Current state of the automotive industry

The current state of the industry can be described as transient, with consumer preferences changing along with product offerings. OEMs are everywhere, and honestly, 2023 was a big year for the industry.

Current state of the automotive industry

We are in a transition year for the automotive world. In fact, we are in a transition decade. Things are pretty crazy right now as manufacturers recover from supply chain issues and invest further in alternative powertrain technologies that don’t have the same profitability they’ve come to expect from gas-powered vehicles. 2024 will be a continuation of that, with the future all along the route. Executives are finding it difficult to decide which business units to invest in, and shareholders are wondering how much value to place on hopeful EV startups.

“The EV transition is creating brutal unpredictability in volumes. Our business is challenged to manage these fluctuations with both delayed and compressed, aggressive launch timelines. In addition, there is a significant issue with delayed payments between suppliers and OEMs, which is impacting cash flow influence” – Tier 1 , Strategy, NA

Recently, Rivian has been under pressure to increase its share price since the share price drop more than 90% since its IPO, and Fisker is (still) struggling to generate cash. Tesla has also just lowered prices again (in the Chinese market) in an attempt to bring in some more sales. It will be interesting to see where things are in 5-10 years.

Pictured above is a Rivian R1T, Rivian’s first model.

Seraph (a consulting firm working in the automotive industry) recently released their North America and Europe Auto Industry Report, which covers consumer finances, market preferences, supply chain risks, and the impact of geopolitical events. The report provides a little insight into what’s going on right now, and this article covers some of the highlights. If you’re interested in the full report, it’s on their website.

Consumer finances and market preferences

The report covers significant changes since last year from a consumer perspective:

  • Vehicles are cheaper than the year before
  • OEMs are talking about cheaper vehicles
  • OEMs are talking more about hybrids
  • The vehicle inventories have been replenished

Vehicles have become more affordable in the US over the past year, but still remain high compared to the standards of the past decade. Manufacturer incentives are becoming more common (up to 3.9% in December 2023, up from 2.7% in December 2022).

Source: Seraph Report via: Cox Automotive, Kelly Blue Book, Reuters, Moody’s

Although the graph shows that cars are now cheaper than before, consumers may be more reluctant to spend money as the data shows that 46% cite high prices as a reason they don’t buy and 30% say interest rates are unaffordable. High federal interest rates mean borrowing is still much more expensive than it was during the coronavirus crisis.

It’s important to keep in mind that consumer credit card debt is still high, as are auto loan delinquencies, which are at a 13-year high. It seems like the average “Joe Schmoe” consumer is still in a tense position.

US EV market

The biggest concerns within the market are affordability, reach and infrastructure. Government incentives for purchasing electric vehicles have been reduced and the average range of an electric car is 400 km compared to an ICE vehicle with a range of 640 km (combined with a much faster refueling time).

Source: Seraph Industry Report via Cox Automotive, Wall Street Journal and U.S. Department of Transportation.

To answer these buyer concerns, OEMs are really trying to lower the price of electric cars and spend money on developing new battery chemistries and lightweight materials. Many of the automakers have admitted defeat and agreed to accept this Teslas supercharger network and associated NACS plug design. Since peaking in 2022, the price of lithium has fallen almost 80% due to increased production, which is still crazy (in my opinion) considering how much more demand there must be now compared to a few years ago.

Source: Seraph Industry Report via Bureau of Transportation and Cox

“EVs will only represent a 30% market share no matter how much progress BEVs make. The remaining 70% will be HEVs, FCEVs and hydrogen engines. I think ICE cars are definitely here to stay.” – CEO and Chairman Akio Toyoda

As for Detroit’s big three…

“Ford is recalibrating its EV strategy to move away from large, expensive EVs, as high prices are the biggest barrier to convincing mainstream car buyers to go electric.” – Ford CEO Jim Farley

Import costs and supply chains

Major changes since last year include:

  • Foreign OEMs responded to the UAW’s Detroit 3 contracts by raising wages for their workers, while the UAW mounts a campaign to organize in additional factories
  • Lithium prices have fallen significantly
  • Sea freight has increased
  • In 2023, 34% of planned vehicle launches were postponed, leading to profitability issues

AI is proving useful for more than just looking up homework answers… apparently automakers are implementing it in their supply chains, where BMW is using it to oversee its robot production fleet and Tata Motors is using it to analyze historical data and market trends. to predict demand. Toyota uses AI to help design the exterior of their concepts, which arguably takes away some of the fun. This trend is not new, but the prevalence and capabilities of AI have certainly accelerated in the past year.

Forecasting production planning and demand planning is currently popular among supply chain people.

leave China is another trend: 54% of respondents in Seraph’s survey indicate that they are leaving China. Many of the respondents who leave China go to Mexico, Eastern Europe and USA. Some go to Southeast Asia and Africa, but Mexico gets the lion’s share. This could be due to rising labor costs in China, geopolitical risks or general uncertainty about China’s domestic policies decisions that impact companies.

You can download the full report via Seraf’s website. This article only covered part of it, but the full report contains many more interesting figures and graphs from all angles in the sector.

Thanks for reading – JWK

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