From increased M&A to advanced electric vehicles, here are 5 new trends gaining momentum in the automotive industry.
Several trends—from increased M&A to electric vehicles—are gaining momentum in the automotive industry, offering insight into what the industry’s future may look like. In response, many companies are shifting strategies to better position themselves for success.
Despite a decrease in 2020, mergers & acquisitions in the automotive sector looks to be ramping up again. The continued pressures of the pandemic may lead to increased M&A activity, as distressed companies become targets for acquisition and OEMs look to bolster technology investments and strengthen their supply chains. Indeed, in its 2021 M&A forecast, PwC identified the industrial manufacturing and automotive (IMA) sector as a potential M&A hotspot.
A recent example is steelmaker Cleveland-Cliffs’ acquisition of a competitor, ArcelorMittal USA, for $1.4 billion. The ArcelorMittal USA acquisition is a reflection of a move for steelmakers and manufacturers more broadly to move down the value chain towards a vertically integrated model. Reporting on the deal, Automotive News stated, “The sale will improve ArcelorMittal’s risk profile and reduce net debt as Cleveland-Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately $500 million and pensions and other post-employment benefit liabilities.”
Technology-focused deals are also helping to drive M&A in the automotive sector. Savari, an automotive technology company based in Silicon Valley, was recently acquired by Samsung subsidiary, Harman International. Commenting on the rationale for the acquisition, Christian Sobottka, president of Harman’s automotive division, said, “Adding Savari’s…technology and team of experts is an important component as we continue to build an open…to meet the unique needs of our customers globally.” Similarly, traditional car manufacturers are also likely to pursue acquisitions, as they increase investment in electronic vehicle (EV) technology, as these companies look to acquire the technology needed for faster go-to market.
As the automotive industry continues to increase its focus on CASE—Connectivity, Autonomous, Sharing/Subscription, and Electrification—technologies, such deals are likely to proliferate.
Vehicle Sales Move Online
The traditional car sales model—from discovery and consideration to purchase/financing—has remained largely unchanged since the 1980s. But in the last decade, companies like Carvana, AutoTrader, and TrueCar have emerged and begun moving some or all of the car-buying process online. As this industry has grown, the consumer mindset has begun to evolve on e-commerce for car buying. A Think with Google survey found that 18% of car buyers would buy a vehicle sooner if there was an online purchase option.
Despite this shift, the vast majority of car dealers had preferred the traditional sales model—until pandemic-driven restrictions closed dealerships across the country for a month or more. With consumers embracing e-commerce more than ever before, many dealerships responded by moving at least part of the car-buying process online.
Could this shift be permanent? One industry leader thinks so. Speaking to the Detroit Free Press in mid-2020, Rhett Ricart, CEO of Ohio-based Ricart Automotive Group, and chairman of the National Auto Dealers Association, reported that once he launched online buying at his dealerships, online sales doubled over a period of six weeks. Ricart elaborated, “This is going to fundamentally change how people view buying a car…By the end of this year, you’re going to see 80%-90% of U.S. new car dealers with full e-commerce capability in their shops.” Ricart also reported that online sales at his own dealerships had doubled during the previous six weeks.
In response to these shifts, legacy carmakers are also beginning to launch online car sales platforms. Nissan recently launched Nissan@home, a service that allows consumers to schedule and complete a test drive, conduct price negotiation, complete paperwork and coordinate final delivery of their vehicle using via a computer or mobile device. Meanwhile, in response to customer demand for online car buying options, Ford has launched Ford Blue Advantage, a digital marketplace where Ford dealers can list and sell certified used vehicles. Toyota’s SmartPath and Lexus’s Monogram are further examples of traditional car manufacturers taking the purchase process online. Both offerings allow shoppers to complete their purchase online and have their vehicle delivered from a local dealership.
While the trend toward online car sales had already begun prior to COVID-19, car manufacturers, dealers and customers appear ready to embrace it fully.
Connectivity Becomes Key
As car manufacturers look to create greater value for customers, the expansion of connected car services—beyond traditional offerings like navigation and infotainment—is ramping up. IoT and artificial intelligence (AI) are already being used in automotive manufacturing. Now, carmakers are partnering with tech companies to use these technologies for everything from driver monitoring to predictive maintenance.
Ford and Google recently announced a six-year deal in which Ford will use Google Cloud to enhance its connected vehicle services. In a Medium post detailing the partnership, David McClelland, Vice President, Strategy and Partnerships stated, “By leveraging Google Cloud, we’ll continue our digital transformation and power connected vehicle technologies with a trusted, secure and global cloud solution.”
Other legacy car brands are developing their own connected car solutions. BMW’s Connected Drive includes driver assistance features like Intelligent driving, to help drivers maintain a safe distance from the car in front, and Intelligent Vision, which turns on high beams when needed at night.
AI is another technology being used to provided car improved connectivity and enhance driver safety. Mindtronic AI, a technology startup, is developing an AI-powered driver’s cockpit focused on car-driver interaction. Specifically, an AI-enabled monitoring system checks drivers for fatigue and signs of distraction or sudden illness. If these are detected, the system triggers an automatic transition to self-driving systems.”
These and other new technological advancements will help to drive the shift from basic to high-value connected car services.
EV Market Heats Up
A tipping point for EVs has been predicted for several years, but lack of reliable battery technology and charging infrastructure, as well as cost, have stymied widespread adoption. But increased public interest, greater focus on reducing pollution, and the success of companies like Tesla have led legacy car manufacturers and startups alike to innovate in the EV market.
Nissan’s Leaf became the first mass-produced EV a decade ago, and quickly became a leader in global electric car sales. Now, legacy carmakers are looking to boost investment in EV technology.
The Alliance for Automotive Innovation, a trade group representing major automakers, recently urged lawmakers to support EV production by creating incentives for research and development and to help shift consumer purchase preferences. In its report, the Alliance argues that with EV and other technologies set to transform the auto industry and transportation, “enhancing R&D incentives…and facilitating and expanding capital to support the industry’s transformation” is key.
At the same time, many legacy carmakers are setting bold timelines for introducing new EV models. GM released the 2022 Chevrolet Bolt at the beginning of 2021, and Mercedes-Benz has announced plans to introduce 10 new EVs via its EQ brand by the end of 2021.
But the tipping point for EV adoption isn’t just down to the work of care manufacturers. Challenges around vehicle range and charging infrastructure also need to be addressed. The emergence of several EV startups is spurring innovation in these areas.
Blink Charging, a company that designs and manufactures EV charging stations for businesses and individual drivers is growing its charging network. The company currently has 15,800+ charging stations across 40 states and was recently awarded a charging station network contract in Vermont. While charging infrastructure isn’t where it should be for widespread adoption of EVs, the growth of networks like Blink’s is encouraging.
Self-Driving Cars Go Mainstream?
While the technology for self-driving cars has been around for years, the industry has yet to gain widespread traction. That may start to change.
Legacy carmakers like Mercedes-Benz and Ford currently have autonomous vehicles in the works and plan to release them over the next few years. Part of the reason for this is an evolving regulatory infrastructure, which can begin to offer manufacturers some guidelines with which to move forward. The National Conference of State Legislatures (NCSL) has reported that the number of states considering legislation on autonomous vehicles has grown year over year.
Still, fully autonomous vehicles (referred to in the industry as L5 automation) are likely still several years away. What we may see in the meantime is gradual movement along the automation continuum—perhaps with interim steps L2 (partial driving automation) and L3 (conditional driving automation) in the immediate future.
Digitization and electrification have driven innovation in the automotive industry for the last several years. With the increased investment and focus on CASE technologies, these trends will continue to gain momentum. It will be vital to plan for how to take advantage of the opportunities offered by these trends.
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