The Post-pandemic Vehicle Economy

While automotive endured a grueling 8-12 week shutdown impacting millions of workers in North America alone, the end of 2020 gives us reason for hope and a return to normalcy. Based on our experiences over the past 10-12 months, though, what will normal look like? Whether you believe in a "Next Normal" or a "New Reality" several key emerging trends will impact automakers, value chains and consumers as we head into 2021.

1. The Post-pandemic Economy is here.

While the COVID-19 virus will stay with us, effective treatments and vaccines will be widely available to large populations by mid-2021, facilitating a transition to the post-pandemic economy. Most models show recovery will be mild in the first six months of the new year, which could create the need for additional stimulus and other economic measures until the impacts of a vaccinated population particularly in North America, Europe and Asia are realized.

2. Mobility’s second inflection point.

According to McKinsey, the first inflection point was the shift from horse-drawn to transportation to the motorized vehicle. In the second shift, mobility will shift from the motorized vehicle to the overall concept of autonomous and shared transportation. In this space according to McKinsey, the traditional automotive companies account for only 13% of this transportation ecosystem. Additionally, consumers will continue to view vehicles as a service they consume, not necessarily a product that they own. This creates even more emphasis on Transportation as a Service (TaaS) models but also on other product forms, fit and design for moving people and things from place to place.

3. The shift to Electric is on.

Earlier this year Governor Gavin Newsom of California sent an executive order banning the sale of light passenger vehicles that relied on the internal combustion engine (ICE) design by 2035. This fall, many OE brands opted out of the current administration’s consortium to reduce EPA emissions and California’s tougher emission standards – a clear signal that car makers will resume carbon-free vehicle footprints. General Motors voluntary buyout of nearly 200 Cadillac dealerships as that brand shifts to an all-electric footprint reinforces this shift into 2021.

4. Rideshare will Return.

With several vehicle reveals in the last quarter – most notably by robo-taxi maker Zoox and BEV utility vehicle maker Canoo – the shift to rideshare will return. Ridership will expand into broader vehicle, goods and cargo transportation models. This follows the investment Amazon Vehicles has made into the Rivian BEV platform and Anheuser-Busch into its fleet commitment with Nikola Motors using hydrogen feul cell (HFC) technologies.

5. 5G will enable Scale.

5G – fifth generation of cellular technology – will allow massive scale of data transmission by 2-3 orders of magnitude. This will enable scale of operations to build, make and service vehicles as well as to update and deliver services to vehicles with 5G connection. According to IBM retailers will benefit from faster updates on consumer buying trends, factories will be able to perform predictive maintenance on equipment that’s about to fail, cellphone carriers will be able to support advance service delivery, mobile gaming and augmented reality – anytime, anywhere 5G infrastructure exists. (Read more about 5G and impacts to High Tech via Oxford Economics here.)

6. Personally Owned Vehicle Prices will accelerate in 2021.

Commodity prices rose sharply in the second half of 2020 as global economy rebounded. According to IHS Markit, these cost increases will be pushed downstream in supply chains for the next six to nine months, pressuring margins and leading to higher prices for finished goods in 2021. Supply-chain disruptions should slowly be resolved. Goods industries could then see conditions soften even as aggregate demand strengthens. Iron ore is a notable exception. Add to this the shift to high-content vehicles enabled with all of the goodies covered – 5G, new apps, enhanced passenger experiences – will drive margin demands by automakers. As consumers buy fewer vehicles the higher margin expectations – and corresponding point of sale costs – will be passed along via increased pricing and fewer incentives.

In this holiday season I openly share my Irish Cream recipe a tradition in our family. You can view the recipe on my blog the View from C-Level here.

Sources:

1. 16 December 2020 by Brian Lawson, Senior Economic and Financial Consultant, IHS Markit

2. December 2019 by Alex Wolfe at IBM - Cloud in 2020: The year of edge, automation and industry-specific clouds