What’s Next for Automotive Industry Post-COVID?

Share on facebook
Share on linkedin
Share on twitter
Share on email
Share on print

The automotive industry is undergoing major transformations that will continue to unfold over the next 10 years:

    1. Attitudes about vehicle ownership are changing, especially among younger commuters in urban centers. Ride sharing and car sharing business models are emerging as an alternative to vehicle ownership and public transportation.  The emergence of these new business models and use cases are increasingly influencing vehicle design decisions.

    2. On the technological side, automation, connected car, and electrification trends are hitting the industry at once, requiring a near-complete redesign of core vehicle systems, massive upheavals in the automotive supply chain, and expansion of software development core competencies within traditional OEMs and SIs. Even before Covid-19 this was a lot for OEMs to manage, and planning the right investments and at the right time continues to be a massive challenge. 

These transformations are being driven by megatrends that will not be derailed by Covid-19, although it could potentially slow or stunt some of these market changes. While some are predicting an exodus from the city, large-scale de-urbanization is unlikely and traffic problems will not just resolve themselves, suggesting ride sharing and automation trends will continue.  However, Covid-19 does have the potential to reshape aspects of the automotive market by accelerating trends, influencing design requirements, and driving development of new business models.

    1. Software development dynamics

OEMs cannot allow their massive software development efforts to be derailed, but they may need to change their approach to deal with cash flow issues. OEMs with robust in-house systems integration and software capabilities (BMW, Audi, GM, Daimler, etc.) may find themselves burdened by the unexpected market downturn, and may pivot back to Tier 1s or other third parties to meet integration needs.  Or we may see more partnerships inked as companies look to pool software development resources.

    1. Industry consolidation

Executing on the type of long term technology pivot that’s needed to be competitive in the future requires significant cash, and OEMs that went into the crisis with a strong balance sheet are likely to emerge with an even greater edge over those who were struggling.  Auto sales have been stronger than anticipated, but manufacturers can’t continue to survive in this environment indefinitely.  The impact will ultimately be determined by depth and breadth of the global economic downturn, but it would be surprising if every major OEM survives in its current form. 

    1. New business models in the software value chain

OEMs have increasingly made their preferences for SaaS (or other pay-as-you-go business models) known to their value chain. Unsurprisingly, OEMs want to pay vendors only for technology they sell, and only when they sell it.  These models limit risk and improve cash flow for OEMs, two highly desirable outcomes in this period of unprecedented risk.  Vendors that are set up to do business in this way will have an opportunity to further differentiate and capture share, while those that do not will likely be hit harder.

    1. New customers

Assuming the pandemic has a lasting impact on perceptions of ride-sharing and public transportation (a big assumption), then new customers may be looking for vehicles in the next 1-2 years. People who have relied on public transportation and ride sharing may suddenly be in the market for affordable vehicles that are well-suited to urban environment – resulting in a marginal bump for the economy segment. At the same time, if we do see an exodus from major metro areas that could buoy a broader range of vehicle segments.

    1. Demand for new features

Many OEMs have partnered or invested in ride and car sharing businesses, and some have clearly intent to design purpose-built vehicles for these applications. Covid-19 could well impact design decisions related to these vehicles, from interior lay outs to AC systems to IVI features. 

    1. Demand for electric vehicles

For a few weeks, residents of cities all over the world got to experience clean air. Interest in full and hybrid electric vehicles is likely to be reinforces, but lack of affordability and charging infrastructure will limit any real shifts in the U.S. market.


Rachel Eschle

Rachel Eschle

Partner, Boston

Recent Posts

2021 Retail and Consumer Planning

BCE has been tracking consumer attitudes and behaviors in response to the pandemic since May. In this latest round of the tracking survey, respondents were asked to reflect on their spending in 2020 – including any changes caused as a result of the pandemic – and project that forward into 2021.

Challenge Your Assumptions – Nonprofit Impact Assessment

Most organizations have blind spots. Nonprofit organizations grow up around a social problem or issue area they are uniquely motivated to and capable of addressing. This article outlines how organizations can fight against tunnel vision to drive growth and innovation.

Private Equity Responses to the Post-COVID New Normal

The private equity market entered 2020 riding 10+ years of momentum. However, the COVID-19 pandemic and associated market uncertainty have put the brakes on new deals and forced investors to alter their strategies. While some reactionary GP strategies were focused on near-term survival, we predict others are here to stay as investors adopt to the “new normal”.

Follow Us