The current state of the industry can be described as temporary, with consumer preferences changing along with product offerings. OEMs are everywhere and frankly, 2023 was a big year for the industry.
We’re in a transitional year for the auto world… we’re really in a transitional decade. Things are a little crazy right now as manufacturers recover from supply chain issues and invest further in alternative powertrain technologies that don’t have the same profitability they’ve come to expect from gas-powered vehicles. 2024 will be a continuation of that, with the future hanging all around us. Executives are struggling to decide which business units to invest in, and shareholders are wondering how much value to place on hopeful EV startups.
“The EV transition is creating brutal unpredictability in volume. Our business is challenged to manage these volatility with both delayed and compressed, aggressive launch schedules. Additionally, there is a significant issue with delayed payments from suppliers and OEMs, which is impacting cash flow” – Tier 1, Strategy, NA
Rivian has recently come under pressure to boost its stock price as the company has fallen in value. more than 90% since the IPO, and Fisker is (still) struggling to generate cash. Tesla has also cut prices again (in the Chinese market) in an attempt to drum up some sales. It will be interesting to see where things stand in 5-10 years.
Seraph (a consulting firm that works in the automotive industry) recently released their North America and Europe Auto Industry Report, which covers consumer finances, market preferences, supply chain risks, and the impact of geopolitical events. The report offers a little insight into what’s happening right now, and this article covers some of the highlights. If you’re interested in the full report, it’s on their website.
Consumer Finances and Market Preferences
The report discusses the key changes from last year from a consumer perspective:
- Vehicles are more affordable than last year
- OEMs talk about cheaper vehicles
- OEMs talk more about hybrids
- Vehicle inventories have been replenished
Vehicles have become more affordable in the U.S. over the past year, but are still at a high level compared to the standards of the past decade. Manufacturer incentives are becoming much more common (to 3.9% in December 2023, up from 2.7% in December 2022).
While the chart shows that vehicles are cheaper now than before, consumers may be more reluctant to spend money, as the data shows 46% cite high prices as a reason they’re not buying and 30% say interest rates are prohibitive. High federal rates mean borrowing is still much more expensive than it was during COVID.
It is important to remember that consumer credit card debt is still high, as are auto loan delinquencies, which are at a 13-year high. The average Joe consumer is still in a tight spot, it seems.
US EV market
The biggest concerns within the market are affordability, range and infrastructure. Government incentives for EV purchases have diminished and the average range of an EV is 250 miles compared to an ICE vehicle at 412 miles (along with a much faster refueling time).
To address these buyer concerns, OEMs are really trying to lower the price of EVs and spend money on developing new battery chemistries and lightweight materials. Many automakers have admitted defeat and agreed to Tesla’s supercharger network and associated NACS plug design. Since peaking in 2022, the price of lithium has dropped nearly 80% due to increased production, which is still crazy (in my opinion) considering how much more demand there must be now compared to a few years ago.
“EVs will only account for 30% of the market share, no matter how much progress BEVs make. The remaining 70% will be HEVs, FCEVs and hydrogen engines. I think ICE cars will definitely continue to exist.” – CEO and Chairman Akio Toyoda
About the big three from Detroit…
“Ford is recalibrating its EV strategy to move away from big, expensive EVs, as high prices are the biggest barrier to convincing mainstream car buyers to go electric.” – Ford CEO Jim Farley
Input costs and supply chains
Important changes since last year include:
- Foreign OEMs responded to the UAW’s Detroit 3 contracts by raising wages for their workers, while the UAW launches a campaign to organize in more factories
- Lithium prices have fallen significantly
- Sea freight transport has increased
- In 2023, 34% of planned vehicle launches were postponed, leading to profitability issues
It turns out AI is useful for more than just looking up homework answers… apparently, automakers are using it in their supply chain, with BMW using it to oversee its robotic production fleet and Tata Motors using it to analyze historical data and market trends to predict demand. Toyota is using AI to help design the exteriors of its concepts, which undoubtedly takes some of the fun out of it. It’s not a new trend, but the prevalence and power of AI has certainly accelerated in the past year.
Forecasting production planning and demand planning are currently popular among supply chain professionals.
Leaving China is another trend, with 54% of respondents to Seraph’s survey indicating they would leave China. Many of the respondents leaving China are going to Mexico, Eastern Europe and USA. Some are going to Southeast Asia and Africa, but Mexico is getting the lion’s share. This could be due to rising labor costs in China, geopolitical risks or general uncertainty about China’s domestic policies decisions that affect companies.
The full report can be downloaded from Seraph’s websiteThis article only covers part of it, but the full report contains many more interesting figures and graphs from all angles in the industry.
Thanks for reading – JWK