What the Next Five Years Will Mean for Automakers and Consumers

The U.S. market’s pent-up demand for new vehicles has yet to be satisfied, due to population and household growth, high home values, and pandemic-induced shutdowns despite rising interest rates, higher gas prices, and inflation. Automakers and suppliers can anticipate continuing strong sales despite continuing supply constraints and semiconductor shortages that are far from gone. 

Visiting car dealership
New vehicle demand remains strong, but a lack of inventory is hurting sales.

That’s the prediction from Alix Partners’ 19th annual Global Automotive Outlook, which was released Wednesday.

“Many are saying it’s getting better and it’s going to be gone. We say it’s getting better but it’s not going to be gone for the next two years,” said Mark Wakefield, global co-leader of AlixPartners.

But the lack of supply and huge demand has transformed the automotive industry’s marketing model from a push system to a pull system, leading to enormous profits for automakers who have better pricing power than ever. 

“Most OEMS have been turned into Ferrari. If you think of Enzo Ferrari’s famous quote of wanting to produce one less car than the market demands, all the OEMs have been forced into that bucket,” Wakefield said.

This has allowed automakers to raise prices despite not facing increased labor costs. But the rising cost of raw materials and a transition to battery electric vehicles (or BEVs) from those powered by internal combustion engines (or ICE) will affect automakers’ profitability. 

A changing market

Automakers have been investing their profits into electrification, growing to $500 billion today from $200 billion in 2018. The industry is near an inflection point as ICE engine programs are expected to decline 12% in North America from 2024 to 2028 and 33% in Europe during that same time. Meanwhile, 212 EV models will be on the market by 2024. Currently, there are 80, with a global market share of 10.8% in the first quarter of 2022.That’s up from 1.3% five years ago. 

By 2028, one-third of all vehicles globally will be BEVs.

By 2028, Alix predicts that one-third of all vehicles will be BEVs, although it will be slightly lower in the U.S. at 28%. 

But to take advantage of the growing market, automakers must design EVs with platforms designed as EVs, rather than stuffing batteries into architecture originally designed for internal combustion engines. 

“People who have taken ICE platforms and electrified them are going for speed and you just fundamentally can’t compete on a cost basis with that approach. You do need to do ground up redesign of electrification, you need to think about thermal and electrical before structure and how much the boxes fit. So if you look, look at a ground up vehicle like a Tesla Model y and we look at a go-fast vehicle. You’ll see much more wiring, much more thermal piping around things as the vehicle just wasn’t fundamentally architected for electrification from ground up,” said Wakefield. “For hitting that that mass market, it absolutely needs to be a ground up EV design.”

ICE vehicle bans

Pumping gas
Ny 2035, gas-powered cars will not be allowed top be sold in most of Europe and California.

Consumers are also facing the prospect of not being able to buy a new ICE vehicle at all.

Consider Europe, which is proposing to ban ICE vehicles by 2035, similar to California. Alix believes the ban shouldn’t be taken too literally.

“Everybody knows that Europe is known for making compromises and therefore our estimation is that there will be remaining segments remaining eras or remaining countries where there will be no ban or exceptions,” said Elmar Kades, Alix Partners co-leader.

“What that means for every OEM is that he has to have beside the classic ice engines and some hybrids, they have to offer a full range of powertrains.”

Consumers still have purchasing power

But building these EVs comes at a cost. The question remains, will EVs be affordable?

Ineos Grenadier pilot assembly
EVs’ raw material costs are more than twice that of an ICE vehicle.

Raw materials for EVs cost $8,255 per vehicle, more than twice the $3,662 cost per ICE vehicle. For now, affordability is not an issue. According to Wakefield, household net worth is very high, with a combined $2.5 trillion in excess savings on consumers balance sheet that are not invested in real estate or stocks. This is why consumer demand remains so strong. 

“Even though prices are rising, they’re still in this mindset of can I find one, not where am I going to get the best deal. They have the capacity to purchase.”

In fact, the firm’s data shows that monthly payment as a percentage of income has actually been falling since 1981, although it’s expected to rise in 2022, and should not become a problem until 2024.

But there’s one more fly in the ointment that needs to be addressed: the U.S. government.

The United States needs $48 billion in charging infrastructure by 2030, but so far, only $11 billion has been committed. Without proper finding, BEV sales won’t keep pace, regardless of automakers’ and regulators’ plans.


Source link

Leave a Reply

Your email address will not be published.

  ⁄  one  =  6