Uncertainty, competition, collaboration

It feels like my four days at IAA Mobility 2023 passed in a flash, and yet I still had time to meet at least a dozen members from the world’s press, spend time at Capgemini’s booth (our first ever at this prestigious event), participate in a panel discussion with friends from BMW and Aurobay, and even pay a visit to Munich’s beautiful downtown, where the world’s leading brands were showcasing their latest models and innovations, and inviting the general public to be part of the event. It perfectly reflected my opinion that mobility should be open and accessible to all. 

In and among the excitement and action of my four days in Munich, three themes emerged that I believe will shape the automotive industry in the months and years to come. They are: how to deal with continued uncertainty in the supply chain, the challenge presented by new market entrants, and the importance of collaboration in shaping a future of mobility that is intelligent, sustainable, and connected.

Dealing with uncertainty as the ‘new normal’

The automotive industry has experienced more than its fair share of disruption in recent years. Every major industry had to deal with the effects of the pandemic, the blockage of the Suez Canal, and the fallout from geo-political tensions around the world. But the automotive industry was perhaps more exposed than others due to the complex nature of its supply chain and its growing reliance on semiconductors and chips – components that are key to enabling the digital, electrified, and increasingly assisted or autonomous experiences that customers today expect.

This left many automotive companies and their suppliers exposed. The globalized network that had previously enabled frictionless trade and operations around the world showed itself to be fragmented and fragile.

This vulnerability has implications for everybody – if automotive companies can’t get the parts and materials they need, then their workers can’t build cars to spec, and customers can’t get the cars they want (or they have to pay more for them). This has an impact on the bottom line for companies, it poses a threat to jobs, and it can lead to dissatisfied customers, who may choose to spend their money elsewhere.

Although the pandemic seems to be behind us, geo-political tension shows no signs of abating and – after a summer in which wildfires and floods ravaged large parts of the world, including Europe – the list of risks to automotive supply chain stability now includes climate-related incidents and shows no signs of shrinking. What’s equally concerning is that these major events are happening almost everywhere, and when they do, they can have a negative impact on many locations and on many aspects of production.

Based on my discussions with colleagues and industry experts in Munich, it’s clear that volatility cannot be dismissed as a temporary shadow on the industry – instead, we must learn to deal with volatility as part of a new normal for the industry and as a continued threat to supply chain stability.

This is reflected by the findings of our recent research paper on the automotive supply chain. Our research reveals that, although automotive companies have – to some extent – stabilized their supply chains and are now better prepared to deal with a ‘black swan’ event like the COVID-19 pandemic, this stability has mainly been achieved by increasing inventories and re-locating some operations and/or preferred points of supply to closer locations.

Although effective in the short term, these measures imply higher costs and/or investment of working capital, which means that they could compromise long-term competitiveness.

A concerning outcome of this could also be that other strategic objectives – such as sustainability – could be downgraded in favour of short-term priorities. Indeed, our report demonstrates that investment in sustainability has stalled among OEMs and suppliers, which makes for worrying reading, especially after the slower-than-expected progress we discovered in our 2022 CRI Report: From Ambition to Action¹.

The question is thus, How can automotive companies achieve long-term resilience while maintaining or enhancing their competitiveness and without compromising on sustainability?

Competition intensifies as new players arrive

The question of how to maintain or enhance competitiveness will take on increased importance after the IAA Mobility event, where it was impossible not to notice the presence of new market entrants, mainly from China. BYD, XPENG, and MG led the way, but there were many more, including some that I had not heard of before.

Having been at the Paris Motor Show last year and seeing the Chinese players take their first big step in the European market, the IAA Mobility event confirmed that their intentions to compete in Europe (and beyond) are serious. 

Generally, the quality of the products is good (which we perhaps would not have said 10 years ago) and there are some areas where these Chinese brands lead the way. For sure, they benefit from being ‘digital and electric first’, which means they are able to focus all of their efforts on one form of powertrain, without worrying about the ‘other’ part of their business.

The speed with which they have entered the market with credible products and continue to innovate in areas like the digital cockpit experience is truly impressive. Not every feature or function will be to the taste of European customers, but they provide food for thought and serve as a strong statement of intent to the established global automotive players.

The presence of Chinese automotive brands has stirred emotions here in Europe. Many customers will be pleased about the increased choice. Many carmakers will not be pleased about the arrival of strong competition, especially after the turbulence they have experienced in recent years. My personal view is that the arrival of these new players should serve as strong motivation for existing automotive brands and their partners to accelerate their own transformations and intensify their own innovation efforts.

Electrification, autonomous driving, and digitalization have shaken up the competitive landscape. The needs of customers – and society – today, are different. Demand for luxury and performance still exists, but there’s an increasing focus on practicality, economy, sustainability and circularity.

Traditional automotive manufacturers still have strong hands to play in this high-stakes game – established brand reputations, knowledge of the local market, strong dealer and service networks, mature supply chain ecosystems, and the trust of many customers. These are powerful assets that can help ‘traditional’ car makers offer strong and confidence-inspiring customer experiences in a way that new players cannot yet do.

And then, of course, there is the passion for automotive and mobility that established brands continue to display today. As a Frenchman who has had the pleasure of working with many leading French and European automotive brands, I can testify that the deep-rooted passion for automotive and mobility still burns strongly across Europe today. How established brands leverage this passion and their strong assets as part of their transformation will be key to their future success or failure.

Collaboration is key

As I reflect on the topics above, it is clear to me that collaboration is key to success in today’s fast-evolving automotive and mobility landscape. A key message that arose during my panel discussion with Oliver Ganser of BMW Group and Shan Liu of Aurobay is that “we cannot do this alone”.

This came in the context of the automotive supply chain and debates about how automotive companies can work more closely with their suppliers and the broader automotive ecosystem to create long-term resilience, but it rings true for almost every major trend taking place in the automotive industry today. Here are just a few examples.

1. Software-driven transformation and autonomous driving will be achieved more quickly if you collaborate with the right tech companies and partners. Semiconductor and chip companies, as well as software giants and hyper-scalers, are all active in automotive – partnerships can help automotive companies achieve their goals faster, save money, and create a competitive advantage 
2. Most automotive companies – established and new – have partnered with Chinese battery manufacturers. Not doing so would severely slow the transition towards electric mobility. New partnerships can play a key role in growing the battery industry in Europe and other regions.
3. Catena-X represents an ecosystem approach to enabling automotive OEMs and their suppliers to share data in a way that improves transparency, builds trust and will enable companies to reach their sustainability goals faster.
4. Partnering with start-ups or lifestyle companies (e.g. gaming or health tech) can help you add new products and services to your in-car and out-of-car experiences, and make vehicles an integrated and central part of the customer’s digital ecosystem.
5. Working with an enterprise IT solutions provider (e.g. SAP or Microsoft) and a company like Capgemini can help you use data to drive your climate action planning and sustainability initiatives.

There is more happening in the automotive industry than at any time in the past century. The pace of change is relentless and the topics are complex and significant. In the past, any one of electrification, software transformation, sustainability or digital customer experiences would be a big enough challenge on its own. Today, they are all happening together. Collaboration is key to addressing these topics at the pace that’s required today.

Those companies that master the partnership play and the art of collaboration will be well-placed to thrive in the future.

Those who don’t? We may not see them at too many industry events in the future.

Learn more about the impact of continued volatility on the automotive supply chain and what automotive companies – OEMs and their suppliers – can do to achieve long-term resilience, without compromising on competitiveness or sustainability.