Managing Director, London
AlixPartners Global Automotive Outlook 2017 – Place your bets…
Short term powertrain investments, non-auto partnerships, and sharing investment burden critical to survival
London (12 July, 2017) – The worldwide Automotive sector is forecast to grow to 114 million vehicles by 2024, according to the latest AlixPartners Global Automotive Outlook. In particular, Brazil and Russia are showing signs of recovery and growth has continued in China, whereas the US is expected to continue to decline in the short term. Although slightly below GDP expectations, this overall growth is on the back of another year of healthy volumes of 92 million vehicles during 2016, reveals the global business advisory firm. However, AlixPartners warns that the impact of electrification is starting to bite forcing OEMs to act quickly to ensure they are best positioned to benefit.
Last year was an almost record year for OEMs globally, in terms of volumes, revenues and profit. In fact it was the most profitable for more than a decade. OEMs have continued to work hard to reduce costs especially with labour efficiency. Over the last five years they have reduced the number of employees it takes to build 1,000 vehicles per year to 45, a 6% improvement.
These efficiency savings have allowed OEMs to fund over €180 billion in Capex and R&D last year alone, equating to €2,000 - €2,500 per volume vehicle and €4,500 to €5,000 per premium vehicle. A large portion of this is on ‘CASE’ (Connectivity, Autonomous, Shared and Electrification) investments.
Andrew Bergbaum, Managing Director for Automotive at AlixPartners said: “The end of the internal combustion engine is now a reality, with Volvo’s announcement that all new models would be electric or hybrid within two years and the French government’s decision to ban ICEs from 2040. Both these developments come on the back of a very strong year for OEMs. However, whilst a number have been able to make considerable efficiency savings which have helped fund short-term Capex and R&D, this is not a sustainable position over the longer-term without fundamental changes to production and the amount of investment required is going to continue to increase. Efficiency savings are only putting off the inevitable consolidation that will need to happen.”
For CASE investments in particular, OEMs are casting their investment nets wide, creating 156 new partnerships out of 266 total partnerships in 2016. Some 75% of all CASE related partnerships are with non-Auto players, and AlixPartners expects this trend to continue to grow in the coming years.
M&A transactions in the Auto industry continue to be dominated by Asian investors, but with an increasing focus on Asian targets, at 31% of total €41bn up from 8% in 2014, indicating that targets in the US are becoming less attractive to investors, while European targets remain attractive.
Bergbaum continues: “We expect the automotive industry to remain attractive to investors especially as ongoing investment in CASE continues to drive forward M&A and partnership activity.”
The Electrification agenda continues to drive disruption as traditional powertrains lose share – By 2030 the steady progression of hybrid and battery powered electric vehicles will represent more than 65% of all new vehicles sold. While the 2025 to 2030 forecast has not changed much, the short term opportunities and challenges for the industry are becoming much clearer.
Whilst battery electrification requires the least amount of manufacturing labour, hybrids on average require around 9 human-hours per vehicle to assemble the powertrain, 50% more than traditional engines. AlixPartners predicts a large increase in powertrain assembly man hours with the creation of 25,000 new jobs by 2030 to meet the medium term shift to hybridization, a growth of 22%.
From 2030, as battery electrification becomes mainstream AlixPartners predicts these newly created jobs will begin to disappear. Without European localization of EV components, these job losses will be drastic – potentially well below the 110,000 people currently employed in OEM powertrain assembly.
The sale of electric vehicles is finally picking up – Q4 2016 saw 252,000 EV and PHEVs sold globally, an increase of 168% from Q1 2015. Overall, EV and PHEV sales now make up more than 1% of the total number of vehicles sold, up from 0.4% two years ago. The EV market has seen a 7% increase in the average range driving under pure electric power from 169km to 181km over the same period. China in particular is leading the way, with more than 50% of globally electric kilometers due to high number of electric vehicles offered by local OEMs on the Chinese market.
Bergbaum concludes: “Last year we predicted the ‘death of diesel’, but the medium term prospects for the sector are far from bleak. Sharing the burden of investments in CASE remains a critical action, as does a flexible manufacturing strategy which allows the investment in powertrain to bridge the hybridization era, but that can be quickly dismantled once BEVs take over.”
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The AlixPartners Global Automotive Outlook 2017 is based on expert interviews and financial analysis of more than 300 global suppliers and automakers.
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