On the Move: Revamped! - Sept 22, 2024

Hi Mobility enthusiasts

After one successful year of On the Move, I've decided to rejig my update with a new twist. This edition offers a clearer analysis of the key trends shaping the automotive industry, highlighting both what’s happening and what it means instead of specific stories. I hope this new format provides valuable insights and a deeper understanding of our evolving industry. Your feedback is always welcome as we continue to improve. Let me know if it works.

Enjoy, Fiona

September 2024

The automotive industry is going through a major transformation, and it’s not without its challenges. Here’s an analysis of what’s driving these changes and what it could mean for all of us.

1. Electrification goals: facing reality

What’s happening? Volvo has adjusted its 2030 electrification target to 90-100% electric and plug-in hybrid sales, reflecting the industry’s challenges such as high costs and inadequate charging infrastructure. Europe currently has only 500,000 public chargers, far short of the 1.3 million needed by 2025. Meanwhile, Northvolt is scaling back battery production due to cooling European EV demand. The ACEA has warned that stricter EU carbon standards, set to come into force next year, could lead to multibillion-euro fines or production cuts if EV adoption doesn’t accelerate.

European OEMs are urging the EU to reconsider the new emissions rules, which are core elements of the Green Deal climate law aimed at achieving net zero emissions by 2050. The ACEA board, including executives from Renault, Nissan, and Toyota, has highlighted the “daunting prospect” of either facing severe financial penalties or making drastic cuts in production, leading to job losses and a weakened supply chain. This call for flexibility has gained support from political figures across the EU, particularly in major car manufacturing hubs.

What does it mean for the industry?

OEMs are under increasing pressure to balance the transition to electrification with the economic realities of current market conditions. The slower-than-expected EV adoption, coupled with stringent regulatory requirements, may force OEMs to rely more on hybrids and other transitional technologies while lobbying for regulatory flexibility. The situation also shows the need for stronger incentives to boost consumer demand for EVs, as mandates alone are proving insufficient.

2. Regional pressures and global challenges

What’s happening? Volkswagen recently ended a 30-year job security agreement in Germany after a 20% drop in European EV sales, leading to union unrest. Meanwhile, in China, Tesla’s market share has fallen to 9% as BYD now controls 37% of the market. The EU is considering imposing tariffs of up to 35.3% on Chinese EV imports, which could exacerbate supply chain disruptions and fuel trade tensions.

Chinese carmakers, including BYD, have warned that these tariffs could lead them to re-evaluate their investment plans in the EU. The China Chamber of Commerce has expressed concerns that confidence in the EU’s investment environment would be majorly diminished. Despite last-minute talks between China’s commerce minister Wang Wentao and European trade commissioner Valdis Dombrovskis, the anti-subsidy investigation by the EU continues. This situation is already affecting consumer demand, with registrations for SAIC-owned MG plummeting by 65% in August.

Simultaneously, Brussels is pushing to protect local carmakers as Chinese brands rapidly gain market share in Europe. BYD, which already operates a plant in Hungary, is considering expanding further, but the uncertainty surrounding tariffs is casting a shadow over these plans.

What does it mean for the industry?

The potential tariffs and ongoing trade tensions could disrupt Chinese investments in Europe, leading to further strain on supply chains and affecting consumer confidence in Chinese EV brands. German OEMs like BMW and Volkswagen, which have Chinese plants producing models for the EU market, could be particularly impacted. The situation underscores the need for OEMs to navigate a complex landscape of regional pressures and global trade dynamics while advocating for a more stable and predictable regulatory environment.

3. Cost-cutting and difficult decisions

What’s happening? Ford has cut its EV investment by $1.5 billion following a 12% global drop in EV sales in 2023. Hertz, dealing with a $1.2 billion loss tied to its Tesla fleet, is nearing bankruptcy. In the UK, Tata is transitioning to green steel production, a move critical for its sustainability strategy but resulting in 3,000 job cuts.

At the same time, European OEMs are grappling with the implications of the EU’s Green Deal climate law, which sets stringent CO₂ emission thresholds. According to ACEA, if the market share of EVs doesn't increase by 2025, car manufacturers could face penalties of up to €13 billion. The legislation’s requirements are pushing OEMs to cut the production and sales of petrol vehicles to avoid these fines, adding another layer of complexity to their cost management strategies.

What does it mean for the industry?

OEMs are faced with balancing immediate cost-cutting with the need to invest in future technologies while navigating the risks associated with regulatory pressures. The potential penalties under the EU’s new emissions standards highlight the urgency for them to increase EV market share, despite slowing consumer demand. Sustainability investments, like Tata’s green steel initiative, remain critical, but the industry will need to push for regulatory flexibility to avoid severe economic consequences.

4. Innovation beyond EVs

What’s happening? As the automotive industry evolves, companies are exploring new technology beyond electrification. Uber is partnering with GM’s Cruise to advance self-driving technology, navigating the complex landscape of safety regulations and public trust. Simultaneously, Sharp and Foxconn are developing a multifunctional electric minivan that doubles as a living space, featuring AI-driven systems and solar-powered batteries.

What does it mean for the industry?

The shift towards autonomous vehicles and multifunctional mobility solutions reflects a focus on enhancing the overall user experience, not just propulsion technologies. These innovations could redefine mobility, offering new opportunities for OEMs to differentiate themselves in a competitive market while addressing evolving consumer demands for versatility and convenience. However, the success of these innovations will also depend on navigating the regulatory and consumer acceptance challenges that have hindered broader EV adoption.

Navigating the future

The automotive industry is at a critical juncture, facing challenges from electrification and regional market dynamics to cost management and technological innovation. The looming EU-China trade tensions and the potential imposition of tariffs on Chinese EVs add further complexity to an already challenging landscape.

Success in this environment will require OEMs to be agile, strategic and prepared for unexpected disruptions while maintaining a strong commitment to innovation and sustainability.

Additionally, the industry must advocate for a balanced regulatory approach that supports the transition to cleaner vehicles without imposing unmanageable burdens on manufacturers.