Post by PG on Jan 15, 2019 10:06:33 GMT
Interesting article in the DT online this morning about the issues the car industry faces - especially the European industry. The comment that 25% to 50% of the big companies' profit comes from China explains a lot of the dubious styling choice (like the BMW 7 LCI uber-grille) we are seeing now, but also makes them all (like JLR) very sensitive to any Chinese slowdown or change in taste or demand. Perhaps they have all forgotten that if you sup with the devil, you need to use a long spoon.
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In Beijing's well-to-do, middle class circles, owning a car is an important sign of eligibility in a young man. Whether he is allowed to use the car is another matter. If it's a new car, the chances are he isn't. To reduce air pollution and congestion, Beijing has a strict licence-plate lottery system in place and the odds of winning it keep getting slimmer. The city now grants about one for every 1,900 applicants. For electric cars, on the other hand, the chances are much better: about one in four.
Car sales in China, the world's biggest market, dropped 4.1pc last year, their first annual decline since 1990. Global carmakers are feeling the pinch. Chinese sales account for a quarter to nearly half of profits for Volkswagen, Nissan, GM, BMW and Mercedes-Benz (owned by Daimler). China's slowdown was also one of the factors in decisions announced last week by Jaguar Land Rover and Ford to slash jobs in Europe. Gathering for their annual conference in the US's carmaking hub Detroit, manufacturers are worrying about a global "car recession". GM has already announced plans to cut 14,000 jobs.
Across the world, there is a pattern. Consumer tastes and government regulations are changing at a speed that makes it difficult for carmakers to keep up. Even while cutting jobs, most are trying to fund expensive plans to invest in electric vehicles and more fuel-efficient models.
But the whole industry faces a dangerous cocktail of challenges. In addition to government pressure for cleaner models due to carbon emissions, China's consumer spending is slowing, Europe's recovery has run into the sand, the diesel scandal is prompting an overhaul of tax and regulatory regimes, there is the looming spectre of a global trade war and companies are feeling the pressure to keep up with advances in driverless technology and internet-connected vehicles. This is an industry that, in McKinsey-speak, is "ripe for disruption".
As Tesla's struggles show, however, it isn't easy for new entrants either. Elon Musk bet he could do for electric vehicles what he did for satellite launches, drastically bringing down the cost and capturing the market from lazy incumbents. In a tumultuous 2018, which saw Tesla stock lose and then regain about a fifth of its value, the company finally managed to post a large quarterly profit due to strong sales of its Model 3. But the car, which is supposed to be Tesla's breakthrough "affordable, high-volume" model, is selling for about $46,000 (£35,680). To break into the US mass market, a new car needs to cost $30,000 or less, according to Barclays analysts. Combined with tax breaks, the Model 3 might just about make the cut when its price comes down - but then it's unclear if it would still be profitable for Tesla.
There has been a race to cut the cost of batteries. According to Bloomberg New Energy Finance, the cost of electric vehicle batteries has plunged by 79pc in just seven years. The pace is being pushed by China, which has ploughed $60bn of subsidies into the industry, overtaking less subsidised industries in other countries and forcing them to step up their investment. As a result, from 2017 to 2022, the number of electric vehicle models on sale globally will rise from 155 to 289, according to BNEF, after which it predicts sales of the old internal combustion engine will start to go into long-term decline.
Meanwhile, carmakers will have to find ways of offering many more services. Consumers are already starting to expect that new cars are fully internet-connected, as anyone knows who has struggled to stream music during their journey or wrestled with an inferior inbuilt GPS navigation system when they really want to use Google Maps. The trend of sharing cars is already growing and likely to accelerate, especially as crowded cities, suburbs and rural areas all start to specialise by introducing different infrastructure and regulations (like Beijing's number-plate rationing and London's diesel charge) to address their own particular issues.
Artificial intelligence is also going to alter the way we use cars. Techno optimists predict that fully driverless cars will soon be taking over from mere humans - but even if they are wrong, vehicles will nonetheless start to generate and rely on more and more data. From insurance premiums to accident avoidance, fuel-efficient engine use and navigation, new cars will be increasingly expected to incorporate all sorts of fancy new kit drawn from the robotics, computing and semiconductor industries.
So while car sales are historically high, the industry's need to invest in such a sweeping range of new technologies has never been greater. This is bad news for workers at old-school combustion car factories, where recent announcements of job losses are just the tip of the iceberg.
The most vulnerable region is Europe. Even if they wanted to, European governments cannot afford to subsidise new technology at the scale that China does, nor is it politically easy for its major manufacturers to restructure, roll out new infrastructure or respond to the growth of disruptive new businesses like Uber. Instead, from Berlin to London, Europe is focused on regulating and punishing the existing industry.
Of course, Germany's carmakers are reaping the whirlwind for the emissions scandal, facing diesel bans in multiple cities and aggressive carbon-reduction targets. But they are also at risk because their domestic workforces are high-cost and they are far behind in developing the battery supply chain already up and running in Asia.
The industry might be sitting on a huge cash pile, but it is also highly sensitive to Chinese demand: the recent moderation in China's consumer spending fed through instantly into a sharp drop in German industrial production, prompting fears of a recession. Investors have accordingly assigned poor valuations to Germany's three big manufacturers, in contrast to the optimistic bets made on high-risk stocks like Tesla.
The coming revolution in carmaking is an enormous opportunity. Consumers and governments are pushing for new products and services at breakneck speed. But the future belongs to the fastest, most innovative and most adaptable players. It is not clear that many of them are based in Europe.
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In Beijing's well-to-do, middle class circles, owning a car is an important sign of eligibility in a young man. Whether he is allowed to use the car is another matter. If it's a new car, the chances are he isn't. To reduce air pollution and congestion, Beijing has a strict licence-plate lottery system in place and the odds of winning it keep getting slimmer. The city now grants about one for every 1,900 applicants. For electric cars, on the other hand, the chances are much better: about one in four.
Car sales in China, the world's biggest market, dropped 4.1pc last year, their first annual decline since 1990. Global carmakers are feeling the pinch. Chinese sales account for a quarter to nearly half of profits for Volkswagen, Nissan, GM, BMW and Mercedes-Benz (owned by Daimler). China's slowdown was also one of the factors in decisions announced last week by Jaguar Land Rover and Ford to slash jobs in Europe. Gathering for their annual conference in the US's carmaking hub Detroit, manufacturers are worrying about a global "car recession". GM has already announced plans to cut 14,000 jobs.
Across the world, there is a pattern. Consumer tastes and government regulations are changing at a speed that makes it difficult for carmakers to keep up. Even while cutting jobs, most are trying to fund expensive plans to invest in electric vehicles and more fuel-efficient models.
But the whole industry faces a dangerous cocktail of challenges. In addition to government pressure for cleaner models due to carbon emissions, China's consumer spending is slowing, Europe's recovery has run into the sand, the diesel scandal is prompting an overhaul of tax and regulatory regimes, there is the looming spectre of a global trade war and companies are feeling the pressure to keep up with advances in driverless technology and internet-connected vehicles. This is an industry that, in McKinsey-speak, is "ripe for disruption".
As Tesla's struggles show, however, it isn't easy for new entrants either. Elon Musk bet he could do for electric vehicles what he did for satellite launches, drastically bringing down the cost and capturing the market from lazy incumbents. In a tumultuous 2018, which saw Tesla stock lose and then regain about a fifth of its value, the company finally managed to post a large quarterly profit due to strong sales of its Model 3. But the car, which is supposed to be Tesla's breakthrough "affordable, high-volume" model, is selling for about $46,000 (£35,680). To break into the US mass market, a new car needs to cost $30,000 or less, according to Barclays analysts. Combined with tax breaks, the Model 3 might just about make the cut when its price comes down - but then it's unclear if it would still be profitable for Tesla.
There has been a race to cut the cost of batteries. According to Bloomberg New Energy Finance, the cost of electric vehicle batteries has plunged by 79pc in just seven years. The pace is being pushed by China, which has ploughed $60bn of subsidies into the industry, overtaking less subsidised industries in other countries and forcing them to step up their investment. As a result, from 2017 to 2022, the number of electric vehicle models on sale globally will rise from 155 to 289, according to BNEF, after which it predicts sales of the old internal combustion engine will start to go into long-term decline.
Meanwhile, carmakers will have to find ways of offering many more services. Consumers are already starting to expect that new cars are fully internet-connected, as anyone knows who has struggled to stream music during their journey or wrestled with an inferior inbuilt GPS navigation system when they really want to use Google Maps. The trend of sharing cars is already growing and likely to accelerate, especially as crowded cities, suburbs and rural areas all start to specialise by introducing different infrastructure and regulations (like Beijing's number-plate rationing and London's diesel charge) to address their own particular issues.
Artificial intelligence is also going to alter the way we use cars. Techno optimists predict that fully driverless cars will soon be taking over from mere humans - but even if they are wrong, vehicles will nonetheless start to generate and rely on more and more data. From insurance premiums to accident avoidance, fuel-efficient engine use and navigation, new cars will be increasingly expected to incorporate all sorts of fancy new kit drawn from the robotics, computing and semiconductor industries.
So while car sales are historically high, the industry's need to invest in such a sweeping range of new technologies has never been greater. This is bad news for workers at old-school combustion car factories, where recent announcements of job losses are just the tip of the iceberg.
The most vulnerable region is Europe. Even if they wanted to, European governments cannot afford to subsidise new technology at the scale that China does, nor is it politically easy for its major manufacturers to restructure, roll out new infrastructure or respond to the growth of disruptive new businesses like Uber. Instead, from Berlin to London, Europe is focused on regulating and punishing the existing industry.
Of course, Germany's carmakers are reaping the whirlwind for the emissions scandal, facing diesel bans in multiple cities and aggressive carbon-reduction targets. But they are also at risk because their domestic workforces are high-cost and they are far behind in developing the battery supply chain already up and running in Asia.
The industry might be sitting on a huge cash pile, but it is also highly sensitive to Chinese demand: the recent moderation in China's consumer spending fed through instantly into a sharp drop in German industrial production, prompting fears of a recession. Investors have accordingly assigned poor valuations to Germany's three big manufacturers, in contrast to the optimistic bets made on high-risk stocks like Tesla.
The coming revolution in carmaking is an enormous opportunity. Consumers and governments are pushing for new products and services at breakneck speed. But the future belongs to the fastest, most innovative and most adaptable players. It is not clear that many of them are based in Europe.
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