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What’s Driving Adaptive Change for Automakers in 2020?

From pioneers like Tesla, to EU emissions targets and the Covid-19 crisis, carmakers are currently facing a number of serious challenges. In this QAD Precision Report, Mark Gallivan looks at disruption and how the automotive industry might respond.

Betting against Tesla is starting to look like a good way to have a bad year. From a paltry $180 share price last summer it has supercharged itself like a Marvel comic hero to nearly $1,000 earlier this month. Moreover, even after the stock’s value cooled Tesla is still valued at around $145bn. However, it wasn’t so long ago that the narrative was different. In 2018 Elon Musk had an “excruciating year”. Analysts waited for the tech company to go bankrupt, get bought up or do both. 

Tesla — Pioneering Automotive Disruption

Where the Tesla story deserves closer inspection is the company’s lineage. Today, most automakers have a storied history pockmarked within engineering or racing legend. Conversely, Tesla has none and the company has delighted in taking a central role as the pioneering disruptor within the automotive industry. 

Tesla was founded as recently as 2003 by Marc Tarpenning and Martin Eberhard with Elon Musk as the techmotive’s principal investor. Eventually, corporate twists and turns saw his ascent to the role of chairman. Tesla is like no other automaker and several have followed its lead. The company’s fan base borders on the fanatical. Moreover, Tesla’s followers that aren’t necessarily car enthusiasts, but tech industry devotees with a loyalty that harks back to the Steve Jobs era extending messages via product launches. Now Tesla follows that dictum with dedicated channels on YouTube and a following that other car companies could only dream of. Ask most millennials who Herbert Diess or Akio Toyoda is and they’ll draw a complete blank.

In An Age of Disruption, Where Does Tesla Go Next? 

Tesla, the titan disruptor, is now cool and of the current time. The stock valuation has soared. Furthermore, the brinkmanship of production woes that Musk described has dissipated. Despite this, not everyone is convinced. Several financial analysts believe the stock is trading at levels divorced from any degree of common sense reality. For now, Tesla is riding high. Nonetheless, the key to the company’s future success may manifest itself as a global player in automotive software like Microsoft and proprietary battery technology to unseat petrochemical giants like Saudi Aramco. 

If Elon Musk pulls that one off, he will have succeeded more than simply adding millions of fans to his social media outlets but upending the world’s principal global energy source. In time, West Texas Intermediate may well become a thing of the past. In the interim, it’s the cars that matter. 

Ignoring the Model X and S the most important car in the company’s range is the Model 3. Think of it as the Volkswagen Golf or Toyota Corolla. No other car in the range carries the weight of the company’s success as heavily as this pricey mainstream model. Aside from the deliberately shocking CyberTruck, and the botched attempt at the live launch to demonstrate how tough the side windows were, it did everything that Elon Musk could have ever hoped: it went viral. The resulting publicity to Tesla was almost incalculable. 

Astride this gallop of disruption lies the biggest challenge for the whole automotive vertical: finding wholly adaptive software solutions to run their global business. Like every unforeseen global event, automakers now need to have software solutions that quickly adapt to change and help support untried supply chain funnels for their ERP or warehouse management systems. 

Covid-19 and Supply Chain Disruptions

Four months ago nobody had ever heard of Covid-19. Today China’s supply chain economy has shuddered to a halt. Of the almost 1.5 billion Chinese and reports suggest that half of them – 780 million — are facing stern travel restrictions. Last week, CNN reported that only 59 out of 183 Chinese car manufacturing plants had resumed production. 

China contributes heavily to the global supply chain and is a key component in OEM production for global automakers including Fiat Chrysler and GM. Consequently, both carmakers issued warnings saying they may have to temporarily close manufacturing plants due to lack of parts. 

Furthermore, this week Samsung, the world’s biggest smartphone maker, provided a clear example of how global companies are using their internal global trade management solutions to route parts for its phones via planes and bypassing land route quarantine restrictions. 

One Chinese analyst warned that the consequences of the epidemic and the disruption to the supply chain may end up being far greater than the horror of the epidemic itself. The upheaval in the supply chain will require agility and novel solutions to keep China-dependent global car factories fully stocked with parts. By some estimates, the coronavirus outbreak will have a greater impact on the Chinese economy than the China-US trade war, as well as speed up the “decoupling” of the two giant's economies. If there was ever a narrative that displayed how crucial adaptive organisations need to be to protect their businesses it’s this.

The EU and Emission Targets 

Covid-19 was a crisis out of the blue. Regulation (EU) 2019/631 on the other hand is not. Adopted since 17th April 2019 by the European Union, the CO2 emissions target of 95 g/km across the fleet of new cars and light commercial vehicles sold in the EU has been hanging like a Sword of Damocles over global carmakers. This poses a major challenge. 

Fourteen months ago the average fleet in the EU and Iceland had a far higher CO2 emissions measurement of 120.4 g/km. As the 2021 target for 95 g/km looms ever closer, every car company that sells cars and light commercial vehicles into the EU is scrambling at full tilt to meet these stringent new EU targets. The penalty for exceeding the target for each g/km is €95. Multiply that by the units sold by an entire individual car company and the resulting fine could potentially stretch into the billions. 

To circumvent this, manufacturers are using every engineering trick in the book. At breakneck speed they are launching new cars in 2020 with mild-hybrid, PHEV, BEV and regenerative hybrid systems to reduce the emissions in everyday traffic. Even today, cars with stop-start ignitions are offering a passive solution that is broadly seen as fudge to massage the emissions output when stuck in traffic. However, such a device can be manually disabled by a driver when setting. This would seem to show that this engineering solution is hardly mirroring the more transparent new EU’s WLTP economy tests. 

New Partnerships and New Technology

The race is now to up the volts as well as reduce the emissions. This is opening new partnerships and a level of adaptive sharing technology amongst car giants that hasn’t been seen before. Accordingly, it’s against this backdrop that car companies are searching for every possible way to recoup the new unwelcome investment and retooling. 

Of particular focus is global trade and how existing trade agreements with pre-existing savings can stem the leak in the company’s balance sheet as quickly as possible. Software that automates the manual process of navigating World Trade Agreements and offers alerts for potential savings is proving to be of paramount value. 

The End of the Filling Station?

Automotive product disruption is one thing, but the core ancillary support mechanisms are also due for a big reset. Bloomberg New Energy Finance estimates that 57 percent of new cars sold by 2040 will be electric. Sounds fanciful? Norway achieved that milestone in March last year. This seismic shift will be felt at the pumps or as is looking increasingly likely – the chargers. 

A study conducted by the Boston Consulting Group concluded that one quarter of all the world’s petrol stations may close by 2035. Looking at the study’s most severe outcome, up to 80 percent are likely to shut. At the moment electric car sales remain in low single figures when compared with petrol and diesel cars, but year on year incremental rises unstoppable. 

So too is the impact on retail. Most of the profits from a petrol station come not from the fuel but what’s on sale in the shop. As a result, the resulting disruptive impact to suppliers as a knock-on effect will be felt. The filling station may well be replaced by the charging station.

Disruption is the New Normal

Out of all this disruption, some niche cars in the EU fleet may disappear altogether. This is borne out by Volkswagen’s bet on the forthcoming ID range of all-electric vehicles that —  if correctly predicted — will replace the Golf as the German brand’s biggest seller. 

Unless ultra high performance models use electrification to massively boost performance, carmakers will drop them from the fleet altogether. BMW did this with the 2013 i8 plug in hybrid/petrol sports car. It may look like Buck Rogers, but underneath power comes from an electrified 1.5 litre petrol Mini engine. 

One thing is certain — the entire fleet sold by global automakers will be unrecognizable in less than 10 years. Greta Thurnberg is within her rights to condemn the global automotive industry, but it’s not necessarily a collective conscience that will change the sector beyond recognition. The very institutions she has railed against and future yet-to-be-seen crises may well do the heavy lifting for her.

About QAD Precision – Trusted Global Trade and Transportation Execution

QAD Precision, a division of QAD Inc., provides industry-leading global trade compliance, and multi carrier transportation execution solutions from a single, integrated platform. An ISO-certified company, QAD Precision assists companies to streamline their import, export and transportation operations, optimize deliveries, and increase logistics ROI. QAD Precision’s scalable and extensible solution easily integrates with existing ERP and WMS solutions. Industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carrier services and manage millions of global trade and shipping transactions every day. For more information about QAD Precision, visit www.qadprecision.com.

 

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