With China slated to be the world’s biggest market for auto sales and exports by 2025, and demand for electric vehicles expected to be the highest in emerging markets, global auto players should have a clearer vision of the way forward on issues critical to the industry. But it appears they don’t just yet, according to KPMG International’s 13th annual Global Automotive Executive Survey.
“Compared to previous years’ results, the findings this year tell us that auto experts have no clear idea of the direction the industry is heading,” said Mathieu Meyer, KPMG’s Head of Automotive for Europe and a partner in the German firm. “One thing is certain, electromobility is the most critical trend for the industry—how and when fully-electric cars will be a reality is dependent on a variety of complex and interrelated factors.”
While the industry continues to weigh the relative advantages of various electrified fuel technologies, it is clear that ownership of the e-components space (battery management and chemistry, power electronics, e-motors, battery cells and packs, etc.) will draw intense competition among original equipment manufacturers (OEMs) and suppliers. Fifty-four percent of respondents said that electric component suppliers will gain a bigger role by 2025 and 40 percent of respondents predict that OEMs will lead in that area in addition to traditional power train technologies.
“In light of the fact that respondents believe that OEMs will dominate this segment, the study also showed that the underlying technologies of e-components, offered no major differentiation,” Mr. Meyer said. “Currently OEMs are predicted to be the owner of almost all parts of the value chain, but sooner or later OEMs have to focus on their core competencies, which probably lie in brand management, especially with regard to the premium segment.”
Electromobility predicted to evolve out of Asia, but which technology?
Despite the fact that 76 percent globally said that fuel efficiency is still the most important factor affecting consumer-buying decisions, followed this year by environmental friendliness (65 percent), two-thirds don’t expect electric vehicles to exceed 15 percent of annual global sales within the next 15 years. But that does not seem to be the case in China, Japan as well as other high-growth markets where electromobility is expected to take hold sooner, according to the survey findings.
Respondents in Asia, China and Japan in particular, predict a higher penetration of fully electric vehicles than the global average by 2025; well over 50 percent of respondents from China expect that upwards of 11 to 25 percent (or 4 to 9 million vehicles) will be new car registrations for e-cars, while 46 percent of respondents from Japan predict that e-car registrations will exceed 25 percent. That is in contrast to the US, where nearly 50 percent believe new e-car registrations will account for only 6 to 10 percent by 2025.
Chief among the issues manufacturers and suppliers seem uncertain about is which fuel technology will emerge as the optimal and predominant method to power the electric car by 2025.
Globally, hybrid vehicles are expected to lead the market and attract the most investment in the interim with full hybrids and plug-in versions expected to be the favored technologies, and fuel-cell vehicles coming in third. This year’s survey found that respondents see an improvement in battery and fuel cell technologies, and there are signs that fuel cells may be viewed as the preferred option; nevertheless, uncertainty still lingers.
This scenario is expected to play out differently in China and Japan where 33 percent and 46 percent of respondents, respectively, said that battery-electrified vehicles will be the most popular followed by fuel-cell vehicles.
“The industry faces a tough decision on whether to place more trust and resources in fuel-cell or battery vehicle concepts in the long-term,” commented Mr. Meyer. “Hybrids may be more popular in the interim than pure, battery-powered cars, but the hidden champion that could emerge will be fuel-cell vehicles.”
Interestingly, nearly two-thirds of respondents globally said that optimization of the internal combustion engine (ICE) currently offers greater efficiency and the most potential for carbon emission reduction than the current electromobility technologies over the next 5 years.
“Internal combustion engines are not going away any time soon, especially as fuel efficiency and performance standards continue to improve,” said Gary Silberg, US Automotive Sector Leader and a partner in the US firm. “However, OEMs continue to invest heavily in electric propulsion, and will play a leadership role in the development of these emerging technologies going forward. While several technology platforms show a lot of promise, there is no clear winner in the race at this point, and the industry will see competition and collaboration among OEMs and suppliers increase as companies fight to win in the marketplace.”
Those findings are compelling when viewed alongside the survey results showing that Asian and European OEMs are most likely to gain hugely in market share over the next 5 years, with seven out of the 10 fastest growing auto manufacturers expected to be from Asia. Moreover, a majority of respondents believe that China will lead in both sales and exports of vehicles by 2017 followed by the US, and Brazil in a close tie for third with India.
“Our survey also revealed that 75 percent believe that mature and emerging markets are converging which will mean that the opportunities and the challenges will be the same for both,” said Chang Soo Lee, KPMG’s Head of Automotive for Asia and the Head of the Automotive Industry Department of KPMG Samjong Accounting Corp, South Korea. “This has big implications for OEMs from mature markets; they will have a wealth of new opportunities, but they can expect fierce competition from players in the BRIC countries for traditional and new technologies in their domestic markets.”
Converging markets, new technology increase growing threat of overcapacity
As with KPMG’s 2010 global auto survey, this year’s survey shows that overcapacity and excess production remain critical issues, with over half of respondents expecting China to be the most overbuilt by 2016. Yet, the survey’s findings reveal that still no real solutions have been identified and nearly one fifth of respondents do not see overcapacity as a serious threat in the BRIC (Brazil, Russia, India and China) markets despite available industry data that indicates that unutilized capacity is a real threat in the region and is rapidly increasing.
“A fact which is somehow not on players’ agendas is the increasing influence of new technologies on capacity utilization,” Mr. Lee commented. “For example, electro engines require different production lines, which are already available on the market and provided by manufacturers other than the traditional auto OEMs. Those capacities must recognize into the overall capacity consideration if we truly want to speak about overcapacity.”
Urban mobility and the connected car
Other issues that players vying to control the value chain should be tuning into in addition to fuel technology, the report said, are urbanized mobility services1, ‘connected-car’ solutions and seeking new alliances and partnerships to tap into innovation and unique competencies.
Urban mobility is a rapidly emerging issue especially in the US and Japan where over 60 percent of respondents believe urban planning will influence vehicle design and usage. In Germany, surprisingly, only 38 percent hold that view.
The study shows that the potential urban customer base for both BRIC and triad markets will range between 6 and 15 percent–or approximately 110 to 230 million customers–in the next 15 years. Brazil is expected be a leading market for mobility services with 42 percent of respondents predicting more than 25 percent of the country’s urban inhabitants will use those services by 2026; overall, China has the greatest potential to lead the market for mobility services with an expected 90 million potential customers.
As younger urban drivers grow more interested in car sharing than in full ownership, OEMs have an opportunity to dominate the space but respondents from around the world had mixed views about who would control this growing new mobility services market. Nearly 30 percent believe that joint alliances between OEMs and new mobility start-ups will be the successful way to go.
Full, integrated vehicle connectivity is long overdue said over 60 percent of survey respondents. While traditionally controlled by OEMs, the very lucrative market for in-car connectivity seems to be open for the taking. Just 30 percent of respondents see OEMs controlling the revenue stream in 2025 followed by IT and communications companies.
“Given the increasing dominance of intelligent plug-in connectivity solutions, with IT companies the driving force behind them, it is doubtful that OEMs will continue to own the revenue stream down the road,” Mr. Meyer said. “Furthermore, the concept of modularization, as already used in the connectivity environment, could also become a suitable model for the complete vehicle architecture, which would overcome the necessity of having a car fully equipped with the latest technologies. But there is still a high technological uncertainty about what those will be and when they will be available.”
1 Mobility Services is a term used in the automotive industry to describe emerging business models in which single or multiple providers offer (s) consumers a comprehensive transportation solution that may employ the short-term rental of a car or various modes of transport, getting the consumer from “A to B” as efficiently and cost-effectively as possible.
Note to Editors:
Global Automotive Executive Survey 2012: Managing growth while navigating uncharted routes is based on a survey of 200 automotive executives, over half of whom are business unit heads or higher. The respondents come from all parts of the automotive value chain including vehicle manufacturers, tier 1, 2 and 3 suppliers, dealers as well as financial service companies and for the first time mobility services providers.
A total of 47.5 percent of the executives are based across Europe, Middle East and Africa, 31 percent in the Asia-Pacific region and 21.5 percent in the Americas. Ninety-seven point five percent of the participants represent companies with annual revenues greater than USD100 million and more than a fifth work for firms with revenues greater than USD10 billion. The respondent interviews, which were held by phone, took place in August, September and October 2011.
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