The automotive market is changing. Can China show us the future?

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Wolf-Dieter Hoppe, Partner, Arthur D. Little & Klaus Schmitz, Partner, Arthur D. Little


  • The automotive sector is at a crossroads owing to changing customer behaviour and demand;
  • A new study suggests the move away from petrol and diesel-fuelled vehicles is growing stronger, but that there are significant difference between regional markets;
  • Consumer attitudes in China, where autonomous vehicles and new mobility options are more positively received, will have a big impact on the global industry.

For many of us, the car is one of the most important pieces of technology in our lives. Not only do we rely on it for travel, work and leisure, increasingly the type of car we use says a lot about our wider attitude towards the world in which we live.

Similarly, while the automotive sector remains a major part of the global manufacturing industry, many players find themselves at a crossroads in terms of the products they should be both developing and producing. There are also significant global differences – for instance, while most countries are still weighing up the pros and cons of electric and autonomous vehicles, China is forging ahead and, perhaps, offering a glimpse of the future.

One thing’s for certain: consumer demand is changing and brands need to react to this evolving market if they are to continue to thrive.

Beyond ‘business as usual’

The 2018 Global Automotive Mobility Study by Arthur D. Little’s (ADL) depicted a ‘business as usual’ industry only just taking its first steps towards electric; the latest study, based on a survey of over 8,500 end customers in 13 countries, suggests a markedly different automotive landscape three years later.

There has been a dramatic change in both demand for cars and how ownership of them is perceived, for example. While the COVID-19 pandemic has highlighted the protection and independence that a private car offers, a significant number of people are contemplating giving them up for environmental reasons and embracing alternative transport solutions. The auto industry’s 2% compound annual growth rate is much less than ADL’s last survey predicted.

How consumers value cars has been affected by the pandemic
How consumers value cars has been affected by the pandemic Image: Arthur D. Little

The study also shows that the move away from petrol and diesel-fuelled vehicles is real and growing stronger: asked about their next vehicle, 29% of survey respondents favoured a hybrid product, while 12% were considering the move to pure electric.

For established brands that don’t provide an electric vehicle offering, the research suggests many of their customers are ready to migrate to other manufacturers that do. However, market growth is hampered by both a limited model range and an immature charging infrastructure with vehicle range still dictated by the availability of public charging points.

One of the study’s most intriguing findings is the emergence of China as a “special market” with markedly different attitudes to consumers in the rest of the world. For instance, while excitement over self-driving autonomous vehicles has dimmed in both Europe and the US due to safety fears, 71% of Chinese drivers remain positive about using such vehicles. They are also more adventurous in trying new powertrains (the mechanism combining of engine and gearbox and axles), mobility services and even purchase options – 71% of drivers in China would be willing to buy a car wholly online versus 35% in Europe and 42% in the US. Given the size of China’s domestic market, these attitudes could have significant implications for the global automotive industry.

China has markedly different attitudes to AVs to consumers in the rest of the world
China has markedly different attitudes to AVs to consumers in the rest of the world Image: Arthur D. Little

Creating a new automotive value chain

Overall, there are four core areas that the automotive industry needs to address:

1. It needs to become better at anticipating changes in demand and ownership profile and adjusting vehicle and service offerings accordingly. As China has demonstrated, this will entail optimizing product portfolios on a region-by-region basis, given the differences between them, and developing ways to retain existing customers who are downgrading or exiting.

2. It needs to better exploit electric’s potential. At the moment, the limited range of models available means that original equipment manufacturers (OEMs) aren’t capitalizing on the pent-up demand for hybrid models. If they could aggressively fill this “choice gap”, they would be able to reap the rewards through brand messages about their green credentials to customers who are looking for more eco-friendly vehicles.

Alternative drivetrains increasingly preferred by ICE owners
Alternative drivetrains increasingly preferred by ICE owners Image: Arthur D. Little

3. It needs to help grow the mobility services segment. Despite widespread concerns about autonomous vehicles, 77% of respondents globally said they would nevertheless use them if they were available. The development of an autonomous system might not happen overnight, but companies should consider becoming involved in that future value chain now, putting their strategic position ahead of short-term profit. At the same time, OEMs should ensure that any autonomous features on their vehicles offer clear and demonstrable value to the driver.

4. It needs to create high-performance networks for electric charging by building partnerships with traditional, physical dealerships. In the future, market share and profitability will increasingly involve a trade-off between smart current investment and a commercial calculation about how markets and the value chain might look in 10 years’ time. For those who play their cards right, there will be a significant opportunity to capture a larger piece of the future profit pool. https://www.youtube.com/embed/YkX08WsZN6k?enablejsapi=1&wmode=transparent

Embrace the opportunity

While the global automotive industry isn’t exactly in turmoil, the findings of our study definitely indicate significant turbulence, plus uncertainty about the direction of the market. Established trends are meeting emerging challenges, which has inevitably led to a state of flux. At the same time, local differences in driver attitudes and the speed of adoption of cutting-edge technologies and services, as demonstrated by the Chinese market, means that the roll-out of new products may vary by region.

Ultimately, the automotive industry needs to develop a better understanding of the modern driver’s priorities if it is to fully exploit electric’s potential and counter concerns over autonomous vehicles. Brands also need to evaluate where they are currently spending their money and making profit, while investing in the value chain of the future. For those manufacturers who have prepared for what’s to come, there will be significant opportunities; for those who fail to heed the imperatives of a changing market, obsolescence may beckon.

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