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Uncertainty and disruption in the year ahead
2020 was the worst crisis for the automotive industry since 2009, and the impact of the Covid-19 pandemic continues to affect markets. Car sales in Europe fell by 25.5% in the first quarter of 2021 compared with the pre-crisis year of 2019 – a far greater decline than in either China or the US, where sales were only 3.2% and 2.9% lower, respectively. Without a doubt, the scale of this fall, caused by the impact of Covid-19 restrictions on the region’s economy and car production, will continue to challenge the automotive industry in Europe for years to come.
Despite the shock caused by the pandemic, European automakers have started to see the benefit of their considerable investments in electric vehicles (EVs), as sales of plug-in hybrid (PHEVs) and battery electric vehicles (BEVs) grew exponentially. Meanwhile, registrations of cars with internal combustion engines (ICE) fell by more than 17.9% in the quarter.
New EV registrations have been spurred by stringent regulatory requirements, especially in the strong fourth quarter of 2020, but we believe consumer demand has now taken over as the main driver of market growth. Online sales have increased and German OEMs have launched new PHEV models, as manufacturers align to meet the European Union’s new vehicle fleet emissions targets.
Because of further waves of Covid-19 and associated restrictions in many countries, our base assumption for this year is a recovery in global sales of 7.3%. We have observed ongoing demand weakness in Europe, while the Chinese and US markets have been pushed by massive direct government cash incentives for consumers and companies in March 2021.
How to build resilience: Repair, rethink, reconfigure
The auto industry is facing such an extraordinary degree of disruption that a global pandemic is not its major challenge. In addition to the economic fallout, Covid-19 has amplified issues that, even in pre-pandemic times, were driving the need for transformation. Future resilience requires action in three stages:
Repair
Ensure viability and rebuild strength
Rethink
Envision the future in order to manage today
Reconfigure
Fundamentally redesign future operations
“OEMs should increasingly set their strategic focus on a holistic transformation. Ten years from now, more than 60% of perceived value will come from software-enabled features. So it’s all about the metamorphosis from being a traditional hardware manufacturer to a software-enabled company, hand-in-hand with intensified sustainability efforts.”
Five key strategic changes
Instead of constantly being driven to change their business models by regulatory requirements, OEMs and suppliers can start positioning themselves ahead of the curve. If the industry takes the opportunity to repair, rethink, and reconfigure itself coming out of the pandemic, it will be able to shape the future of mobility with sustainable business models and a strong technology backbone.
1.Sustainability and the growing importance of ESG
2.End-to-end digitization
3.Re-aligning to become radically consumer-centric
4.Localization on a global scale
5.New ways of working
Methodology
PwC Autofacts©' monthly Covid-19 scenario projections for 2021 are based on current sales and production figures. The model uses detailed forecasts of customer demand and production capacities to adjust the monthly numbers that were expected before the crisis. These are consolidated to produce actual sales and production scenarios using different assumptions on market dynamics. In the monthly upside scenario, all demand is translated directly into sales, while in the downside scenario, vehicle supply disruptions limit sales. The monthly PwC base case scenario balances the limitations, and considers detailed seasonal effects. The scenarios for the resulting annual sales and production developments consider cyclical V-, U- and L-shaped recovery paths.
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