February 25, 2024

The new complexion of the automotive industry… / Nguyen Minh Tuan – Nguyen Huong Giang


The new complexion of the automotive industry is considered the ‘industry of industries,’ highlighting its crucial role with significant impacts on the global economy, employment, technology, and the environment. Employing millions worldwide, it contributes to the growth, innovation, and competitiveness of nations. The automotive industry complexion is being reshaped, promoting a shift towards cleaner vehicles, technological innovation, and adaptation to economic and societal changes.

The Product Space model of the Harvard Growth Lab describes the connections between products based on the principle that a country with a competitive advantage in a specific product is likely to have an advantage in developing other products with similar production processes and know-how. According to this model, the automotive industry holds a central position in the network, illustrating its profound impact on the economy.
The automotive industry is undergoing dynamic changes and poses numerous challenges.
Over the past decades, the automotive industry has experienced a relatively stable period, characterized by the dominance of giants such as BMW and Toyota. However, the emergence of electric vehicles has disrupted this dominance and reshaped the entire industry’s supply chain. Legal pressures and increasing demand for environmentally friendly transportation require manufacturers to swiftly reassess their strategies.
Tesla’s entry into the market, as a pioneering company in electric vehicles and clean energy solutions, has garnered attention and motivated changes in the market. Thanks to technological advancements, impressive operational performance, and futuristic design, Tesla has quickly established its position in the market. Tesla’s success has prompted a profound transformation in the automotive industry and encouraged the emergence of new brands focused entirely on electric vehicles. New manufacturers, primarily from China, are ready to conquer the strategic European market. BYD is a prime example.

Despite steady growth over the past two decades, the automotive industry has witnessed two significant declines in car production. The first was in 2008 during the global financial crisis, with a rapid recovery in 2009. The second occurred in 2020 after the Covid-19 pandemic. However, subsequent chip shortages and raw material challenges, coupled with tensions related to the war in Ukraine, have significantly delayed the second recovery compared to the pre-pandemic period.
2022 proved to be a challenging year for the global automotive market, with noticeable declines in the United States and the European Union, where the automotive market decreased by approximately 8% and 4%, partly due to component shortages, increased inflation, and higher interest rates.
Currently, the automotive industry is in its fourth consecutive year of production below pre-Covid-19 levels, showing no clear signs of recovery.
Amidst these challenges, difficulties persist. 2023 and 2024 remain challenging years for traditional automakers.
The Rapid Rise of Electric Vehicles
Electric vehicles are somewhat hindering the industry’s downward trend. Despite challenges in the supply chain and rising battery prices in 2022, the electric vehicle market is growing exponentially.
In 2017, the total number of cars sold was the highest, with electric cars accounting for 1.2 million units (1.4% of total sales). However, by 2022, the number of electric cars had risen to 10.8 million units (14.4% of total sales).
In contrast to the sluggishness of the automotive sector, the electric vehicle market is still predicted to have prospects in 2023 and the future. The International Energy Agency (IEA) estimates that nearly 14 million electric cars will be sold globally in 2023, with 2.3 million units already sold in the first quarter of 2023.
China is currently the world’s largest electric vehicle market.
The three dominant markets for electric vehicle sales are China, Europe, and North America. In 2022, China accounted for approximately 60% of electric vehicle sales.
From 2013, when only a few electric cars were produced, to the present, thanks to comprehensive strategies, China has become a leading producer of batteries and electric vehicles. The country also holds many essential rare resources for battery and electric motor production.
In 2022, despite significant challenges such as the real estate crisis and lockdowns due to the Covid-19 pandemic, electric car sales in China still maintained and significantly increased by 82% compared to the same period the previous year. This impressive growth helped China surpass Europe and the United States to become the world leader in electric vehicle sales. According to the IEA, over half of the electric cars currently in circulation are in China, and the country has exceeded its 2025 target for sales of new energy vehicles.
The rise of emerging manufacturers and a wave of new electric car brands
The electrification of the automotive industry has opened the door to the emergence of many new car brands, revitalizing the market. Technological barriers and strict emission regulations related to internal combustion engines are no longer obstacles for electric car manufacturers. New players are seeking to seize opportunities in this high-potential market, but their results vary. Some are developing rapidly and expanding internationally, while others face significant financial challenges.
For electric car manufacturers – the new players, the ability to access capital and appropriate financial strategies will be a prerequisite to navigate through the intense spending phase for research and development (R&D) and expansion before reaching breakeven.
Among the new electric car manufacturers are names like Lordstown, Canoo, Fisker, Nikola, Aiways, and recently VinFast, which have chosen to go public through Special Purpose Acquisition Companies (SPACs) – a method that has become popular and replaced traditional Initial Public Offerings (IPOs). However, despite significant success in fundraising rounds, some companies have yet to bring their electric car products to the market.
The emergence of new brands reflects the increasing interest in electric vehicles. However, new players will have to assert themselves in an increasingly competitive and dynamic market. The ability to access capital and suitable financial strategies will be a prerequisite to navigate through the intense spending phase for research and development (R&D) and expansion before reaching breakeven.
Diversifying electric vehicle brands and products will also provide consumers with more choices at affordable prices.
Are electric cars truly a long-term trend?
A PESTEL analysis reveals six business environmental factors, including policy, economy, society, technology, environment, and legal, driving the electrification shift:
Policy: Alongside stricter emission regulations, several countries, including France, Germany, China, India, and the United States, have developed plans to support the electric vehicle industry. These plans include financial incentives, infrastructure development for charging, and research into future technologies. Government incentives have encouraged innovation in the automotive industry by encouraging manufacturers to invest more in sustainable solutions such as electric cars, fuel cells, energy management systems, and lightweight and durable materials. These policies have also fostered closer collaboration between car manufacturers, technology suppliers, and universities, creating a more dynamic innovation ecosystem and increasing consumer demand for low-carbon emission vehicles through financial incentives when purchasing electric cars.
Economy: Urbanization has created high demand for transportation in developing urban areas, where personal mobility is essential. With the increase and fluctuation in oil prices, consumers in urban areas tend to use electric vehicles and environmentally friendly modes of transportation.
Society: Growing societal concerns about environmental issues are driving the transition to more sustainable transportation methods. New forms, such as ride-sharing services, car-sharing, and on-demand transportation booking platforms, have expanded commuting options for individuals. Many car manufacturers have partnered with mobile technology companies to develop vehicle-sharing services, exploring new revenue sources and adapting to new mobility trends.
Technology: Technological advances, especially in electric vehicle batteries – stronger, lighter, and more affordable – are reshaping the automotive industry towards electrification. Increased operating range makes electric cars suitable for long journeys. Thanks to technological advances in design, manufacturing, economies of scale, and competition, the overall price of lithium-ion batteries has decreased nearly fivefold over the past decade (BloombergNEF), contributing to making electric cars more competitive. Battery technology, manufacturing, and digital technology also enable electric vehicle manufacturers to design aesthetically pleasing, innovative models with high performance and enhance the user experience.
Environment: Climate change is driving the reduction of emissions and the application of sustainable practices. Environmental regulations and the increasing importance of ESG indices impact the strategies and innovation of traditional manufacturers, promoting a shift towards reducing carbon emissions throughout the entire production, distribution, and product lifecycle.
Legal: Governments in many countries have enacted strict laws and regulations regarding the emissions of motor vehicles. The new carbon emission standards under the “Fit for 55” applied by Europe to cars and light-duty vehicles aim to reduce carbon emissions by 55% compared to 2021 by 2030 and by 100% by 2035. This means the end of selling fossil fuel-powered cars by 2035. Moreover, “Low Emission Zones (LEZ)” are expanding in major European cities. London has implemented congestion charges and ultra-low emission zones. Brussels has issued gradual bans on diesel cars. In Germany, cities such as Stuttgart, Munich, and Hamburg have introduced specific restrictions on emission standards. These initiatives aim to improve air quality by limiting the use of polluting vehicles in urban areas, posing challenges for traditional manufacturers but opening opportunities for electric car manufacturers. Now, Chinese electric car manufacturers are targeting Europe as a strategic market, and European manufacturers will find it challenging to maintain market share in their own territory.
A comprehensive business environmental analysis shows that the automotive industry landscape is being reshaped, encouraging a shift to cleaner vehicles, technological innovation, and adaptation to economic and social changes. Car manufacturers are actively seeking ways to limit the impact of raw material fluctuations, geographic risks, and regional regulations while investing heavily in research and development to stay ahead in this race. Manufacturers lagging in electrification or having unappealing electric car products will face difficulties in the near future.
The strategies and financial efficiency of traditional manufacturers (represented by BMW) and emerging ones (represented by Tesla and BYD) in the process of transitioning to the electrification of the automotive industry will be analyzed in subsequent articles.
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