Double Down on Electric and Connected Cars in 2022 Automotive Industry Trends
- The industry is recovering from the epidemic in all sub-sectors.
- Although the demand is increasing, the expenses of making the switch to electric vehicles remain substantial.
- Even though OEMs must carefully adjust their posture in preparation for the EV revolution, marketing spending is decreasing.
- Online sales are still a viable option for improving the brand experience.
- Brand scorecards are more important than ever.
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Table of Contents:
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- What's been going on in the industry?
- Recovering from the pandemic in 2021/22.
- Mobility in a variety of media.
- The Speed of Electric Vehicles.
- Trucks on the road, freight, and zero-emission vehicles.
- Autonomous Vehicles & Connectivity.
- The Investment Focus Is Shifting (R&D versus Marketing).
- Auto Components Get a New Focus Brands.
- Car Rental Services & Mobility as a Service New Used Car Brands, Comeback Car Dealerships, and Online Sales.
- So, how does this affect brands?
What's been going on in the industry?
As the year 2022 begins, the automobile sector will continue to experience significant shifts in business models as the rate of electrification accelerates and connection technology progresses.
These developments have sparked fierce rivalry, undercutting old brand strategies while also opening up vast new potential for both incumbent OEMs and new brands.
Seven new entries in the Top 100 this year, compared to only two last year, demonstrate the shifting landscape, as does the outstanding success of freshly launched businesses. In terms of value, these newcomers are gaining ground quickly, whereas more established businesses have witnessed more gradual development.
The industry and the brands inside it, are at a crossroads due to the combined demands of developing mobility, changing drivetrain and model type needs, a transforming customer and regulatory landscape, and new technological requirements.
The industry, on the other hand, has shown resiliency, with both sales and valuations rising. Customer demand is expanding, and innovation is continuing at a rapid rate. Investment in additional capacity, notably for electric vehicles (EVs), is skyrocketing. Despite the challenges, the sector has a bright future.
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Recovering from the pandemic in 2021/22
Overall, the care sector is recovering from the pandemic's consequences. Savings growth, along with low-interest rates, has boosted demand for many kinds of commodities, including automobiles.
SUVs and SUV crossovers are still the most popular types, and their popularity is growing across the board. This is eroding some of the formerly significant disparities in model type popularity between areas, such as the European preference for little automobiles vs the American preference for bigger models.
EVs are by far the best performing drivetrain type in terms of relative growth, notwithstanding good demand throughout the sector. Around 6.4 million plug-in electric vehicles were sold in 2021, an increase of more than 100%. From 4.5 percent of all vehicles sold in 2020 to 9 percent in 2021, this marks a significant increase.
Access to microchips is the biggest stumbling block for OEMs, and it is expected to persist for some time. Another significant impediment to value creation is the impact of the industry's major changes on investor sentiment. We've seen a significant increase in risk perception for the business this year, which boosts financing costs and lowers valuations across the board.
Because of this increased risk, the share of vehicle brand value in the Brand Finance Global 500 ranking declined for the first time in three years, from 7.3 percent to 6.8% of the total. In the Brand Finance Global 500 ranking, the absolute value of vehicle brands increased by 5%, but faster growth in the retail, IT, media, and travel sectors pulled down the share of autos.
Looking back at the Brand Finance Automobiles 100 ranking, the highlighted brands had a 4.3 percent gain in total brand value, rising from US$5.9 billion in 2021 to US$6.1 billion in 2022.
This rise was seen across the board, but special attention should be paid to China, which has eight of the top ten fastest-growing brands and accounts for 7% of the overall brand value in the list, up from 5% in 2021. Chinese automakers have effectively capitalized on China's EV boom and are now expanding globally.
These findings demonstrate an industry that is successfully responding to a moment of a major strategic challenge and high investment needs, shaking up established players and introducing new ones.
Mobility in a variety of media
Looking ahead, there are substantial dangers to the industry's future growth, including the emergence of multi-medium and micromobility, as well as the resulting anti-car protests in many cities, particularly in more wealthy sections of the country.
According to recent Mckinsey research, up to four-fifths of individuals are willing to go to work on bikes, mopeds, or scooters. Lime, Voi, and a slew of other scooter businesses are scaling up, filing for IPOs, and enjoying moderate economic success as alternative mobility service providers.
Many cities, like Paris, Berlin, and Barcelona, are making life more difficult for automobiles, particularly those powered by internal combustion engines (ICE). At the time of writing, over 150 cities in Europe have enacted legislation favoring low-emission vehicles over regular ICE vehicles, with a similar trend occurring to a lesser extent elsewhere in the world.
These trends in short-distance mobility aren't the only way our means of transportation may alter shortly. Personal air mobility has experienced a large rise in investment in the last two years, however, it is a little further off in time.
According to S&P Global Intelligence, the overall amount of venture capital investment in personalized air transportation, including associated R&D spending and announced SPAC acquisitions, was nearly four times greater in 2020 and 2021 (at $9.8 billion) than in all previous years combined (up to 2019).
In partnership with Hyundai, UK start-up Urban-Air Port has revealed plans to develop 200 "vertiports" enabling vertical take-off and landing of freight drones as well as launching passenger craft in 65 cities across the world. The first of them, in Coventry, is scheduled to open in April of this year.
According to some projections, enhanced air mobility choices might account for more than half of long-distance travel in the next 20 years, particularly in cities and regions with heavy traffic. Traditional automobile OEMs are anticipated to face substantial pressure in the future as a result of the combined effects of micromobility alternatives (short-distance) and customized air mobility (long-distance).
The Speed of Electric Vehicles
Despite these challenges, there is a big opportunity in electric vehicles, which most OEMs are aggressively pursuing.
The Brand Finance Automobiles 100 2022 ranking's key success stories are electric vehicle brands. Tesla's value has risen three positions to become the third most valuable vehicle brand, with a 40 percent increase to US$46.0 billion. It has not only maintained its manufacturing capacity and lead in EV model sales, but it has also built substantial value in the form of future captive software income.
No, Tesla's Chinese rival, has expanded by 79 percent in response to a surge in electric vehicle sales in China this year, which surged by 150 percent in 2021 and are expected to double again in 2022. However, as Chinese businesses, particularly electric vehicle firms, begin to internationalize, this trend is not limited to China. Nio, Airways, BYD, Dongfeng Motor, SAIC, and Great Wall, our fastest-growing brand, were all brought to Europe last year.
Chinese businesses have reaped significant benefits from the migration to electric vehicles. China was lagging in ICE technology, but in the EV market, numerous Chinese manufacturers are leading the way.
For example, in the second half of last year, BYD debuted their "Blade Battery," which retains 50 percent more power than similar battery chemistries, is safer when broken, and does not include the contentious metals cobalt and nickel. These batteries will not only be used in BYD automobiles, but the company is also in discussions to provide Tesla with batteries and has formed a joint venture with Toyota.
Many German businesses based their reputations on the quality of their engines and related engineering. This may easily happen with Chinese electric vehicles, particularly BYD: a Chinese version of "Vorsprung Durch Technik"?
Brands that have been around for a long time are catching up. Every major automaker has multibillion-dollar investment plans to electrify their lineups, and you can see them rushing out statements to one-up competitors - for example, Volkswagen's commitment in December 2021 to increase investment by €17 billion to €52 billion, the largest such investment of any automaker.
This brings up an important topic regarding positioning as auto companies transition to electric vehicles. As nations impose increasingly stringent air quality and emissions regulations, OEMs spend much more, and EVs become more prevalent, the branding and message around new EVs will lose some of its distinction over their environmental credentials. A sustainable powertrain won't be a differentiation anymore.
The long-term viability of the EV manufacturing process – which, according to some estimates, produces 80 percent more emissions than ICE vehicles – will be a differentiator. This will need the use of recycled components, the transition to green raw materials, and the avoidance of contentious inputs commonly utilized in battery manufacture. Polestar, Volvo's new premium EV nameplate that has yet to break into our table, presents several innovative methods to achieve this in its new concept cars while keeping its luxury appeal.
This is helping Volvo's environmental posture, but for BYD and Tesla, brands more intimately connected with electric vehicles, sustainability is a more obvious difference.
Comfort and connection, as well as more fundamental aspects like range and dependability, will become critical. Many marques are using technology as the foundation of their positioning, as seen by the prominence of technology-based sub-brands — BMW I Volkswagen id, Audi e-Tron, and so on.
BMW has been one of the slowest growing brands on the list while being the most hesitant of the main German OEMs to invest in the EV transition. When you don't have it, basing your posture on further investment and cutting-edge technology is unlikely to be a winning strategy.
However, the premium German OEMs are all still regarded as extremely innovative, with more than 30% of people acquainted with the brands admitting that they are, thus, for the time being, this positioning focus appears to remain feasible and beneficial to the brands.
Despite the rise of new electric companies, existing brands are likely to remain on top if they make the necessary investments in the EV transition. According to our findings, conventional brands still have a long way to go in terms of brand recognition, which is critical for retaining market share, and their reputations for quality and innovation are unblemished.
Finally, keep in mind that the popularity of electric vehicles has mostly grown in environmentally concerned areas and cities. If micromobility trends take root in cities, EVs' long-term growth will be contingent on widespread acceptance in car-dependent areas, notably rural and suburban areas. Social acceptance and environmental credentials may be helpful in certain locations, but performance, dependability, and riding enjoyment will be equally important.
Trucks on the road, freight, and zero-emission vehicles
Road freight had a good year; for the 12 months ending in October 2021, road freight in Europe was 8.3% higher than for the same period ending in October 2020. In Europe, it has not yet recovered to pre-pandemic levels, although there are signs of improvement across the world.
This year's performance of truck manufacturers has been equally inconsistent, with only sluggish indications of recovery, but indicators nonetheless. Scania, Volvo Trucks, and UD Trucks all saw slight improvements in brand value, but MAN saw its brand worth plummet 18 percent to US$2.2 billion.
This is because, despite rising demand, the zero-emissions transition looms large over the business. Both hydrogen fuel-cell and electric battery technologies will be required, and substantial investment will be required, considering that just 5% of trucks in Europe – which is at the forefront of pollution reduction – are now zero-emissions. Traton, the parent company of MAN and Scania, is straining to meet the investment requirements, but recent results indicate that a payout is on the way.
Many of the same difficulties that plague passenger car manufacturers also plague truck manufacturers – from a shortage of charging stations to electric powertrain innovation and the need for improved connectivity and driver aid – but the demands will be different, necessitating additional expenditure.
In the medium term, luxury truck manufacturers like Scania are expected to benefit from a first-mover advantage in providing zero-emissions trucks at premium rates, but costs will need to reduce for general adoption, and – as with passenger vehicles – brand differentiation will shift to driving technology.
Autonomous Vehicles & Connectivity
When assessing the rise of EVs, keep in mind their performance in comparison to ICE cars. EVs do not now have a substantial benefit, but many anticipate that in the future, they will have higher lifetime mileage, last longer, and hold their worth better.
This is anticipated to result in increased finance income as more consumers choose to pay off their automobiles over time, as well as a reduced total number of sales and a greater reliance on services to cover the revenue gap.
Add-ons and software subscriptions, like other tech-based sectors, are set to become a far bigger component of business models. Tesla, for example, charges US$10,000 for its "full self-driving" add-on, which Elon Musk, the company's CEO, has suggested may eventually reach a value of US$100,000 – more than the original car – and be spread out over the car's lifetime under a subscription model. This sort of invention has a lot of value potential, but it will take a lot of effort and creativity.
Autonomous driving is an obvious development of this. It's becoming increasingly evident that the path to autonomous driving will be paved with tiny steps rather than moonshot investments like those made by Uber, Google, and Apple, which are still far from having a viable economic case.
As difficulties with risk-sharing and responsibility are overcome, existing OEMs will be able to gradually progress from driver assistance and partial automation to high automation and, eventually, complete automation.
One reason to doubt the emergence of Chinese brands outside of China might be the lack of connection. Given the extent of data gathering necessary and the importance of software trust, some consumers outside of China may be hesitant to buy Chinese goods due to the current status of Sino-Western relations.
The Investment Focus Is Shifting (R&D versus Marketing)
CAPEX and R&D spending is expected to soar, according to recent pronouncements. However, CAPEX as a percentage of sales has recently been constant. R&D spending climbed moderately last year, with reasonably strong growth, and currently accounts for 4.6 percent of revenue for listed vehicle brands.
R&D spending varies per OEM, but in general, German firms have been investing heavily in anticipation of the upcoming changes, much above what fast-growing Tesla spends. Last year, Audi, BMW, and Volkswagen all boosted their R&D expenditure as a percentage of revenue, resulting in an average investment rate of 6.6 percent, which is higher than the industry average
This investment, however, appears to come at a cost. Marketing spending is gradually declining, and it felt like a percentage of sales for the fifth year in a row this year (6.5 percent on average in 2020 vs 8% in 2016).
This is partially due to the epidemic, and we expect some recovery, but there is a long-term tendency that appears short-sighted in many aspects. Consumers will need to be guided through the EV transition, and despite Tesla's anti-advertising stance, the businesses with the most brand recognition, and hence the highest mental availability, will win market share. It will be just as crucial to building relationships with future clients as it will be to developing technologies.
Brands of auto components have shifted their focus
The technology and parts necessary for EVs will be vastly different from those required for typical ICE vehicles, necessitating a considerable shift in emphasis for auto component manufacturers.
According to Mckinsey Mobility Centre, ICE components like engines, gearboxes, and fuel injection systems would all lose importance, falling from 26% of the market size (by value) in 2019 to 11% in 2030.
As the value of new components such as hybrid transmissions, batteries, head-up displays, and interiors rises, the value of "stable" components falls from 48 percent to 37 percent of the total value, driving "stable" components down from 48 percent to 37 percent of the total value.
The possibility of a larger component value share has pushed up brand values among car component manufacturers. The Top 20 most valuable car components brands have increased their overall worth by 32.5 percent, compared to 4.4 percent for the Top 100 most expensive automotive brands.
Even though volumes and revenues have been reduced in recent years, car component manufacturers are betting big on electric vehicles, and they are expected to weather the storm. China, with its burgeoning electric vehicle industry, is once again the best performance, with the value of Chinese-based car component brands rising 269 percent to US$2.5 billion.
Unfortunately for automakers, future breakthroughs in electric vehicles and networking rely on semiconductors rather than conventional component suppliers. There have been severe shortages of these chips, which are still hurting the market. Over 1,000 separate parts in cars rely on semiconductors, and companies who can efficiently sustain supply (like Toyota, which is up 8.1 percent in brand value) have shown to be more successful than those that can't (like Volkswagen, which is down 12.7 percent).
Car Rental Services & Mobility as a Service Comeback
As Mobility as a Service (MaaS) becomes more common, technology is taking over not only model design but also business models. Tesla's Las Vegas Loop, which debuted at CES earlier this year, exemplifies what this may look like in the future, although many established companies already exist in cities throughout the world.
To meet demand, City, ShareNow, GoTo, ZipCar, and a slew of other similar applications have purchased big fleets of automobiles, notably electric vehicles. Unlike regular automobile rental companies, there is little to no option in model type, and the cars are only utilized for a few hours.
Because these applications favor tiny three and five-door electric vehicles for city use, these brands are expected to become big clients of conventional OEMs, influencing model development. According to some predictions, by 2030, one out of every ten new automobiles will be owned by sharing firms. Because of the product's sharing nature, the impact on model choice might be considerable, perhaps lowering overall volume sales.
Traditional automobile rental firms face both difficulties and possibilities as a result of this. More investment in electrifying fleets will be required, as Hertz is attempting with its purchase of 100,000 Teslas due in late 2021.
Car rental services brands had a strong year in 2021, and projections for the industry are increasing, so brand values are up 22.1 percent in 2022. Despite the encouraging results, this was still a pandemic recovery to some extent. It will be important to invest in technology to compete with new MaaS brands, as well as refresh what many believe to be conventional brand identities, to maintain brand value growth.
New Used Car Brands, Car Dealerships, and Online Sales
Despite not receiving a rating in this year's Brand Finance Automotive Industry rankings, dealerships have not been immune to industry upheaval. Because EVs are more expensive, dealerships will try to offer them at competitive pricing, putting downward pressure on profits.
As the number of parts required for EVs decreases and their dependability improves, aftermarket parts and service will likely become less important. As a result, the focus of service will shift, with software support, in particular, becoming increasingly crucial. However, most of this will be done directly by OEMs "Over-The-Air," which will reduce the value potential for dealerships.
These changes will put a strain on training since dealers' existing expertise is heavily geared toward ICE vehicles; nonetheless, OEM brands will play an important part in this shift.
Aside from these developments, the expansion of internet sales will put more pressure on established dealerships, perhaps opening the door for new companies to take over.
Buying a car from a traditional dealership is typically a stressful, low-trust, and low-enjoyment affair. The reliance on individual salesmen with sales quotas, as well as the unavoidable delays in contract signing, diminishes trust and raises frustration. Similarly, the sales chain distances OEMs from their customers and limits their influence over the brand experience.
The system is primed for upheaval, and it is already happening. Volvo said in early 2021 that all pure electric vehicles would be sold only online. There are considerable advantages not just in terms of profit expansion, but also in terms of brand management, since online sales allow for more control over client interactions without the need to spend considerably on physical infrastructure.
Despite this, most OEMs are using a hybrid strategy, with regulatory concerns preventing a complete move to the internet - since direct sales by OEMs to consumers are prohibited in several regions.
Non-OEM web sellers, on the other hand, are flourishing. Carvana, Vroom, Carvago, Cinch, Auto1, Cazoo, Kavak, CarNext, Carro, and Amaris are just a few of the many start-ups that have received significant financing and made several acquisitions. Consumers are increasingly trusting online platforms throughout the whole new and used automobile buy and selling process, and the sector is booming.
So, how does this affect brands?
Prepare for the upcoming "Green" Challenge, which will focus on vehicle manufacturing rather than powertrain type.Green credentials based simply on the powertrain will become less convincing as EVs become more ubiquitous. On this premise, production will become the next major source of distinction.
The most successful brands, particularly in the luxury market, will be those who can effectively explain the sustainability of their manufacturing process - from the restriction on the use of rare minerals to the use of recycled material.
Avoid putting too much emphasis on "first-mover" city dwellers
City residents who appreciate smaller automobiles and want to be more environmentally conscious are driving the present EV industry. These will not be the key attributes that customers look for in all markets as EVs become more widespread, and brand messaging and manufacturing methods should reflect this.
Car sharing will become increasingly important, and for particular models, it will be a major driver of demand. These new client categories' needs (i.e. solely B2B) will need to be thoroughly researched.
Avoid being a clone of someone else's brand
The popularity of electric vehicles has resulted in the emergence of sub-brands with futuristic tech-inspired names and advertising campaigns emphasizing technical advancements. If all other manufacturers do the same thing, the potential to trade off these advancements will be restricted. As a result, careful thought should be given to whether the brand promise is credible, sustainable, and distinct.
Prepare for internet sales by continuing to work on it
The growth of online commerce will continue. Most OEMs' platforms will need to be enhanced, and consumers' trust will need to be earned through well-resourced and responsive customer service teams, as well as acceptable complaint and return procedures.
More than ever, brand summary metrics are required
Finally, because the needs of the industry are always changing, brands must be aware of what they are investing in, what people think of them, and whether those impressions are reflected in financial success. The most acceptable approach to achieve this is to use a balanced scorecard of brand strength criteria, which should be used as broadly as feasible.