Disruption in the Automotive Industry By Dennis Cuneo
THE PANDEMIC IS YET ANOTHER OF A SERIES OF DISRUPTIVE EVENTS THAT HAVE IMPACTED THE AUTO INDUSTRY, BUT THE OUTLOOK IS BRIGHTER.
Nikola will build electric semi-trucks in a plant under construction in Arizona that will employ 2,000 people.
he COVID-19 pandemic shut down the entire U.S. auto industry in the second quarter of 2020 — the most dramatic decline in vehicle production since World War II. For automakers and their suppliers, preserving cash and enhancing liquidity became primary concerns, and discretionary capital expenditures were put on hold. That’s the bad news. The good news is that most of the plants have reopened, and pent-up demand — especially for trucks and SUVs — has brightened the outlook for the industry. For example, Ford recently announced a surprise profit for the second quarter (counting a one-time gain from an investment in an autonomous driving technology company), and its overall results were better than projected. In general, many of the automakers and parts suppliers reporting earnings for the second quarter have a consistent story: the worst is over, and they are cautiously optimistic that sales will increase, but it will take some time for sales to reach pre-pandemic levels. Even as the pandemic has disrupted the industry, automakers continue to move forward on vehicle electrification and the development of autonomous vehicles. They are also taking a hard look at their supply chains for their North American operations because of pandemic-related concerns about relying on overseas supply and the impact of the new trade agreement, the USMCA, that replaces NAFTA.
ELECTRIFICATION OF VEHICLES CONTINUES TO ACCELERATE The most valuable automaker in the world today, based on the value of its pub-
licly traded stock, is the electric-vehiclemaker Tesla. While the stock prices of the traditional automakers fell during the pandemic, Tesla’s soared. Electrification of vehicles has reached the tipping point. Although the transition from internal combustion engine vehicles (ICEs) to electric vehicles (EVs) will take time, the adoption of EVs will accelerate as the technology improves and becomes cheaper, and as governments around the world carry out plans to eliminate the ICE. In a recent forecast, BloombergNEF1 projected that EVs will hit 10 percent of global passenger vehicle sales in five years and rise to 58 percent in two decades. EV sales in the United States will likely rise at a slower rate — with projections ranging between 10 percent to 15 percent over the next decade. But even at the low end of the projection range, by 2030, over 1.5 million EVs will be sold here — increasing the demand for battery plants, chargers, inverters, electric motors, and all of the other parts and infrastructure required to support those sales. All of the major automakers have announced plans to spend billions to electrify their fleets and are rapidly adding new EV models. Well-funded new entrants, such as Rivian, Nikola, and Lucid Motors, are constructing new EV plants. There are EV assembly and battery plants either in production or under construction in 11 states: Alabama, Arizona, California, Georgia,
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