizon, there is still no integrated perspective on how the industry will look in 10 to 15 years as a result of these trends.

Disruption has certainly led us to this point. For two consecutive years in 2018 and 2019, it was affected by shrinking economies, increased competition and reductions in global demand for vehicles. All of these factors we magnified by the COVID-19 pandemic in the first half of 2020, which had an immediate and severe impact on this globally integrated industry. We’ve seen many immediate outcomes, including disruption in the exports of Chinese parts, large scale manufacturing interruptions across Europe, and even the closure of some vehicle assembly plants in the United States.

In addition, sustainability issues, driven by the “green agenda”, have led to the transition from cars with internal combustion engines (ICEs) to Electric Vehicles (EVs). This evolution alone is causing massive upheaval throughout the automotive industry, with impacts on supply chain, production, sales operations and regulation. With these massive changes happening, it’s no surprise that people involved in business communications within the automotive industry, from CEOs to sales and marketing managers, are finding it hard to keep up with key trends and challenges impacting the sector.

Impact on the global supply chain

So, what is going on in the global automotive supply chain? Many manufacturers outsource work to each other as they contribute towards the creation of a final product, i.e. a completed vehicle. 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 (M&A) 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 still appears to be underperforming. In the United States, for example, 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.

High demand for batteries

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 - the COO, the VP Supply Chain, the Inventory Manager and the Purchasing Manager need to ensure they have enough inventory to meet demand.

Expansion of charging capacity

As the supply of EVs 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 EV charger. Even with the relatively low rates of EV ownership today, that is estimated to be 30,000 to 90,000 fewer chargers than is currently needed. (; 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 EV drivers charge up at home.

Given that anxiety around the distance a vehicle can travel once charged range – something that 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.

Public electric vehicle charging stations

Growth of EVs

But despite the lack of widespread infrastructure, EV 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 EVs, 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 EVs 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 EV 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 EV company. Spinning out the EV 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 EV business.

Regulatory issues

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 harmonized.

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.

Looking to the future

While companies in the automotive sector cannot predict the future of the industry with any real certainty, they can, however, make strategic moves now to shape the industry’s evolution. 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. 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.

We hope this article was helpful. For more information from Cambashi, please visit their CPD Member Directory page. Alternatively please visit the CPD Industry Hubs for more CPD articles, courses and events relevant to your Continuing Professional Development requirements.

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