For several years now, the European automotive industry has found itself in the midst of a disruption. While the business model of producing and selling cars with combustion engines has been very stable for decades, automakers now face technological challenges such as the ACES trends (autonomous, connected, electric, and shared mobility), demand that’s shifting toward Asia, changing business models (vehicle sharing instead of ownership), and increasing instability caused by geopolitical and trade tensions. How can automakers cope with these challenges and master the new mobility world? By examining the current economic cycle, emerging technologies such as e-mobility, and the changing competitive landscape that’s moving from value chains to ecosystems, this publication aims to give a set of perspectives on how to navigate this future that’s more uncertain than ever.
Speed bumps ahead
After billing record years regarding both revenues and profits, the automotive industry is now facing an economic headwind (Exhibit 1). Margins are eroding, and many players issued profit warnings for 2018 and 2019. Many of the challenges facing the traditional value chain are short term, but others will require a long-term focus.
In the short term, geopolitical and macroeconomic risks certainly play an important role. Tensions in the international trade system and factors such as Brexit signal a high degree of uncertainty for the industry. At the same time, long-time boom markets such as China are showing the first signs of saturation. In Europe, the looming carbon dioxide (CO2) penalties plus the cost for meeting stricter Worldwide Harmonized Light Vehicle Test Procedure (WLTP) standards challenge automakers, accompanied by more traditional factors such as intensifying competition, and new market entrants.
In the longer term, automakers need to invest in new technologies such as autonomous driving, connectivity, electrification, and shared mobility—while also mastering advanced manufacturing and materials.
On top of that, the needs and objectives of regulators (nine European countries have discussed restricting internal combustion engines by 2030) and certain customer groups (those who favor mobility services over car ownership) are harder to meet.
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SOURCE: McKinsey & Company
