Production of new vehicles is still below pre-pandemic levels -- but it will recover, albeit slowly.
We're in a new world. The EV transition is building momentum, although globally, we have lost production of 46 million new vehicles over the last three years.
For the time being, it's a deficit that is only increasing, equating to a loss of around 10.7 million new vehicle registrations in the top five European markets.
Yet, our industry has always been exceptionally resilient, as many have learned in recent years. It is hard to predict an exact direction of travel, but here are some expectations for 2023.
Supply shortages will continue
No instant fix will return new vehicle production volumes to anything we might call “normal.”
While production is once again showing an upward trend and lead-in times continue to shorten, significant change is underway.
The type of vehicle that consumers can access -- and how -- is changing. Vehicles remain a necessity, but affordability is a challenge. As a result, we are likely to see a continued preference toward affordable used cars as new cars become out of reach for many.
Subscription models haven't quite taken off. Although the high demand for used cars has somewhat leveled, it's a very safe market for now.
Kerrigan Advisors’ proprietary annual OEM Survey of over 100 executives reveals that the majority of respondents are worried about the financial impact of Chinese automakers’ growing global market share, and most expect that the EV transition to be slower than expected. The survey also queried executives on their outlooks for dealership valuations and profitability, as well as their expectations for the future of dealer networks and facility requirements.
Manufacturer-led EV push
Essential materials such as cobalt, magnesium, platinum and lithium are becoming more expensive, leading to increased vehicle production costs, especially for EVs. Some producers and countries are ring-fencing key products, making them harder to source.
Add to this high-interest rates and inflation for most EU nations and there are understandable issues around business and consumer confidence.
These circumstances are dampening consumer-led demand for EVs. They could slow down supply too; however, EVs remain a high priority. Legislation, nationally and globally, is a key driver. There are pressing targets, from approaching bans of sales of new combustion car to the race to Net Zero carbon by 2050. Combined with a threat of fines and sanctions, these policies will drive the pace of change.
New entrants emerge
The game has changed when it comes to popular automotive brands. Consumers are open-minded and less swayed by brand heritage in the EV space. With newer contenders -- including independent startups and those backed by global conglomerates – we are likely to see a unique automotive “brandscape” emerge.
Chinese brands looking to gain ground internationally will fill the void left by established automakers as they discontinue affordable -- but ultimately unprofitable -- legacy models. For now, many Chinese manufacturers will focus on offering EVs as well as combustion and hybrid variants.
China has huge acceleration plans for EVs, but there are barriers from Europe and the U.S. if they don't have any local manufacturing. The UK may become an important route to market here.
Agency model's impact
The agency, or direct consumer model, has become a major talking point. This makes sense in a world where business reputation and consumer experience is everything. Automakers want to own their consumer relationships without the dealer acting as the middleman. The agency model allows organizations to retain brand loyalty, better control pricing and profitability and improve the showroom experience.
The dealership landscape is changing but if manufacturers get it right, consumers are unlikely to notice much has changed.
The debate continues as to whether vehicle manufacturing has arrived at Death Valley. It is correct that overall sales (and therefore production) have dropped off a cliff compared with pre-pandemic levels. But let's not be so pessimistic. It is no longer viable to try and repeat former successes of the industry as we know it.
Change is afoot, which brings uncertainty. But we need a glass half-full mentality. We are in a valley of opportunity, and 2023 can be a critical year in terms of reaching new horizons.
