- Changing consumer demand, a disrupted supply chain, and production stoppages are impacting the Automotive industry
- Ride sharing firms have been impacted as Uber, Lyft, and other mobility providers have lost upwards of 60% market value as consumers opt out of the "sharing economy." There will be business model pivots to create alternative revenue streams
- On the other side of recovery, Industry 4.0 and Automation-led initiatives will take center stage as carmakers seek enhanced manufacturing productivity
SANTA CLARA, California, April 15, 2020 /PRNewswire/ -- Zinnov, a leading global management and strategy consulting firm, has assessed the shifting gears of the Automotive industry in the shadow of the COVID-19 situation. Zinnov evaluated the impact of COVID-19 on the Global Automotive industry as a whole and on the various players across the automotive value chain including OEMs, Tier-1s, and ride sharing firms. The assessment identified the expected shifts in consumption patterns as well as changing R&D and digital priorities for carmakers on the other side of COVID-19.
The Automotive industry enjoyed an incredible bull run from 2010 to 2018 wherein even developed markets like the US and Europe saw ~5% CAGR growth. This period was defined by technological and consumption pattern disruptions. Carmakers expended budget and effort on large programs focusing on the four key trends that defined this golden age namely Electrification, Autonomous, Connected, and Shared Mobility. The growing market attracted investments even from outside the traditional OEM/Tier-1 supplier community including new-age OEMs (Tesla, Nio, etc.), asset-light companies (Uber, Lyft, etc.), and enterprises from other industry verticals such as Alphabet. However, the Auto industry started witnessing the initial signs of a slowdown in the first quarter of 2019, which has been exacerbated by COVID-19, because of the direct impact on consumer demand.
Taking a data-led approach, Zinnov evaluated multiple factors like shifts in consumer spending as a result of changing risk appetites, supply chain disruptions, industry fiscal health, existing globalization levels of the automotive workforce, and digital readiness, to assess the impact of COVID-19 on the Auto industry. What is irrefutable, is that the ongoing situation has impacted OEMs and Tier-1s alike, who have collectively lost ~20-40% of their market value since the start of the outbreak.
The initial impact of COVID-19 on the automotive supply chain and production was localized to China, up until January 2020. However, with the spread of the virus to Europe in February and the US in March, Zinnov's analysis found that the Automotive industry's key concern shifted from supply chain disruption to demand vaporization.
Zinnov also shared that the sharing/ride-as-a-service economy has been impacted to a greater degree. Uber and Lyft have lost upwards of 60% of their market value/valuations as consumers are increasingly opting out of the sharing economy. The forced lockdowns and social distancing norms have further intensified this problem. All these factors are causing future revenue concerns as well as delay in realization of the already elusive profitability in this space.
The industry is now in the middle of one of its toughest bear phases. Automakers are aggressively leveraging technology, pivoting their business models, and re-engineering their processes and talent to recover from this crisis. There will be an increase in the leverage of online sales channels with carmakers enabling digital showrooms and touchless delivery/shopping through Virtual Reality (VR) solutions. Initial anecdotal evidence points towards an easing of environmental regulations as governments across the globe prioritize spending on economic activity over the environment and EV-related subsidies.
Given the changes across the value chain, automakers will reprioritize their R&D initiatives on the other side of recovery and only two of the four key trends namely Connected and Autonomous are likely to attract a majority of this spend, stated Zinnov. Shared Mobility programs are expected to take a hit given the shift in consumer preference towards "self-owned" cars. However, evidence suggests that "vehicle subscription" will become a trend, with automakers and software companies spending on software to enable such subscription platforms. Auto companies are also most likely to focus on enhancing manufacturing productivity and efficiency by leveraging Plant Automation, Industry 4.0, Cloud-based ERP and PLM systems.
In addition to the measures being taken by the industry and the auto players themselves, governments across the world are also expected to play a crucial role in these extraordinary conditions, stated Zinnov. Auto companies are likely to benefit from their respective governments' expansionary fiscal policies including explicit bail-out packages.
Speaking about the Auto industry, Sidhant Rastogi, Managing Partner, Zinnov, said, "There will be a definitive shift in the way Auto companies will channelize their investments in the aftermath of COVID-19. In the near-term, the relaxation of emission norms, drying up of environment/EV-related subsidies might force certain automakers to put high investment electric powertrain programs on the back burner. In the long term however, there will be renewed focus on making their digital investments count by enabling digital/touchless walkthrough and delivery experiences, bringing in greater efficiencies by leveraging Industry 4.0 and Automation, and innovating on the existing business models to align to the post COVID-19 reality."
"Over the next 18-24 months, we see a paradigm shift happening in the way traditional automakers and the new-age players will operate. Auto players will, in all probability, realign their demand generation initiatives and business models, thereby creating opportunities for strategic partnerships and alliances to sustain in a new reality," he added.
Founded in 2002, Zinnov is a leading global management and strategy consulting firm, with presence in Santa Clara, Houston, Bangalore, Gurgaon, and Paris. Over the past 18 years, Zinnov has successfully consulted with over 250+ Fortune 500 enterprises and technology companies to develop actionable insights that help them create value – across dimensions of both revenue and optimization. With core expertise in Product Engineering, Digital Transformation, Innovation, and Outsourcing Advisory, Zinnov assists clients by:
Enabling global companies to develop and optimize a global engineering footprint through center setups, and technology and functional accelerators to achieve higher R&D efficiencies, innovation, and productivity;
Advising global PE firms in asset shortlisting and target evaluation, commercial due diligence, and value creation;
Growing revenue for companies' products and services in newer markets through account intelligence, market entry, and market expansion advisory;
Structuring and implementing Digital Transformation levers enabled by technologies like AI/ML, Cloud, IOT, and RPA;
Helping global companies outline and drive their open innovation programs, design and operate accelerator programs, and enable collaboration with start-ups across specific use cases and predefined outcomes.
With their team of experienced consultants, subject matter experts, and research professionals, Zinnov serves clients from across multiple industry verticals including Enterprise Software, BFSI, Healthcare, Automotive, Retail, and Telecom in the US, Europe, Japan, and India.