Automotive industry

Many obstacles in a post-pandemic automotive industry

As the pandemic rages on, auto players also need to keep a close eye on what a post-pandemic industry might look like. By Jack Hunsley, Jacob Moreton and Freddie Holmes

A new year is upon us, however, 2022 begins with a now very familiar feeling: general anxiety over the exact dangerousness and transmissibility of the latest variant of COVID-19. As of this writing, Omicron has only been in the public discourse for a few weeks. However, its emergence has already dampened the economic and social recovery from which virtually all industries have benefited until 2021.

The auto industry, however, is marching on, both on short-term and long-term projects. For example, as it stands, CES will return in person for the first time since the pandemic began, while automakers and suppliers continue to invest in connected, autonomous, shared and electric mobility ( CASE).

automotive world, along with the rest of the industry, recognizes that COVID in one form or another is here to stay. However, the need to constantly look forward, combined with almost two years of experience in how to deal with the virus, means that COVID may hopefully soon no longer be the global obstacle that it used to be. in the past. Should this hope become a reality, today’s stakeholders will soon have to reflect on the challenges and obstacles that remain in a post-pandemic automotive industry.

Supply headaches

The automotive industry is arguably one of the most interconnected markets in the world with a wide range of players including car manufacturers and suppliers and even software developers involved in its supply chain. This leaves the industry open to serious fragility, which has become evident in the wake of the pandemic.

The chip shortage has also had a profound impact on the industry’s immediate profitability. Figures of Bloomberg say the shortage caused stakeholders to lose $200 million in vehicle sales in 2021 alone

However, not all regions were affected in the same way. China, for example, is seen by some experts as better prepared for disruption thanks to its booming electric vehicle (EV) market and proximity to many of the world’s largest semiconductor makers. A COVID lesson learned by Western businesses is the need for greater supply chain localization and the value of entering into direct agreements with key suppliers.

Many companies have also found that the pandemic is exacerbating already existing supply chain issues, such as lack of visibility. In a densely interconnected ecosystem, understanding how and when a product moves through the supply chain is key to managing risk, but many lacked those kinds of details.

Players are now investing in inventory management systems and technology to protect themselves in the future. Some might even prioritize resources in environments closer to their customers, reducing the need to transport goods across continents, which would also help reduce transportation emissions. However, many suppliers are still trying to adapt to the disruptions first felt in 2020, and it will take some time for supply chains to return to their pre-pandemic state.

Durability

The industry has also seen consumer trends pivot rapidly over the past two years. For example, the early days of the pandemic saw a huge increase in micromobility in urban centers. The impact of early lockdowns on air quality has also pushed the conversation around decarbonising transport. However, it should be noted that early gains in cities like Los Angeles had largely been lost by fall 2020: EPA data showed that Los Angeles had its longest period of “good” quality of the air for 25 years in March 2020, only to record its worst smog in 30 years seven months later.

These initial gains were largely driven by stay-at-home orders and shutdowns. With people forced to stay in or near their homes, traffic levels have dropped significantly, leading to less pollution and a greater focus on sustainability. It is not yet clear if this green spirit will continue after the pandemic. But for businesses and cities that have already committed to decarbonization, reverting to pre-pandemic priorities is not an option.

The pandemic has placed unprecedented demands on automotive players

That said, affordability remains a barrier for consumers interested in sustainable mobility. Private electric vehicles are still seen as a premium product rather than a mass market option. For this reason, incentives are needed to maintain momentum.

On the supply side, incentives such as stimulus packages in times of crisis are also essential to sustain progress. There are lessons to be learned here from previous attempts, such as the US government’s ambitious 2009 stimulus package to support the economy after the global financial crisis. Experts recommend that governments address the shortcomings of this legislation by ensuring that programs work together effectively, prioritizing communication of the benefits of financial support to businesses, and considering measures that go beyond the mere economic growth.

Another consumer-focused topic is e-commerce, which, according to the United Nations, reached a record high market value of US$26.7 billion in May 2021. Customers were already well aware of getting goods delivered to their doorsteps before the pandemic. However, movement restrictions have also forced these customers to shop for necessities over the internet. It seems that interest is here to stay. Logistics players will need to think carefully about how they can meet this demand, with the likely outcome being increased digitization and smart fleet management.

Shortage of fleas

The current semiconductor crisis is at the top of the industry’s immediate agenda. Opinions are divided on how quickly the shortage will ease, although the consensus is that at least the first half of 2022 will still be severely hampered before supply begins to slowly rebound. The shortage could also rage until 2023.

Managing this crisis will continue to force OEMs and suppliers to rethink how they design and build their vehicles. For example, Tesla was able to manage the crisis by simply recoding its products to take on different chips. Another solution, albeit costly, is again to increase the localization of the supply chain, as Ford, GM and Bosch have all made progress in internalizing chip production. The latter opened its own chip factory in July 2021, a project that cost Bosch $1.2 billion, equivalent to the company’s biggest ever investment.

The need to constantly look to the future, combined with almost two years of experience in how to deal with the virus, means that COVID may hopefully soon no longer be the global obstacle that it once was.

The chip shortage has also had a profound impact on the industry’s immediate profitability. Figures of Bloomberg say the shortage has caused stakeholders to lose $200 million in vehicle sales in 2021 alone and while order books are once again full, it’s unclear how successful OEMs can be in putting the products on in the hands of customers. Additionally, while vehicle sales in 2021 are expected to be better than 2020, the industry is still below 2019 levels. that this is a necessary measure to close the income gap, means that fewer customers should be willing to buy a new vehicle in 2022.

Apart from the chip shortage, there are an array of other challenges. To name but a few, the ongoing fallout from Brexit and other trade deal negotiations, upcoming internal combustion engine sales bans, developing range regulations and increased vehicle cybersecurity could all, in their time, prove to be enormous mountains to climb alone. . The fact that all of these trends and more are hitting almost at once means there’s plenty to keep auto executives up at night.

Long way to go

The challenges are many and varied. However, despite these obstacles, it is undeniable that the automotive industry is going through perhaps the most exciting period of innovation in its history. Navigating this period of immense disruption will not be easy, especially since the exact impact of the Omicron wave is not yet fully understood. Automakers, suppliers and new entrants, however, must not only roll with the variant punches, but keep an eye on their long-term business goals. If you don’t, they will tread water.

This article was written on December 23, 2021.