KPMG surveys automotive executives across the globe annually to garner their sentiments for the future. This year, the KPMG 2021 Global Automotive Executive Survey gathered insights from 1,100 executives in 31 countries and found they foresee dramatic changes with electric vehicles (EVs), technology advances, mergers and acquisitions driving change.
“In Europe, the political pressure from ESG challenges and the race to a low-carbon economy are straining business models, but also offer fantastic opportunities to test new mobility offerings,” explains Laurent Des Places, KPMG in France.
The Global Outlook
Bullish views about the future fuel respondents’ long-term expectations, buoyed by their ability to withstand pandemic difficulties. Globally, the automotive industry has weathered this crisis after crisis without major bankruptcy. Even with the new variant, omicron, continuing COVID-19 upheavals, auto executives expect corporate fortunes to improve.
Fifty-three percent of respondents noted they were somewhat or extremely confident that the industry will achieve more profitable growth over the next five years. Just 38% noted they were somewhat or extremely concerned about the prospects for profitable growth.
Though collectively the outlook is positive, there are some variances by geography. U.S. executives (66%), for instance, express higher confidence about the future than Europeans, and Asian executives fall somewhere in between. Just 49% of German executives and 55% of Chinese executives felt the same way. Executives in France expressed higher levels of concern, with 70% saying they are somewhat or extremely concerned about the prospects for profitable growth.
Tier I suppliers expressed less positivity than automakers, and Tier II suppliers expressed more confidence than either.
Many respondents (48%) felt well prepared for future disruptions. In fact, just 18% worried they were not at all or only slightly prepared. Here, the U.S. topped confidence levels, with a 58-point disparity between those who felt well prepared and those who did not.
All identified supplies of elements and metals used in batteries and labor shortages as key concerns.
Future of Powertrains
Auto executives believe EVs will achieve widespread adoption by 2030. Executives noted EVs will take half the auto market in Japan, China, the U.S. and Western Europe by 2030, and around 40% in Brazil and India.
But they tied these sentiments to important economic assumptions:
- 73% expect EVs will reach cost parity with ICE vehicles by 2030.
- 77% believe EVs will achieve widespread adoption without government subsidies.
- 91% support government subsidies for EVs.
- 68% believe the government should phase out subsidies for vehicles over $50,000.
Executives identified charging infrastructure as a major hurdle before EV adoption. Respondents noted they believe only half of charging to happen at home. They expect 18% of charging to occur at public or private charging stations, 15% at work, and 15% on the street.
The survey also asked how fast consumers wanted charges to take. Over 77% said only 30 minutes, which requires fast-charging stations at $100,000 each. Less than 20% of U.S. charging stations are DC fast chargers currently; many cannot achieve 80% charge within 30 minutes.
“Availability of charging infrastructure will likely be critical for widespread EV adoption, specially in densely populated areas,” stresses Seung-Hoon WI, partner, KPMG in Korea.
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Driving Toward Digital
Auto executives predicted massive changes in how consumers purchase vehicles, anticipating a big move toward online vehicle purchases.
In fact, 78% of respondents believe most consumers will purchase new cars online by 2030, and over 47% predict automakers will sell 60% of new cars directly to consumers by then.
Reduced sales volumes through dealerships may lead to restructuring of dealer networks, they say. And for automakers, they noted direct sales will require investments in digital sales capabilities, marketing, pricing and transaction processing.
Consumers expect to see a seamless purchase and ownership experience as dealers move toward digital. And with vehicles generating more data than ever, 43% of respondents say they expect automakers to sell data to insurance companies.
Also in the digital realm, 84% of respondents noted they expect car subscriptions will compete with sales and leases by 2030. Respondents also believe automakers are better positioned to offer vehicle subscriptions.
Executives noted that technology and automotive industries are converging, leading to new alliances and entrants. Startups are raising billions and executives expect tech companies like Google, Apple, Amazon, and Huawei to enter the market.
Over half of executives surveyed (53%) said they expect to make investments, acquisitions and partnerships with innovative technology companies. Just 15% said they will keep technology investments within the company.
Forty-five percent of respondents say they are extremely or very likely to divest nonstrategic parts of their businesses within the next few years. Most expect to see unprecedented M&A activity in the next three years, with some execs saying the time is now to sell.
“Companies often wait too long to sell a business and values decline in the interim. Auto companies with legacy technologies should quickly come to a decision to hold or sell,” says Todd Dubner, principal, KPMG in the U.S.
Vulnerable Supply Chains
Executives collectively expressed worries over issues affecting the supply chain, including the price and availability of semiconductor chips, steel, rare earth elements, and other exotic materials. And 55% of respondents noted they were extremely or very concerned about labor shortages.
Forty-six percent of respondents said they are very or extremely concerned that commodity prices will adversely affect their businesses. And 79% said they were moderately, very or extremely concerned about labor shortages and wage increases and their impact on their businesses over the next 12 months.
Executives also complained about the regulatory environment for trade with 57%, saying the cost and complexity of trade rules and tariffs will increase over the next five years. Flavia Spadafora, partner KPMG in Brazil, recommends that companies “carefully consider any changes in tax laws as they redesign their value chains. The transition to new business models also will create further tax complexity for automakers.”
The pandemic highlighted cracks in automotive supply chains, causing most auto executives to report they will establish more control over their supply chains than in the past. Nearly two-thirds of respondents felt it was important to make direct investments in suppliers. Here, Goran Mazar, partner, KPMG in Germany, offered some insight: “Given the fact that automakers are competing against high-demand industry sectors like consumer electronics for limited semiconductor fab capacity, a new supplier or even joint venture approach is required to protect future production.”
Prepare the Way
KPMG concludes its report with four tips to help automakers navigate rocky business terrain. New powertrains, new relationships with consumers, innovative technologies and new data flows will transform the industry. Auto executives must prepare to stretch in novel ways:
- Prepare for the Unexpected. Auto execs can prepare for unknowns by planning for a wider range of scenarios. Asking key questions about EVs, autonomous vehicles, auto subscriptions and more can drive new strategies as the industry ventures into unknown territory.
- Pick Your Partners. You cannot do it alone. The new paradigm will require skills outside executives’ current competencies—from software development and software as a service to artificial intelligence, data analytics and more. While the industry can develop capabilities organically, many capabilities are best obtained through alliances, joint ventures, and acquisitions.
- Keep Customers in Mind. Everything the automotive industry does must focus on consumers. Digitization allows automakers to build direct, deep, long lasting, and mutually beneficial consumer relationships. That will only happen through a seamless, years-long customer experience that delivers personalization, efficiency and trust.
- Move Faster. As the industry evolution accelerates, the winners will be those that make better decisions faster than their competitors.
Ronnie Wendt is an editor for Auto Dealer Today.