The Changing Economics of the Motor Industry

There is heaps happening in the motor industry at present. Here is a selection of news items!

UK car parts firm TI Fluid Systems bought by Canadian rival

A standard merger story here with the news that UK car parts manufacturer, TI Fluid Systems has been bought by Canadian rival, ABC Technologies. As is often the way, this is going to see job losses as the new firm looks to rationalise its production capacity and in this case that's likely to mean job losses at its Oxford HQ.

UK could loosen EV rules to allow sales of Prius-style hybrids until 2035

It seems as though there's some wiggle room in the car market, with the government apparently looking to loosen the rules on the ban of the sale of new petrol and diesel cars from 2030 by permitting hybrid vehicles to be sold until 2035 as a compromise in response to the demands of the sector.

Has Volkswagen Lost Its Way?

This Bloomberg clip looks at the challenges facing Volkswagen, not least the need for cost savings to keep the car manufacturer viable, to the extent that they're contemplating some of its German production locations. But if it does so, does this illustrate something more fundamental about the state of the German economy, and what are the factors that have contributed to this? Electrification has played a part - although VW weren't terribly well-prepared for this and their vertical integration of the EV business hasn't worked very well, as has the rise of Chinese car manufacturer who have started to overtake the company in their home market and, increasingly the EU. Lastly, its relationships with its workers are being challenged as never before. A good case study of a firm that seems to be in decline.

Drivers paying more than they should for fuel, says watchdog

The Competition and Markets Authority (CMA) have continued to monitor petrol retailers and have concluded that their profit margins are higher than historic levels, suggesting that firms are wielding greater monopoly power than they were previously. Supermarket profit margins are around 8% and non-supermarket retailers are earning over 10% in August, up from 7.2% in April.

As a result, the competition authorities "remain concerned about weak competition in the sector and the impact on pump prices," and are likely to continue their oversight of the market.

UK electric car production drops with firms 'under pressure'

In the furore over the closure of the Vauxhall plant in Luton, the broad picture for electric car manufacturers has come under close scrutiny and the latest Society of Motor Manufacturers and Traders (SMMT) has shown that UK output for October is down 15% on last year. At the same time electric car sales are higher than they were a year ago, albeit with manufacturers claiming that the fact they account for one in every five new cars being registered stems from unsustainable discounts offered to help achieve electric car sales targets.

Vauxhall owner to close Luton factory

The owner of the Vauxhall brand, Stellantis have announced that they are going to close their Luton plant in response to slack demand for their electric vans. The move puts 1,100 jobs directly at risk, and might trigger a negative multiplier effect too.

It also throws light on the market conditions facing car manufacturers who signed up to electric vehicles sales targets which haven't proved possible to hit, in part because the price of these cars remains high.

Overview

The global automotive industry is experiencing significant transformations driven by technological advancements, shifting consumer preferences, regulatory changes, and geopolitical factors. Key dynamics include:

1. Electrification and Electric Vehicle (EV) Adoption

• Accelerated EV Production: Automakers are rapidly expanding their electric vehicle portfolios to meet growing consumer demand and comply with stringent emission regulations. For instance, Europe anticipates that over 65% of new cars sold will be fully electric by 2030.
• Challenges in EV Transition: Despite investments, the shift to EVs faces hurdles such as high costs, range anxiety, and insufficient charging infrastructure. These challenges have led to slowed demand and financial setbacks for some manufacturers.

2. Autonomous and Connected Vehicles

• Advancements in Autonomous Driving: Companies are investing in self-driving technologies, with expectations of commercial rollout for Level 4 and 5 autonomous vehicles. However, widespread adoption is delayed due to technical challenges and regulatory hurdles.

  
  

• Vehicle Connectivity: The integration of vehicles into the Internet of Things (IoT) enables real-time data exchange, enhancing functionalities like traffic management and remote diagnostics. This connectivity is reshaping consumer expectations and vehicle capabilities.

3. Supply Chain Disruptions

• Semiconductor Shortages: The global chip shortage has significantly impacted vehicle production, leading to delays and reduced inventories. The automotive sector, which relies heavily on semiconductors, has faced substantial revenue losses due to these shortages.
• Raw Material Dependencies: The EV supply chain is heavily dependent on materials like lithium, cobalt, and nickel, with China dominating the refining processes. This concentration raises concerns about supply security and geopolitical risks.

4. Geopolitical and Trade Influences

• Trade Policies and Tariffs: Recent tariff implementations, such as the U.S. imposing a 25% tariff on imports from Mexico and Canada, have disrupted supply chains and increased production costs for automakers.
• Global Competition: Chinese automakers are expanding their global presence, offering competitively priced EVs, which intensifies competition and challenges established manufacturers in other regions.

5. Regulatory and Environmental Pressures

• Emission Regulations: Governments worldwide are enforcing stricter emission standards, compelling automakers to accelerate the development of low-emission and zero-emission vehicles. For example, the European Union plans to end the sale of petrol and diesel vehicles by 2035.
• Sustainability Initiatives: There is a growing emphasis on sustainable manufacturing practices and the development of circular economies within the automotive sector to reduce environmental impact.

6. Changing Consumer Preferences

• Shift Towards Mobility Services: Consumers, especially younger generations, are increasingly favoring mobility-as-a-service (MaaS) options over traditional car ownership, prompting automakers to explore new business models.

  
  

• Demand for Advanced Features: There is a rising demand for vehicles equipped with advanced driver-assistance systems (ADAS), connectivity features, and personalized user experiences, influencing vehicle design and development.

These dynamics are collectively reshaping the global automotive landscape, compelling manufacturers to innovate and adapt to remain competitive in a rapidly evolving market.