During the initial shock of COVID-19 and global lockdowns, business leaders rallied to save their companies, protect workers, and keep supply chains moving. Now, while the world is still reckoning with the human and economic toll of the coronavirus, they are trying to chart a path to the next normal despite the many unknowns ahead. Never in modern times have so many industries faced such uncertainty.
For mobility players in the United Kingdom (UK), COVID-19 emerged at a challenging time. In January 2020, international trading relationships were in flux as the terms—and tariffs—of Brexit were being defined. The sector was being disrupted by new technologies, including automation, electrification, connectivity, and artificial intelligence. Meanwhile, growing environmental concerns, changing customer preferences, and the growth of shared mobility were altering long-standing demand patterns (see sidebar, “The first challenges of 2020,” for more information on these trends). OEMs faced intense financial pressure because of declining sales, higher R&D costs, and increased tariffs. Globally, OEM profit margins had decreased from 6 percent in 2018 to 3 percent in early 2020.
Against this backdrop, we analysed how COVID-19 might alter the UK mobility sector, looking at major trends, shifts in the mobility mix, and the strategic and operational actions that can help companies emerge stronger in the next normal. In this article, we focus on eight of our most important findings (Exhibit 1).
1. COVID-19 will have an impact on the UK mobility sector for more than two years
Before COVID-19, mobility players were betting on future growth in the United Kingdom. Since 2010, investors have provided about $34 billion to UK-based mobility companies, putting them behind only the United States ($84 billion) and China ($51 billion). Industry trends suggested that they were making the right decision, since the number of passenger-kilometres travelled by car, van, and taxi have been increasing by about 0.5 percent annually in the United Kingdom.
While the UK mobility sector was experiencing strong growth, the automotive market was lagging. UK sales of new and used vehicles peaked at 10.8 million units in 2017 and have since been dropping by about 4 percent annually. This shift partly resulted from several country-specific transportation trends that were changing attitudes to vehicle ownership before COVID-19. In the part of Central London where private vehicles face a congestion charge, traffic has fallen 30 percent since 2007. In 2019, the creation of the ultralow-emission zone in Central London reduced the number of vehicles driving in the city on a typical day during congestion-charge hours by 13 percent from 2017.
While the recent decline in sales was obviously concerning, COVID-19 has dealt a far greater blow than any force in recent memory. Year-on-year new car sales in the United Kingdom were down 46 percent in March 2020 and 97 percent in April 2020. If economic troubles persist, UK automotive sales could continue to languish. To estimate how they might evolve, we examined nine scenarios that we developed to estimate gross domestic product (GDP) over the next few years. We focused on two of the most likely scenarios. Under the first, termed A3, the coronavirus is contained relatively quickly. Although UK GDP decreases by 5 percent in 2020, it rebounds to 2019 levels by the first quarter of 2021. In the second scenario, termed A1, UK GDP falls 9 percent in 2020 and does not return to 2019 levels until the second quarter of 2023. If that scenario materialises, UK automotive sales will not return to their 2019 levels for more than two years.
There will still be some bright spots and continuing innovation within the UK mobility sector, even if car sales decline and investment drops. The government has long encouraged innovation within transportation—for instance, by passing a bill that allows insurers to issue policies for automated vehicles—and this support should continue even in a prolonged economic downturn. Electric vehicles (EVs) could also represent a strong opportunity for OEMs. Tesla’s Model 3 accounted for almost 15 percent of UK sales in April 2020 and became the country’s best-selling car. Because of COVID-19, European sales of EVs could be well above the 14 percent estimated by the McKinsey Centre for Future Mobility in 2022.
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SOURCE: McKinsey & Company