The Covid-19 pandemic has negatively impacted the global automotive industry – causing changes in consumer demand, disrupted supply chains, and production stoppages – according to a recent report from Santa Clara-based management consultancy Zinnov. The firm examined the automotive value chain, including OEMs, Tier-1 suppliers, and ride sharing firms – tracking changes in consumption patterns and shifts in R&D and digital priorities.
The automotive industry saw a bull run from 2010 to 2018, with the developed US and Europe markets seeing approximately 5% CAGR. During this time, automakers expended their budget on large programs in the four areas of electrification, autonomous, connected, and shared mobility. However, the first quarter of 2019 showed the initial signs of an industry slowdown, which has now been hugely exacerbated by the global pandemic.
The initial impact of Covid-19 on supply chain and production was limited to China, but the spread of the virus to Europe and the US has shifted concerns from supply chain disruption to “demand vaporization,” according to Zinnov.
Sales of SUVs and sedans fell more than 50% in Western Europe in March, and dipped by nearly 40% in the US, according to data from LMC Automotive. The firm expects April sales in Western Europe and the US to fall by as much as 80% and 60%, respectively.
Consultancy Zinnov relates that the ongoing crisis has impacted both OEMs and Tier-1s alike, who have lost 20-40% of their market value since the beginning of the outbreak.
Ridesharing companies have been hit even harder by forced lockdowns and social distancing policies. Uber and Lyft have lost upwards of 60% of their market value as consumers have eschewed the sharing economy, Zinnov reported.
The firm says the crisis is forcing auto companies to pivot their business models and leverage technology. The lockdown is driving further efforts in online sales channels – delivering digital showrooms, VR solutions, and touchless delivery.
There is also initial anecdotal evidence that global governments will ease environmental regulations and focus on economic activity instead of environment and electric vehicle (EV)-related subsidies, the report notes.
Zinnov believes the above changes will cause automakers to reprioritize R&D spending on the two areas of connected and autonomous, with less devoted to electrification and shared mobility.
“In the near-term, the relaxation of emission norms, drying up of environment/EV-related subsidies might force certain automakers to put high investment electric powertrain programs on the back burner,” said Sidhant Rastogi, managing partner at Zinnov.
A 2018 study from AlixPartners previously predicted that more than $255 billion would be spent on electric vehicle R&D and capital expenditures globally by 2022.
Meanwhile, Zinnov believes auto companies are most likely to focus on upgrading manufacturing productivity and efficiency with plant automation and Industry 4.0.
“In the long term however, there will be renewed focus on making their digital investments count by enabling digital/touchless walkthrough and delivery experiences, bringing in greater efficiencies by leveraging Industry 4.0 and Automation, and innovating on the existing business models to align to the post COVID-19 reality,” Rastogi added.