Pedro Pacheco offers his take on how the megatrends shaping mobility will play out in 2021
2021 will be an exciting year for the automotive sector, due to an acceleration of the mobility transformation seen throughout the last decade. The industry was already struggling with monumental challenges posed by the four pillars of the CASE transformation. The inherent financial pressure has been further heightened by COVID-19, leading to a priority redefinition for carmakers. This means prioritising areas with a quicker payback period like electrification and connected car. In turn, other areas with a more challenging business case get pushed down the list in terms of investment focus, such as shared mobility or autonomy from Level 4 (L4) onward. Finally, the transformation in the sector will also bring visible changes to the automotive value chain, especially in terms of sales and after-sales.
Mergers and acquisitions will intensify
The first half of 2020 was an extremely challenging period for the industry and its recovery will take several years—but some may never recover from that. This additional pressure will turn several companies into great bargains for acquisition. It will also unlock new possibilities for mergers between companies experiencing difficulties. By the same token, the current environment will also mean bankruptcies—especially for automotive suppliers who haven’t been quick enough to make the transition to electrification or to digitally transform their value chain.
EV growth in Europe, China and US
2021 will be a great year for electric vehicle (EV) market penetration. In Europe, the pace of growth will further increase—not due to COVID-19, but mostly because of the highly stringent CO2 legislation imposed by the EU. The Chinese government will reduce incentives on New Energy Vehicles (EVs, PHEVs and FCEVs) by 20% but, at the same time, it will use other mechanisms like restricting ICE registrations to make sure EV sales penetration will keep rising.
In US, there is major expectation on what the new administration will do to boost support for EVs. No doubt this will lead to a faster growth than in previous years, but it will take more than 12 months to introduce regulatory changes across all states. However, there is a chance the existing EV tax rebate scheme is further expanded. In addition, the fact that EV supporters see an ally in the Biden administration will definitely provide encouragement to further accelerate investment in electrification.
EV start-ups and EV open platforms come to life
The success of Tesla has inspired many other entrepreneurs to follow on the footsteps of Elon Musk. These new EV start-ups are already here and have shown their products but 2021 will mark the start of production for EV newcomers like Fisker, Lucid or Rivian. Other EV start-ups like Xpeng and Nio, which were facing headwinds not so long ago, are also now seeing visible sales growth, which is a promising sign for their future.
This entrepreneurial rush to form the next EV start-up was also seen by others as an opportunity to start offering open-source EV platforms. These would enable upcoming EV start-ups to easily develop a new car by simply adopting an ‘off-the-shelf’ platform. In 2019 Volkswagen had already announced its MEB electric platform would be available to other companies on an open source model. However, Foxconn and Geely are now also putting on the market open source EV platforms. While on the long run the market won’t be enough for several EV platform suppliers, these initiatives will make it easy for new entrants to join the EV race.
Autonomous drive: L3 on the road, L4 in the hands of tech
After much waiting, 2021 will see the market deployment of L3 autonomy by several carmakers, like Daimler, Ford, GM, Honda, Toyota and Xpeng. The UN’s new regulation on automated lane keeping systems is now being rolled out to at least 60 countries, hence offering carmakers the regulatory clarity needed to finally move forward.
However, L4 autonomy is a very different picture. Apart from Waymo’s robotaxi service in just a part of Phoenix’s metro area, no other company is yet offering a regular service beyond trials using shadow drivers or teleoperation. Consequently, making L4 autonomy work with full safety and reliability in the main cities across the world is a Herculean undertaking that will take at least most of this decade. This daunting prospect, added to the financial pressure triggered by the pandemic, will force carmakers to rely much more on technology companies to achieve this long-term goal. The recently forged partnerships between Daimler and Nvidia or Waymo are a very good example of that.
Micromobility and cars widen gain over mass transit
The fear of infection caused by the pandemic saw city dwellers move from public transport to cars, bicycles, e-bikes and e-scooters. This trend will continue in 2021, not only because COVID-19 will still be quite present, but also because several commuters have become accustomed to the new alternatives. Those who bought e-bikes to travel to work certainly won’t return to public transport so easily. Shared micromobility companies will also see a rise in activity: the pandemic triggered a growth in first-time users and these and other new users will keep increasing the chances of business success for micromobility.
Connected car shifts to high-value services
Traditionally it has been difficult for legacy carmakers to demonstrate the value of connected car services to their customers—and, hence, justify the monthly fee. Going past connected navigation or infotainment streaming, there wasn’t much more to entice consumers. Exactly for this reason—and driven by the successes of Tesla in this area—carmakers will increasingly transition to connected services where it’s easier for consumers to associate price with value. Digital function upgrades will be one of them. In addition, car connectivity will become an enabler to other services like connected subscription and leasing, where it can be used to lower monthly fees accordingly to vehicle usage patterns. Overall, this transition will be crucial to achieve connected car profitability and turn software into the main revenue generator on the long run.
The revolution in retail and after-sales is starting now
Tesla was the first carmaker to successfully deploy online sales, while other players didn’t see much value in it. Then came the pandemic, along with dealership closures. This led to a major increased focus on online sales, with several carmakers like Daimler and Volvo defining targets to sell a substantial part of their volume online by 2025.
However, the motivation lies even deeper than COVID-19. As premium carmakers lead the transition to EVs and autonomous drive, they are also the first to realise this entails a substantial reduction in aftersales revenue for their dealers. Today a Tesla does not require regular servicing intervals, which means competition will soon follow the same path. Hence, 2020’s sharp EV penetration rise in Europe is triggering the start of a redefinition process for retail and after-sales. A lot of this will culminate in old-style cost cutting, but the most innovative incumbents will transform the way they sell cars and attend to their customers’ needs. This, in turn, will entail a much higher adoption of holistic digital solutions to interact with these customers and increase their level of satisfaction.
Pedro Pacheco is Senior Research Director at Gartner.