Hurdles aplenty in a post-pandemic automotive industry

While the pandemic rages on automotive stakeholders must also keep a firm eye on what a post-pandemic industry could look like. By Jack Hunsley, Jacob Moreton & Freddie Holmes

A fresh year beckons, however, 2022 starts with a now very familiar feeling: general anxiety on exactly how dangerous and transmissible the latest COVID-19 variant is. At the time of writing, Omicron has only been in the public discourse for a matter of weeks. However, its emergence has already stunted the economic and social recovery practically all industries enjoyed through 2021.

Special report: The post-pandemic automotive industry

The automotive industry, however, marches on, both on near- and long-term projects. For instance, as it stands CES will return in person for the first time since the pandemic began, while automakers and suppliers continue to invest in connected, autonomous, shared and electric (CASE) mobility.

Automotive World, along with the rest of the industry, recognises that COVID in one form or another is here to stay. However, the need to constantly look forward combined with nearly two years of experience in how to handle the virus means that COVID may, hopefully, soon not be the all-encompassing hurdle it once was. Should this hope become reality, today’s stakeholders will soon need to consider what challenges and hurdles remain in a post-pandemic automotive industry.

Supply headaches

The automotive industry is arguably one of the world’s most interconnected markets with a vast array of players including automakers and suppliers and even software developers involved in its supply chain. That leaves the industry open to serious fragility, which has grown evident in the pandemic’s wake.

The chip shortage has also had a profound impact on the industry’s immediate profitability. Figures from Bloomberg claim the shortage has lost stakeholders US$200m in vehicles sales in 2021 alone

Not all regions were affected equally, however. China, for instance, is regarded by some experts as having been better prepared for disruption courtesy of its burgeoning home-grown electric vehicle (EV) market and proximity to many of the world’s leading semiconductor manufacturers. One COVID lesson learned by western companies is the need for greater supply chain localisation and the value of making direct deals with key suppliers.

Many companies also found the pandemic exacerbated already-existing supply chain issues, such as the lack of visibility. In a densely interconnected ecosystem, understanding how and when a product moves through the supply chain is essential to managing risk, but many lacked this kind of detail.

Players are now investing in inventory management systems and technology to protect themselves in future. Some could even prioritise resources in environments closer to their customers, reducing the need to transport goods across continents which would also help reduce transport emissions. However, many suppliers are still attempting to adapt to the disruption first felt in 2020, and it will be some time before supply chains return to their pre-pandemic state.

Sustainability

The industry has also seen consumer trends pivot rapidly over the previous two years. For instance, the pandemic’s early days saw a huge uptick in micromobility in urban centres. The impact of early lockdowns on air quality also pushed the conversation on transport decarbonisation. However, it is worth noting that the early gains in cities such as Los Angeles had largely been lost by as early as autumn 2020: EPA data showed Los Angeles had its longest run of ‘good’ air quality for 25 years in March 2020, only to record its worst smog in 30 years seven months later.

These initial gains were largely driven by stay-at-home orders and lockdowns. With people forced to stay at or near their homes, traffic levels dipped substantially, resulting in less pollution and a greater emphasis on sustainability. It is not yet clear if this green spirit will continue post-pandemic. But for companies and cities that have already committed to decarbonisation, going back to pre-pandemic priorities is not an option.

The pandemic has placed unprecedented demands on automotive stakeholders

That said, affordability is still a barrier to consumers interested in sustainable mobility. Privately owned electric vehicles are still considered a premium product rather than an option for the mass market. For that reason, incentives are needed to keep momentum up.

On the supply side, incentives like stimulus packages in times of crisis are also essential to maintaining progress. There are lessons to be learned here from previous attempts, like the US government’s ambitious 2009 stimulus package to support the economy after the global financial crisis. Experts recommend that governments take heed from the shortcomings of this legislation by ensuring programmes work together effectively, prioritise communicating the benefits of financial support to companies, and consider metrics that go beyond simple economic growth.

Another consumer-driven topic is e-commerce, which according to the United Nations hit an all-time high market value of US$26.7tn in May 2021. Customers were already well acquainted with having goods delivered to their door pre-pandemic. However, movement restrictions also forced these customers to purchase everyday essentials over the Internet. It appears that this interest is here to stay. Logistics players will need to think carefully on how they can cater for this demand, with the likely conclusion being increased digitalisation and intelligent fleet management.

Chip shortage

Top of the industry’s immediate agenda is the ongoing semiconductor crisis. Opinion is split as to how quickly the shortage will ease, though the consensus is that at least the first half of 2022 will still be badly hampered before supply starts to slowly rebound. The shortage could rage through into 2023 too.

Managing this crisis will continue to force OEMs and suppliers to rethink how they go about designing and building their vehicles. For instance, Tesla has been able to manage the crisis by simply recoding its products to take different chips. Another solution, though expensive, is again increased supply chain localisation with the likes of Ford, GM and Bosch having all made strides to internalise chip production. The latter opened its own chip plant in July 2021, a project which has cost Bosch US$1.2bn, equating to the company’s largest-ever single investment.

The need to constantly look forward combined with nearly two years of experience in how to handle the virus means that COVID may, hopefully, soon not be the all-encompassing hurdle it once was.

The chip shortage has also had a profound impact on the industry’s immediate profitability. Figures from Bloomberg claim the shortage has lost stakeholders US$200m in vehicles sales in 2021 alone and though orders books are being filled again it is unclear how successfully OEMs can get products into customers’ hands. In addition, though vehicle sales in 2021 are expected to be better than those for 2020, the industry is still below 2019 levels. This environment is forcing automakers to increase vehicle retail prices which, while a necessary move to plug the income gap, means fewer customers are expected to be willing to purchase a new vehicle in 2022.

Outside of the chip shortage is an array of other challenges. To name but a few, the ongoing fallout from Brexit and other trade deal negotiations, upcoming internal combustion engine sales bans, the development of autonomy regulations and heightened demands on vehicle cyber security might all, in their own time, prove huge mountains to climb alone. The fact that all these trends and more are hitting in almost one fell swoop means there’s plenty to keep automotive executives awake at night.

Long road ahead

The challenges are many and varied. However, despite these hurdles, there’s no denying the automotive industry is still undergoing perhaps the most exciting period of innovation in its history. Navigating this period of immense disruption will not be easy, especially as the exact impact of the Omicron wave is yet to be fully understood. Automakers, suppliers and new entrants, however, must not only roll with variant’s punches but keep an eye on their long-term business goals. Failure to do so will see them treading water.

This article was written on 23 December 2021.

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