European auto industry faces major change

A new report says the European automotive industry is facing a period of unprecedented change, with a growing wave of technological ‘mega-trends’ which is redefining mobility and increased challenges from the Far East.

The report, entitled Race 2050 – A Vision for the European Automotive Industry and which is based on interviews with members of the European Automobile Manufacturers’ Association (ACEA), key European automotive-related associations and other industry leaders, will be unveiled in detail at the Brussels Motor Show on 22 January.

The European automotive sector, says the report, has reached the top of the global industry. It has achieved record sales and, as a major employer and a source of significant grant-making, is an integral part of European society.

Fundamental changes in the industry, however, are threatening Europe’s position. The report, which has been produced by the McKinsey Center for Future Mobility, identifies four technology-driven ‘megatrends’ which are disrupting the industry: autonomous driving, connectivity, electrification and shared mobility.

If the European automotive sector is to stay ahead in this changing competitive landscape, leaders will need to make some tough decisions. Above all, a shared vision regarding the European automotive sector’s positioning is needed.

The report says there are three main areas of change.

• Regions and players outside the traditional automotive set are gaining momentum, and a growing wave of technological ‘megatrends’ is redefining mobility. The core competencies for future success are changing rapidly. European automotive players will need to develop these competencies and manage an employment transition if they are to maintain their position at the forefront of the industry.
  
• ƒPlacing the consumer at the core, leading in the area of sustainability, and leveraging the region’s unique diversity of people and mobility realities as well as the strengths of its economies and technologies are fundamental to a vision for Europe’s automotive industry.
  
• To activate this vision and actively shape the new mobility ecosystem, a speed-up and a constructive engagement of policy makers, stakeholders, and automotive industry players are essential.

The report says that the total value of the flow of automotive goods around the world, including motor vehicles and vehicle components, increased by 13 times since 1990, but the centre of the global industry is shifting towards Asia.

This is primarily due to the increasing importance of the Chinese automotive market, which has grown from an annual production of 87,000 vehicles in 1970 to 28 million in 2018, and is the world’s market leader in the production of battery electric vehicles.

Of 96m vehicles produced around the world in 2018, 55m were produced in the Asia-Pacific region, with just 25m in Europe and 20m in the United States.

At the same time, the automotive industry has started to attract investors such as technology companies as well as venture capital and private equity from outside the industry.

These players dominate the investment volume in automotive and mobility start-ups; since 2010, more than €100 billion have been invested in mobility start-ups, of which 94% originated from players outside of the automotive industry.

Additionally, the automotive product is changing with electronics and software playing a major part and representing significant value in the vehicle, requiring skills that have not, so far, been among the core competencies of automotive engineering.

The extent to which the importance of automotive electronics has increased over the last years, for example, can be derived from the threefold increase in automotive semiconductor sales over the last two decades.

This increase will further accelerate: an average D segment - defined by the EU Commission as large passenger cars - vehicle’s software content is estimated to grow with a compound annual growth rate of 11% and will make up 30% of the vehicle value in 2030.

Electronics and electrical content will comprise 25% of the total vehicle value. These days, an average modern high-end car has 100 million lines of code, 15 times more than a Boeing 787!

The full report can be downloaded here

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