Like always, I am going to start the year with a look ahead at the top 10 trends that will define the automotive industry over the next 12 months. And, as always, I might make some predictions that could surprise, not the least that the pandemic will inject some much needed mojo into what’s been a dispirited industry in 2020.
Hold Off On The Obituaries
For two consecutive years in 2018 and 2019, the automotive industry reeled from shrinking economic activity, rising competition, slowdown in BRIC economies, and tightening lending norms that dampened global demand. Then came the knockout punch inflicted by the lockdowns amid COVID-19 in the first half of 2020, plunging automotive sales to historic lows. But aided largely by the consumer shift towards personal mobility over public and shared transport, the auto industry is reviving at a faster than expected rate.
In fact, Frost & Sullivan’s mobility team has already revised its 2020 light vehicle sales forecasts from previously projected figures of 73.6 million to 77 million, although this still represents a fairly steep 15.1% year-on-year decline. More promisingly, we anticipate a brisk 8% year-on-year rise in sales in 2021, with the industry on track to overtake 2019 levels by the end of 2023. I’ll add a caveat here: while the overall market will certainly recover, the pace of recovery will be uneven across key markets.
In terms of how major markets are convalescing from the after effects of the pandemic, China’s automotive market has been the fastest off the blocks, followed by the US which perked up from around Q3 2020. Lingering effects of the pandemic notwithstanding, Europe and India have also shown signs of a steady comeback, albeit at a slow rate. I have greater hopes for India than Europe in 2021, given the extended lockdowns in Q1 and slow economic growth in the latter.
Top 10 Trends for 2021
So as 2021 kicks-off on an optimistic note, here are the 10 top trends that I think will invigorate the automotive industry in the months ahead:
Shift From Horsepower To Computing Power
Here’s my first prediction: every automaker will have to reinvent themselves as a digital company in 2021. There’s really no choice as more technology-led competitors muscle into the action and digital touchpoints and use cases explode with advent of Electric and Connected car services, and Autonomous vehicles not far behind. So car companies that can’t get their digital act together in 2021 will become more obsolete than my VHS tapes. Car companies will make some tough decisions to bring software development in-house and some will even start building their own operating systems or partner with Silicon Valley companies to develop next generation vehicle operating systems. I predict 2021 as the year when car companies will put a marker on their own version of IOS and Android for Mobility.
Forget A Showroom Visit, Just Crank Up Your Computer
One of the star acts of 2021 will be automotive digital retail. While online retail has already made significant inroads into the more organized automotive markets of North America and Western Europe, what the pandemic has done and will continue doing is push it into hyper drive. The pandemic has taught consumers how simple, convenient and easy it is to buy everything online, even big-ticket items like cars. The added attraction, of course, is that online marketplaces, unburdened by the cost overheads associated with physical showrooms, will offer prices that are extremely competitive. It’s something that even I, a diehard veteran of the showroom car purchase experience, will find hard to resist.
I think we could see automakers turn to innovative marketing strategies, including using social media influencers, to rake in more test drives or, as we’ve seen in China, accept bookings on third party e-commerce platforms. The biggest story in powering the automotive ecosystem to sell and engage with customers digitally will lie in technology enablers. Companies such as Roadster, Digital Motors, G Forces, CitNow, and Sophus3 have shown how they can help dealerships across markets have a fighting chance to sell cars and save dealership jobs.
Connected Cars Will Do More, Much More
This trend relates to cars and technology; my two all-time favorites (OK, apart from cricket and a good butter chicken!). Connected car Internet of Things (IoT) platforms will bump it up by several notches this year; in-car marketplaces will allow us to indulge in personal retail therapy (or order that butter chicken) from the convenience of a car, while features-on-demand will improve vehicle convenience, comfort, multimedia, performance, and safety. Together, they will totally transform the user experience and push the boundaries of personalization, while opening up innovative business models and recurring revenue streams for automakers.
Rise In Innovative Subscription-based Vehicle Usership (Not Ownership) Models
Despite a mixed bag of results—BMW followed Audi and Mercedes-Benz in folding up its subscription service, although Porsche expanded its operations in North America—I think there could be a bright future for new vehicle ownership models like leasing and vehicle subscription. Highly flexible contract durations, vehicle commitments that could be as short as a Tinder date, and easy vehicle swapping will represent the upside for consumers but high subscription fees will prove a dampener. In order for vehicle subscription to be successful, therefore, automakers will need to set in place a business model that covers not only the premium needs of the market, but also successfully offers affordable, price-sensitive variants that can be easily accessed by the mass market. Another point to consider will be to include young used cars at an affordable price point, thereby ensuring a fleet mix of both new and used cars catering to both ends of the customer spectrum. For lease providers, leasing will be a quick and easy solution to monetize the large base of used car assets, especially off-lease cars.
With New In Trouble, Used Will Be Good
New car sales might be in trouble but I’m betting on boom times for used cars in 2021. Growth will be helped along by the rising appeal of online used car retail, which we anticipate will jog along at a compound annual growth rate of 9% between 2019 and 2025. Demand for used electric and hybrid vehicle is also expected to pick up.
The Pandemic Will Make Things Personal
With their purchase of compact small cars, first time car buyers will swell revenues in markets like China and India. This will be reflective of more general, global trends where consumers fearful about infection risks will give a wide berth to shared and public transport in favor of personal mobility modes. Elsewhere, like in Germany, government subsidies and incentives offered as part of COVID-19 recovery packages will provide a fillip to electric and hybrid vehicle sales.
Pink Will Be The New Green
Aging populations, rising air pollution, increasing road accidents and, need I add, the pandemic will spotlight the importance of health, wellness and wellbeing (HWW) features in cars. Not to be left behind, automakers that have so far been focused on green agendas will look to advanced connectivity technologies to keep vehicle occupants in the pink of health. From features that detect if you’ve had a gin & tonic too many, purify in-vehicle air, and analyze real-time pollution at street level to my personal favorite – seats with massage functionalities – every part of car will be revisited with a view to keeping vehicle occupants safe and healthy. Not surprising then that we expect the number of connected vehicles with such features to increase at a compound annual growth rate of 25% between 2019 and 2025. Car companies will develop built in, bought in and beamed in HWW features
Circular Economy, Automotive Industry Innovates to Zero
With wastes generated by end-of-life vehicles becoming a massive problem, automotive companies will look beyond carbon-neutral factories to more fully embrace circular economy concepts and ideas of reuse and recycle. Propelled as much by their commitment to developing sustainable vehicles as by environmentally-friendly regulations the world over, the automotive industry will incorporate ‘Design and Dismantle’ principles at progressively earlier stages of the vehicle development process with the aim of reducing subsequent waste. ‘Innovating to Zero’ will be another goal towards which automotive companies will continue to work, finding interesting new ways to reach that magic figure of zero, whether in terms of zero fatalities or zero-emission cars.
Electric Vehicles Will Get Their Own Dedicated Platforms
Electric vehicles (EVs) will continue to roll out in big numbers powered by a combination of increasingly stringent emission regulations and shifting consumer preferences. Keen to grab a chunk of the huge addressable market for EVs, automakers will aim for economies of scale by building modular, scalable dedicated EV platform architectures.
An Already Electrifying Battle Will Heat Up
The fuel cell electric vehicles (FCEVs) vs BEV battle will become more intense than a Grand Slam final between Federer and Nadal. This could be the year that FCEVs begin to pull ahead: they have 3-5 times the range of BEVs, recharge faster, and are truly clean in that water makes up their tailpipe emissions. I’m not the only one thinking along these lines. Automakers are ploughing more money into FCEV development, while governments in the U.S., Germany, China, South Korea and Japan are also throwing their weight behind FCEVs.
A new year will bring with it fresh energy. With a rough year behind them, the automotive industry will be looking to 2021 to get right back onto the highway of growth.
To learn more, please attend a briefing by Frost & Sullivan scheduled for January 28, 2021: