The automotive industry is changing at lightning speed. Based on data from Oxford Economics, for two consecutive years, from 2018 to 2020, it reeled from shrinking economic activity, rising competition and dampened global demand. Then in the first half of 2020, the knockout punch from the COVID-19 pandemic had a severe impact to this global industry.
Symptoms have included disruption in Chinese parts exports, large scale manufacturing interruptions across Europe and the closure of some assembly plants in the U.S. In addition, sustainability issues and the transition from cars with internal combustion engines (ICEs) to electric vehicles (EVs) are causing massive changes to the automotive industry, covering supply chain, production, sales operations and regulation.
It’s no wonder that leaders in this industry, from chief executive officers to sales and marketing managers, are finding it hard to keep up with key trends and challenges impacting the sector and their people. By training people to understand key industry trends, learning leaders can help companies maintain their competitive edge and keep their people ahead of the curve. Let’s take a look at how to get started.
Understanding The Global Supply Chain
The first step in training automotive workers on industry trends is to help them understand what’s going on in the global automotive supply chain. Many manufacturers outsource work as they contribute toward the creation of the final product. As original equipment manufacturers (OEMs) seek economies of scale and lower risk, the drive toward vertical integration has spawned a substantial amount of merger and acquisition activity, as well as partnerships at all levels in the sector.
Global supply systems have yet to recover fully from the impact of the global pandemic. Transportation, notably shipping, is one essential aspect of the supply chain that is still underperforming. In the U.S., (outside of the neighboring ports of Los Angeles and Long Beach, which accept most of the U.S. imports from Asia), as many as 65 vessels were recorded as waiting for cargo for nearly nine days.
As a result of these delays, the average travel time from China to the U.S. has increased by 75%, resulting in 71 days, and the cost has increased to nearly $20,000 per container. This is certainly a concern for automakers, who’ve become increasingly reliant on just-in-time production models.
Evaluating The Raw Materials Pricing Landscape
Raw material prices are compounding supply side issues within the industry. For example, the demand for lithium – a key mineral in the production of the batteries required for EVs – is outstripping supply, causing prices to skyrocket. In 2020, worldwide battery production capacity was estimated to be approximately 630 GWh, with China accounting for nearly 75% of that. In late March, lithium carbonate prices in China were at 497,500 yuan/tonne, representing an 80% increase so far in 2022.
Since batteries account for at least 30% of the entire cost of an electric vehicle, decreasing battery prices are critical to making EVs more affordable. Contracts for lithium in China are very short-term and volatile, so automakers must collaborate internally between the chief operation officers, the vice president of supply chain, the inventory manager and the purchasing manager to ensure they have enough inventory to meet demand.
Assessing The Impact On Infrastructure
As the supply of EVs grows, so too will the demand for charging stations. According to a 2021 report by Mobilyze.ai, and funded by Toyota Mobility Foundation, just over 4.5 million people living in the top 50 U.S. cities – that’s just under 10% – live within a five-minute walk of a public EV charger. Even with the relatively low rates of EV ownership today, that is estimated to be 30,000 to 90,000 fewer chargers than is currently needed.
If all goes according to President Biden’s plan, the U.S. will have 500,000 public electric vehicle charging stations by 2030, up from about 43,000 today. And millions more home charging ports are expected to be installed across the country as the vast majority of EV drivers charge up at home.
Given that range anxiety is often cited as one of the major concerns from consumers regarding electric vehicles, the current lack of charging capacity represents a significant challenge for automakers’ sales and marketing teams.
Despite the lack of widespread infrastructure, EV sales appear to be growing. In Norway, for example, electric vehicles made up nearly two-thirds of new car sales in 2021, with Tesla being the top selling brand. Norway is a key market for Tesla, who sold over 900,000 vehicles there in 2021.
While Tesla remains the top seller of EVs, their competition is growing. Demand for the electric F-150 Lightening, Ford’s electric pickup, is surging. So much so that Ford is planning to double its production just to meet expected demand.
But it’s not just sales where EVs are gaining traction, but also advertising. Automakers spent $248 million on national television commercials promoting EVs in 2021, up 282% from $65 million in 2020. While Tesla is the notable exception to this trend, legacy OEMs are sticking to what they know and are spending big to promote their electric offerings.
As sales continue to grow, automakers are facing a new challenge — whether to spin off the EV segment of their businesses from the ICE segment. OEMs with sales of gas-powered passenger vehicles are still dominating the sales mix, but cannot achieve the valuation factor of an EV company.
Spinning out the EV segment would allow investors to better understand how this sector operates and the manufacturer would have a real chance of growing the valuation of its EV business.
Learners should know that, in the automotive industry, regulation is continuously changing to reflect lessons learned from new technology trends, accident data and increasing environmental demands. Regulations vary by country, but since the automotive industry is worldwide, industry regulations for safety and quality tend to be standard across the globe.
The automotive sector relies heavily on regulatory procedure, and it’s critical that employees are up-to-date on these procedures. Since the sourcing of raw materials for auto products is causing environmental issues, governments may feel obligated to impose more stringent rules on automakers to encourage sustainable procurement. Regulatory compliance training can help keep your people up-to-date on regulatory best practices and laws.
As the automotive industry continues to change with the emergence of EVs, supply chain issues and sustainability concerns, industry leaders must keep up. This means taking advantage of the latest market intelligence and keeping up with key industry trends, challenges and regulations across countries their companies operate in.
They must identify different categories of automotive products, (e.g., EV versus ICE) and operations that can influence change, growth and risks in the industry. Sales representatives and leaders also need to stay current to emerging sales models, such as online sales and subscriptions, to help with sales training.
The end goal of this is to further their employees’ professional development and to provide them with the training, industry certifications and proof of expertise in the industry.
Disruption in the automotive industry is here to stay — but that doesn’t mean your people, and your business, can’t be prepared.