The energy transition is not the only disruptive ‘megatrend’ bearing down on the operations of automotive companies, but it’s the main one that has board members, investors and company strategists in a state of constant concern.
Go deeper with GlobalData
The fuss over Jaguar’s rebrand and its carefully choreographed concept car unveil illustrated the dilemma for many in the industry. It can be summed up in a short phrase that resonates with many (including myself): We know change is coming but we don’t necessarily like it.
The trouble with the auto industry is that there is a deep running paradox at work. It is a fast-moving industry and yet, it isn’t.
On one level, it comprises some of the most advanced global manufacturing enterprises going. Not only that, but those same companies make some of the most jaw droppingly gorgeous products for consumers to covet. It’s a highly seductive business model. Advanced technologies and product innovations keep on coming, whether we’re talking about powertrain setups, connectivity or advanced driver assistance systems (ADAS) tech. It looks like a rapidly evolving and dynamic industry that is highly adaptable and able to meet consumer needs – and rising expectations – through sheer scale, constant adaptability and some amazing engineering tech that comes out of the R&D departments. All of which applies, of course, no arguments. But also at the same time, and this is at the heart of the apparent ‘paradox’, it is also an industry that has not changed all that much in terms of some of the basics.
For the customer it’s still largely a case of finding your place on the price-point curve with the appropriate brand. You can still feel very good about that product and the utility it delivers, but there’s always something else to desire. After purchase, there’s a sense of a diminishing worth, emotionally perhaps but also quite literally with the asset’s depreciation. There’s always another car or a model upgrade that has hit the forecourts and is just, well, better than the one you have; it keeps the industry turning over very nicely with the cycle of replacing new for old.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe vehicle companies have been expert at extracting value from a market that they have long mastered. It’s not just the OE manufacturing side, but also the associated consumer finance, fleet sales and aftermarket operations. A nice little earner and it has been that way for many decades, bar the occasional world recession or oil shock.
The companies themselves have evolved to be global manufacturing giants with factories everywhere. Not only that, but there are long and complex supply chains that underpin the rapidly evolving technologies and have created mega-suppliers with global structures that dovetail neatly with the OEMs’ global manufacturing footprints. Moreover, there is the reassuringly linear customer-dealer-OEM relationship that the customer has come to understand so very well. Healthy margins for all, with factories kept busy on the typical 4-6 year model replacement cycle.
My point is that there is a natural inclination for automotive industry participants to quite like the essential elements of the historic business model status quo that – ostensibly – works fairly well currently. Sure, at the margin you can have some electrified models or – in retail – go for the agency model or try convincing consumers that they really ought to take out a subscription rather than leasing/buying, but the main tenets of that big business model – well you don’t mess with that if you have an eye on bottom lines.
The main problem now is electrification, or rather the timescale that is being forced on the auto industry by lawmakers. Battery electric vehicles are expensive because the scale/volume drivers that underpin mass manufacturing are just not there yet for BEVs and their major components, especially the batteries. The incumbent ICE tech is less costly and consumers are familiar with it.
So there is the problem of how you repurpose factories for the transition to electric that is getting closer; when looking at plant capacity utilisation, market geography and market forecasts, there is a lot to digest before making decisions on plant-product mix and repurposing for BEVs. And if part of the business (electric) is cost-heavy on investment needs, what does that mean for costs elsewhere?
There are still many questions yet to be answered in terms of how that energy transition plays out – and it’s certainly not going to be seamlessly smooth – but it’s not something that can be ignored at company level. It’s coming into the time horizon of company business plans.
When it comes to company strategy, you can opt to be bold – or not – with going electric. Bold and being ahead of the curve might mean some first mover advantage, either with production economics and price to market or consumer product acceptance. There is a cost though and some risk, particularly as the technologies improve. Opting to not be a pioneer company also comes with risk, but there is the possibility to learn from others’ early errors and ultimately come to market with better product more suited to post-early adopter mass-market segments.
How quickly do you go though, to keep everyone happy – stakeholders, customer base, investors, employees? Two recent developments brought this into focus, though from very different directions, but clearly both driven by the underlying dynamics of the energy transition timeline.
One is the struggles at Stellantis and the sudden departure of CEO Carlos Tavares. Things were going a little wrong at Stellantis, particularly in North America (although Fiat’s electric 500 is also a big headache in Europe because of undershooting sales). In the background are the strategic decisions related to electrification and company priorities and the approach going out for the next five years or so, but especially the next two to three years. There are different paths to go down to putting things right, of course. There are also the timelines to consider and short-term versus long-term actions (and actions come with consequences and the risks of damage). Opinions will differ and ultimately weren’t reconcilable in the case of Stellantis’ immediate strategic direction. I was surprised by the sudden exit, but I would guess many car company boardrooms will be subject to similar tensions as strategic directions and their cost implications are raked over in the coming years.
The other development that seems relevant to the broader energy transition is the Jaguar brand’s electric rebrand and the unveiling of its latest concept (Type 00). The controversy over the concept’s ‘out there’ styling is certainly understandable. The Jaguar brand comes with a lot of heritage baggage. The rebrand and concept has got the brand a lot of attention though and emphasises a direction of travel that is nothing if not bold. It’s a concept though. Future production Jaguars will look quite different, even if there are elements of carryover in some of the design language. The Jaguar designers have certainly had plenty of feedback to consider.
The key for OEMs is to ask themselves, where will we be in ten years’ time? Will our customer base have changed or does it need to change in order for us to be successful in a transformed market landscape? Are we still selling what we understand to be a car or is it a mobility product or does it work in some other way to serve a customer lifestyle that is somewhat different from today’s products and our traditional brand attributes?
I do applaud Jaguar for being bold and getting a reaction (if I can just add a caveat that they may have overdone it a tad – perhaps that was always intentional). To look at today’s order books and say ‘let us keep doing what works and see how we go’ might be tempting, but there are those uncomfortable looking 2030 and 2035 deadlines for ICE phase-out that make that increasingly difficult. Competitors will also be looking at their future product plans and timescales for changing their ICE/hybrids/BEV powertrain mix. Many boardrooms are taking the view that they need to be on the front foot with the transition, ‘going early’ where they can. If it’s coming, then why wait?
So competitive pressures are present and, if anything, intensfied in a relatively sluggish global vehicle market. The rational sounding argument that ‘sales of BEVs are slower than expected so let’s adjust and delay’ is one that needs to be handled carefully. The investments in the tech on long lead times for future BEV products and manufacturing capacity still needs to be made and the risks of being caught out with lack of product are not to be underplayed.
The debates on product positioning, brand attributes, speed of electrification and optimising investment strategies certainly have a long way to run. Automotive company CEOs will likely find it increasingly difficult to keep all the plates spinning.
Related Company Profiles
Jaguar Mining Inc
Stellantis NV