The global automotive industry is entering into a new decade in which we expect a series of unprecedented challenges, but also opportunities – and it starts with 2020.
More Turbulence Ahead
If 2019 was a year of considerable disruption and turbulence in the auto industry, 2020 will likely see even more. A cooling economy in China aggravated by the prolonged US-China trade war, a struggling automotive market in India, and a looming Brexit, coupled with tough emission standards in Europe, continue to adversely affect global automotive demand. The lower economic activity and consumer confidence mean continued depressed vehicle sales. Leading automakers, including BMW and GM, have announced guidance for lower profits and sales in 2020.
Global automotive demand is flat-lining; quite different from the typical “peaks and troughs” cycles seen before. There are also profound structural changes visible. The sacred order of the automotive ecosystem is under threat with disruptive forces – such as vehicle connectivity – encouraging new technology entrants to rethink the way we move around. Lifestyle and mobility preferences are changing as frequently as the apps on smartphones.
Will car companies, with their engineering legacy and coveted brands, be able to deal with new ways of addressing mobility based on sharing and on-demand access? These questions need to be urgently answered by auto OEMs to avoid missing out on these secular shifts.
Exhibit 1: Global Vehicle Sales, Million Units
Megatrends defining 2020
Connectivity, autonomy, shared mobility, and electrification of vehicles (CASE) remain the defining megatrends in 2020, with all automakers focusing on either accelerating or consolidating their advances in these fields.
Let’s have a deeper look at each trend and its likely implications for 2020:
Connectivity
The growing digitalization of the cockpit makes the connectivity of vehicles among the top trends in 2020. Telematic applications have radically transformed the automotive industry and will continue to impact it in ways no other technology has done before. This year, connected cars are expected to evolve even further, providing enhanced personalization options to users that are similar to what they have come to expect from their smartphones. Advances in IoT, telematics and smart applications together have greatly improved the connectivity, communications and responses, offering seamless infotainment, safety, security and vehicle management to drivers, passengers and commuters. Embedded connectivity is now offered as standard OE fitment across premium and mid-premium category cars.
As connected services potentially offer multiple subscription revenue streams for automakers, Counterpoint expects embedded connectivity to remain a key focus area in 2020. While automakers in the US and Europe currently dominate the sales of embedded connected cars, China’s automakers are accelerating their efforts on connectivity too. Interior dashboards upgraded with integration of computer vision and augmented reality (AR) tools, will be another key focus, offering additional layers of safety, personalization and driving experience to connected vehicle subscribers.
Autonomous Vehicles
Even though the progress of AV has not met industry expectations, automakers made huge strides towards AVs in 2019. Enhanced ADAS basic autonomy (Level 1 and Level 2) safety features like autonomous emergency braking (AEB) are now becoming standard features in most markets on mid-range to premium vehicles in 2020, on account of regulatory pressures (e.g.: Euro NCAP and NHTSA) and the growing consumer preference for these features.
Clearly, claims to achieve full autonomy by 2020 are too bold with automakers missing their development targets in 2019. GM Cruise failed to launch its autonomous vehicle in 2019, and has not specified any new deadline. Ford, having announced it would skip straight to Level 4, has retracted and is focused on achieving Level 3. Waymo’s robo-taxi service launched in Phoenix, Arizona in 2019, is always subject to having a stand-by driver, ready to take control in emergencies.
With safety concerns and significant investments hampering the progress towards fully autonomous vehicles, automakers are looking more and more at collaborating their efforts towards AV development, sharing costs and risks, by building alliances. AV related partnerships and JVs accounted for more than US$9 Billion during Q1-Q3 2019.
Shared Mobility
Mobility as a service (MaaS) is expected to continue gaining popularity in 2020. Profitability, however, remains a key concern for the service providers. Shared mobility continued to grow in 2019 driven by growing trend of sharing economy, convenience and cost benefits versus owning a vehicle. Based on the findings from Counterpoint Research’s 2019 survey in India, two out of three frequent users of shared mobility services consider ride-hailing more economical than owning a car. Uber and Lyft launched their IPOs in 2019 citing aggressive expansion plans.
While shared mobility will continue to grow in 2020, competition is expected to become tough with shared mobility providers having plans for overseas expansion. Losses can lead to market consolidation going forward. In 2019, Grab delayed its IPO until it gets profitable. BMW shutdown services of ReachNow car sharing Seattle and Portland. Other small service providers such as Juno and Coup shutdown their regional/city level operations due to losses.
Electrification
In 2020, most carmakers will be focusing on electrification. Expect to hear a lot more from OEMs and adjacent players about technologies, batteries, charging infrastructure, products and policies that are being developed to meet tightening fleet average CO2 figures at one end, and to encourage EV adoption at the other. The decline of diesel in Europe has forced OEMs to move faster in their efforts on electrified vehicles to meet the tougher emission targets. For some OEMs this direction also presents the unattractive trade-off between avoiding fines and selling electric vehicles at below cost price.
Coronavirus
The COVID-19 outbreak continues to develop fast. There are signs of successful containment in some areas in China, while fears grow accelerating infection rates in other countries – Japan notably. How the situation develops over the coming days, weeks and even months remains uncertain, creating a risky business environment. With effective Government interventions initiated, the situation is expected to be bought under control within March, allowing the Government to cautiously lift the clampdowns progressively from April. However, if the epidemic continues into Q2, possibly even into Q3, it will considerably impact the overall global automotive demand.
Conclusion
The global automotive industry recovery in 2020 largely depends upon a recovery in the Chinese economy. Stringent emission and safety standards, coupled with growing digitalization in vehicles will make EVs, connected cars and AVs the key focus areas for automakers in 2020 and beyond. Automakers will need to evolve fast to keep pace with innovation in these areas.
Partnerships, alliances and joint ventures with various stakeholders in the ecosystem will be the strategic option adopted by automakers in 2020 looking to save money while keeping pace with the fast-evolving automotive landscape.
The outbreak of coronavirus is causing ad hoc interruptions in the supply chain, with each OEM, plant, and model expected to have different levels of exposure, requiring different countermeasures. The long-term impact of coronavirus on the industry remains uncertain. However, its prolonged spread will have an adverse impact on global automotive sales.
