The automotive industry is in transition, but perhaps not the type of transition that many analysts, forecasters, and company executives expected.
It’s not just CASE (Connected, Autonomous, Shared and Electric)—it’s COSE: Chips, Online, Software, Expensive.
I am not downplaying any of those CASE trends, which are clearly important, but looking at what is roiling the industry, and will continue to do so into the future. These other events are having a big impact.The pandemic-fueled supply chain shortage of semiconductor chips has forced carmakers into the chip business in a meaningful way. In Gartner’s 2022 Predicts: Automotive and Smart Mobility (Gartner subscription necessary), our team looks out three years or so in the future and makes some educated guesses about what will happen.
One of our predictions is that by 2025, chip shortages that have hurt the automotive sector and trends such as electrification and autonomy will drive 50 percent of the top 10 automotive OEMs to design their own chips, giving them control over their product roadmap and supply chains.
We are well on the way to fulfilling this prediction. In December, BMW signed a long-term agreement directly with microchip developer INOVA Semiconductors, while GlobalFoundries is committing to design. Tesla has been down this road already. Others will follow.
Gartner is forecasting the value of semiconductor content in cars will nearly double over the next eight years to about $120 billion, with the fastest growth in electric vehicle components, and safety and autonomy features.
The pandemic also pushed much, or all, of the sales process online. Customers already had been doing most of the shopping online, but now it is common for an entire transaction to be completed via the Internet. Gartner expects this transition to a system that is closer to how we sell other items to continue.
We are predicting that 20 percent of new car sales globally will move online by 2025. Used car sales—which aren’t subject to franchise law entanglements—are already rapidly moving in this direction. Volvo, BMW, and Mercedes-Benz have been explicit in their aim to quickly move to 25 percent or more of online sales by 2025, and outside of the U.S., where dealer franchise laws don’t prohibit direct sales, the transition already has begun.
Executives at most of the major carmakers also have been preaching the effect and business potential of software on vehicles. While cars already are stuffed full of code, this software currently is a collection of largely repeating, single-purpose software embedded on little chips distributed throughout vehicles.
It’s as if your home computer’s peripherals all had their own little brain, acting independently from one another. The consolidation to fewer, more powerful, and updatable computers, as well as the near universal connectivity (Gartner forecasts more than 700 million connected vehicles globally by 2025), has opened the door to making a car more like a smartphone.
As a result, Gartner is predicting that by 2025, automakers will reduce software-related recall costs by 75 percent. Tesla already regularly makes fixes via firmware updates, and the concept of “recall” may have to be changed because software fixes are fast and require little effort from the consumer.
Of all the promises made by car companies about the benefits of connectivity and software-defined vehicles, making remote fixes without interrupting the life of the owner appears to be the most straightforward for both sides.
Finally, the pandemic led to a shortfall on production of new vehicles, pulling sales lower than expected in 2021. Despite this limitation, profits for carmakers are more than OK, even as revenues have been flat or down for many car companies. Instead, they sold vehicles at much higher prices with much lower incentives.
New car prices are rising so fast that the entire prospect of owning a new vehicle, rather than sustaining or upgrading older vehicles has changed. In October, Gartner predicted that by 2025 the average sale price of new vehicles will exceed $50,000 in the U.S. and Germany.
Prices in December in the U.S. hit $47,000 on average, according to Kelley Blue Book. This is so high that this bold prediction made a few months earlier when prices had only crested $40,000, now seems obvious. Used vehicle prices have risen in tandem and, as a demonstration of the effect on the ecosystem, aftermarket parts retailers have seen their business boom.
Autozone posted a 25 percent increase in net income and 16 percent increase in sales in its first fiscal quarter. Results are similar from competitors.
What is happening? When assets become more valuable, repairing them rather than replacing them becomes more logical. At the same time, cars are staying on the road longer. S&P Global Mobility (formerly the automotive team of IHS Markit) said the average age of U.S. vehicles rose to 12.1 years in 2021 and it has steadily been increasing over time.
Gartner expects owners will seek ways to keep cars on the road and even upgrade them as the prospect of buying new becomes less appealing—or not even possible. Indeed, the market for replacement parts—as well as the less developed market for upgrades—is likely to develop in 2022 and beyond.
Gartner launched its inaugural electric vehicle forecast late last year, predicting that sales of plug-in vehicles will rise 34 percent this year to nearly 6.4 million.
The forecast, which blends plug-in hybrids and full battery electric vehicles, makes a breakdown of cars, vans, buses and trucks. About 95 percent of vehicles sold in 2022 will be full battery electric. This product breakdown came primarily from how clients asked us to look at the market forecast.
The ongoing shortage of semiconductor chips is expected to affect the production of EVs in 2022, and while shipments of vans and trucks are currently small, their shipments will grow rapidly as commercial owners see the financial and environmental benefit of electrifying their fleets.
Perhaps not surprisingly, Greater China and Western Europe will lead in EV Shipments in 2022.
With China imposing a mandate on automakers requiring that EVs make up 40 percent of all sales by 2030 and automakers establishing new factories for manufacturing electric cars, Gartner estimates that Greater China will account for 46 percent of global EV shipments in 2022.
Western Europe, ranked second, is on pace to ship 1.9 million units in 2022. The EU’s plans to cut CO2 emissions from cars by 55 percent and vans by 50 percent by 2030 is a catalyst to the uptake of EVs in Europe. North America is expected to be the third highest region in shipments at 855,300 EVs.
While sales will surge for EVs, many challenges remain for mass adoption. Charging infrastructure is inadequate, particularly for high-voltage fast charging and dense urban housing.
The range of vehicle types is limited and doesn’t reflect the types of vehicles consumers want—particularly in the U.S. Moreover, the price of EVs remains well above similar gasoline vehicles.
--Mike Ramsey
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