In a study released June 20, global consulting firm AlixPartners said that the automotive industry faces the possibility of a "monumental capital drain" in the near term as "unprecedented sums" of money are being poured into electric and autonomous vehicle development years before those technologies are fully cost-competitive in the market.
The firm's Global Automotive Outlook – which incorporates two consumer surveys as well – projects that by 2023 the automotive industry will spend $255 billion on research and development as well as capital outlays on electric vehicles alone, with some 207 electric models set to hit the market by 2022, with many of them destined to be unprofitable due to currently-high systems costs, low volumes and intense competition.
Meanwhile, an additional $61 billion has been earmarked for autonomous-vehicle technologies, even though consumers are only willing to pay just $2,300 extra for autonomy. That's compared with current industry costs of around $22,900 for autonomous vehicle technology per unit, or about 10 times consumers' willingness to pay.
On top of that, the AlixPartners study forecasts that the global auto market for new cars will grow at an annual rate of just 2.4 percent through 2025, lagging expected worldwide gross domestic product growth of 3.3 percent. The firm noted that expected light vehicle sales in the U.S. market should dip to 16.8 million units this year, down from 17.2 million units in 2017, and decline even further to around 15.1 million units by 2020.
Yet the firm also stressed that there are "a lot of reasons for industry players to be optimistic about electric and autonomous vehicles," with full battery-electric vehicles expected to comprise about 20 percent of the U.S. market by 2030, while autonomous vehicles will account for 3 million units worth of sales in the U.S. within 12 years. On top of that, the AlixPartners consumer survey also discerned that 22.5 percent of Americans said they're "likely" to purchase a plug-in electric vehicle as their next car.
However, by the same token, the firm's study also found that return on capital employed or "ROCE" for automakers reached a three-year low in 2017 at 3.6 percent, while for suppliers it reached a five-year low of 6 percent. Simultaneously, automotive-related commodity costs are now at six-year highs; up 70 percent, or $884 per vehicle, since 2015.
"Industry players are sort of caught between a rock and a hard place: If they don't participate in some way in the 'new-mobility' revolution that's coming, they stand to lose out on what might be the biggest thing ever in this industry," noted Shiv Shivaraman, co-head of the automotive and industrial practice for the Americas at AlixPartners, in a statement. "But if they do participate, as so many are, they have the chance of benefitting from first-mover advantages, but they also face the possibility of going broke in the process."
He said the solution is to leverage existing operations "to their absolute fullest," which included "wringing out every penny of unnecessary cost" and maximizing every penny of revenue, in order to have money available to keep funding electric and autonomous vehicle development.
Photo: Ford Motor Co.
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